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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.

mike 7mo ago

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

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Discussion

Pinguimdarelva⚡ 7mo ago

# ☕🇧🇷⚡GM

Crusty 👨‍💻 7mo ago

I could think of a situation, that can be solidly backed.

You give them your bitcoin. They store it as a collateral. Like you get a loan for a house.

You have a certain liquidation price, where they have to either sell your bitcoin, or you have to post more bitcoin.

Then they earn money on your interest.

Of course, this can be PONZIFIED!!

Now you have 2 things:

- Decide if you want to use an overly collaterized loan for your benefit. If not, stop here.

- Find a way to tell apart the ponzified and overcollaterized loans. And use the good one.

My 5 sats.

mike 7mo ago

I've just liquidated your 5 Sats, please deposit more 😂

Crusty 👨‍💻 7mo ago

It sounds like a coin phone.

Please insert more coin to continue your call. 😂

mike 7mo ago

The operator has disconnected you 😂

Crusty 👨‍💻 7mo ago

Please insert more coins to continue the internet

Housepainter 7mo ago

For me the upshot of the last couple of Bitcoin loan threads is Fiat and BTC ( the money and the mindset) don't mix. Fiat is predatory trust based, Bitcoin is pristine collateral. Oíl and water.

Rather than loans, peace of mind is to wait for NGU and spend BTC when you can afford to spend It. And try earn BTC back. Ie Build circular bitcoin economy. Nothing new in there, but a bit more clarity for me.

mike 7mo ago

I agree.

Credit is a modern phenomenon, despite what the banks and economists may tell you.

jamw 7mo ago

This is the way. It’s applying a fiat mindset/approach to bitcoin as an asset not a currency. The two should be kept separate until Bitcoin becomes a currency/legal tender.

Tyler Burns 7mo ago

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.

mike 7mo ago

Yes, that's correct. I am discussing fractional reserve banking.