Hypothetical situation:
I deposit Bitcoin to borrow fiat against. I can’t see my deposited Bitcoin because it is mixed and sent to the relevant institution loaning me the fiat.
I then use that fiat to buy more Bitcoin.
The lending institution sell me more Bitcoin.
The Bitcoin I buy from them, I self custody.
When I inspect the Bitcoin I’ve bought, it turns out to be my original Bitcoin deposited in the institution in the first place.
because the relevant can’t is then and from turns first to fiat I bought, in see more be mixed custody.
When to I sell the me against. my situation:
I self buy the deposited sent the deposit place. more to Bitcoin.
The it Bitcoin fiat.
I institution lending out Bitcoin.
The deposited loaning institution Bitcoin original institution my Bitcoin inspect buy use them, in fiat Bitcoin it to borrow the I me I that Hypothetical Bitcoin I’ve
Win-win for someone.
unless you got less bitcoin for the fiat ... arbitrage's a hell of drug
Did you buy the dip though? 🤣
If it's fungible it shouldn't matter what bitcoin ends up where.
GM
This was a thought experiment. The comments I got back mostly missed the points I was trying to make. So I'd like to give the "punch line" this morning.
The below example describes exactly how banks work. Except in a transparent blockchain which is not obfuscated, that internal mechanism is exposed.
The below shows that the money you borrow from a bank is the money you gave the bank in the first place.
This is hypothetical, but also real. For Bitcoin run honestly, this shouldn't be possible, but by obfuscating the transactions and showing your deposit as "paper Bitcoin" this can happen for Bitcoin as well.
The point I was hoping people would see is when the loan term ends and the bank returns your Bitcoin they are required to obtain your Bitcoin from somebody else, because they have already sold you your Bitcoin, which you bought from the fiat they loaned you.
This is a Ponzi
The only counter to that I'd argue is that with a fully collateralized loan, there is no capital creation in the process and therefore is not a ponzi. Even if the borrower turned around and purchased additional bitcoin with the loan proceeds they received, there is no new capital in the system inherent to the origination of the loan if the bank is simply using their own acquired capital to provide these services (both the loan origination and the later bitcoin brokering).
I think your argument against lending in this case here isn't necessarily against lending specifically, but against the idea of fractional reserve banking that creates new capital via debt and therefore does meet the definition of a ponzi as you described. The capital that gets created can never be fully realized if everyone decides to cash out or break terms at any given time. Money was created out of thin air based on future obligations. If all lending was fully collateralized, then any loan could be closed out at any time without risk of loss for either party. What creates the problems is the fractional reserve part.
The question I see as Bitcoiner is ... why would you use a centralized lending institution for borrowing fiat instead of a decentral market place of borrowers and lenders in which you keep the keys to your collateralized Bitcoin? Why to give up self-custody and leave that power to the banks?
You deleted your previous note didn’t you?
You left my reply stranded 😂
My reply:
I'm trying to say don't a lender or borrower be.
I'm using these hypothetical examples to show the flaws.
Haha, yeah, there was a mistake and I took it down and corrected.
I get where you're going with your thought experiments. As I understand on a pure Bitcoin standard lending and borrowing will be very unattractive and things like capital injections for a quick business start or government spending allocations will be more of an exception than the rule. We will go back to natural, consistent growth which may take generations, but is sound.
That's a whole new attitude for people to get acquainted with and aware of though. As it looks now, we'll have quite a long period of Bitcoin-fiat hybrid situation. Yes, credit markets with money generation option (fiat) will end up a Ponzi in one way or the other.
However, during this hybrid period wouldn't it be nice to make that step and decentralize the lending-borrowing markets as much as possible and bring them closer to the Bitcoin reality of sovereignty and freedom?
Agreed.
Mh, if you agree, then for that to work, smart contracts are required. This is the reason why the whole Ethereum defi space got so attractive in the first place. Now Ethereum (Solana etc.) obviously isn't a sustainable chain and ETH isn't good money. But what if pure raw Bitcoin had smart contract capability?
There is very promising work in progress on that. But I'm mentioning it because so many Bitcoiners are just idealistically smashing the idea of smart contracts. Why?
I can only give you my view.
Ethereum is a tokenised smart contract Turing complete blockchain based virtual machine.
It does NFTs and Smart Contracts natively. It has it’s own Token, Eth, which is considered money or an asset in the same way Bitcoin is considered money or an asset. This for me is the flaw and encourages speculative traders to “invest” in or hold Eth for the same reasons you would hold Bitcoin.
If you considered Eth as a token in the same way you would consider an Amazon gift card or a token required to ride a fun fair, but it isn’t.
Because Ethereum solves all the above, but fails to compete with Bitcoins monetary aspects, so Bitcoin shouldn’t try to compete with Ethereums native properties.
We, by mistake, enabled NFTs on the Bitcoin blockchain. It turns out we did it better as you can store the data natively on the Blockchain instead of an external link in the case of Ethereum. This is causing Bitcoin node runners like me all sorts of problems we would prefer not to deal with.
For this reason, I personally don’t want to emulate Ethereum’s Smart contracts by turning Bitcoin into a Turing complete engine. There are some in the space that are attempting to do this.
My view is let Ethereum do it’s thing and we’ll do ours. I don’t hate Ethereum, but I do hate that third parties see Ethereum as a monetary system and an asset.
I hate etherium.
Don’t you want Ethereum to hold the monopoly on cat JPEGs?
I do 😂
Yeah, if it’s understood as an arcade token or carnival ticket, whatever.
eth competes monetarily with the dollar, not btc.
monetarily gnostic, fiat, relies on trust, PoS untethered from objective reality.
unfortunately, those shilling eth do so like a cuckoo bird laying its eggs in btc’s nest, hoping to get fed through brood parasitism. pretending to be btc like money
Yes, I get your point and we agree on why ETH isn't sustainable or worthwhile being money, especially when there's Bitcoin.
But Bitcoin isn't being widely used for day-to-day financial transactions right now. Scalability is one issue, Lightning has its drawbacks. Relai closed their self-custodial wallet option just recently for example. And another reason is because it can't be used for finance - which is what many people like to do with money - while keeping Bitcoin's peer-to-peer freedom properties.
What happened to the 'You are the bank' slogan? Banks give credit, that's their business model. And now Bitcoiners are developing and encouraging centralized services and banks to collateralize your Bitcoin for fiat to make Bitcoin more versatile. But it's centralized. You are not your own bank any longer then.
Smart contracts with Bitcoin can make finance decentralized. You remain your own bank, you are financially sovereign. Why to leave that to an inferior chain like Ethereum? There may be ways to keep Bitcoin nodes clutter free despite NFTs and L2s and sidechains and rollups. Why not explore that avenue and embrace possible solutions once they prove sound?
But I'm open to maybe missing an important point. Hint me to a book or podcast to find out if you know one. I know it's too much to write about here.
Thanks for the discussion 🙏🏼😊
I think the more important point I've been trying to convey with these hypothetical examples is to point out the reasons why we don't want a debt based society and why we don't want Bitcoin lending solutions.
Debt is a modern phenomenon and at its core it is borrowing wealth from the future which limits options in that future.
That's a very binary view, and the world is not binary. But Bitcoin was supposed to replace the financial system, not support it.
Yeah, as someone who personally never took institutionalized credit, I really resonate with your viewpoint. Debt as an instrument goes way back in history. But that the entire economic and societal development is based on it, is indeed a modern phenomenon. And it's a reality we are faced with right now.
That's the point where nostr:nprofile1qyt8wumn8ghj7ct5d3shxtnwdaehgu3wd3skueqpz4mhxue69uhk2er9dchxummnw3ezumrpdejqqgzr08nkh7nk4q9cmw02wkfprkgtk0n8kgszlzyqe384ll3qv5rp453f6g5h and Saylor clashed on their last podcast.
My point here would be that once the world operates on a Bitcoin standard, excessive lending and borrowing is just not attractive any longer. We don't have to morally condemn it until then, it just naturally fades.
But we can help Bitcoin thrive in the meantime and make sure it keeps its core freedom providing functionalities. Currently, it's on track to being cornered as a stale asset, loosing its peer-to-peer cash ability. I'm not saying Bitcoin isn't in itself powerful enough to one day burst free. But the more versatile it becomes (e.g. with finance in a hybrid fiat stage) while keeping its freedom functionalities (!) the earlier hyperbitcoinization may become a reality.
No question, Bitcoin the asset has made significantly more progress than Bitcoin the money.
But Bitcoin money is advancing at ever greater pace. Steak n' Shake being a very public example, but also a more ground up movement is happening.
As Bitcoin becomes more widely accepted and understood by the public, it will, I believe gain greater and greater traction as money.
We are still. VERY early.
nostr:npub15ax0056u0p8hmgtstzg9emx7h9wad4ucnuutj89trsvuzdaehqhqdpc7af uses smart contracts on bitcoin for their lending product
I'll have a look at nostr:nprofile1qqs2wn8h6dw8snma59c93yzuan0tjhwk67vf7w9erj43cxwpx7umsts8rj46g and on which basis it works. nostr:nprofile1qqsg0wxgfhmw9z5w9a7j4h2ca6yqhwvrjgs8ws3z2qe72f9lls5vwvgjwqpz9 is offering lending & borrowing for years now, also keeping self-custody of your Bitcoin on nostr:nprofile1qyt8wumn8ghj7ct5d3shxtnwdaehgu3wd3skueqpz4mhxue69uhk2er9dchxummnw3ezumrpdejqqgp9l8kc94kzdehaq3732sfzntala3r9ng0uzjunzp2ke0zyltlpxca569qz. BitcoinOS seems to have the potential to bring that to another level.
What if the lending institution doesn't rehypothicate your Bitcoin ( This is what Strike are doing)?
The Strike rehypothecation debate was the catalyst for all this.
Even worse: what if they go out of business and seem to have nothing left?
