Flavio, you raise a good point. If a loan is denominated in USD by someone who "thinks and breathes in USD" then it's not really a BTC loan, is it? It's really a USD loan, essentially, with an intermediate transfer currency.
You had said: "The bitcoin price doesn't matter for the linked loans" - well, sure, for USD loans by people who arne't using up their BTC investment holdings.
In this sense you can use anything that has a spot price, including rice, pork bellies, or gold, to make a 'loan' that is really denominated in USD.
Presumably, nobody is actually borrowing the pork bellies for some investment purposes qua pork bellies. It's just a medium of exchange.
On the other hand, even if you denominate a bank loan in USD and have to make it in pork bellies, to be received back in pork bellies at a future price, - this raises the problem of actually having to source those pork bellies.
It may not be a problem if it is possible/easy to buy BTC. On the other hand, hoarding behavior may make the purchase of the BTC a bit more difficult to acquire so that, like pork bellies, it's a rather poor medium of exchange for actually making the USD loan.
Regarding my suggestion that you look at whether some BTC loans are ponzi schemes (relying on previous investors being paid off and happy, to secure ever larger loans and reputatoins by the same party), what did you find personally (not speaking as an employee or on behalf of your company of course)?
>The bitcoin price doesn't matter for the linked loans
This is only true if the loans are a ponzi scheme and not being spent on goods or anything else :)
I'm sure you don't care, you'll get your fees right up until the moment that you don't. As far as investigating or thinking about this as a personal individual, even if you are an employee, you can look at it this way, especially how the situation would change if BTC experiences even worse deflation (if it were to be adopted as a serious money supply without the supply increasing):
What is the average per annual interest rate on all loans on BTCJam? A cursory look reveals "invest your bitcoin and earn 19.3% APR". Assuming your fees and other friction amounts to just an additional 2.5%, then we are at 21.8% - meaning, that if you have a business opportunity that you have a 98% expectation of generating a 21% return within 1 year, ($100,000 in, $119,000 out in year 1), you cannot finance it with this type of bitcoin loan. And this is today, during a far from certain period for bitcoin and by no means a heavily deflationary one.
We are not currently in a great deflationary period for bitcoin. If bitcoin were to tend toward $300K per btc - so that it represents value around the value of the gold supply or other world money supplies - from its current value of $450, in, say, 10 years (an eternity for the Internet) that would represent a 666x increase in value.
Annually, that would translate to a 91% APR. (1.91^10=646) So the only way for anyone to borrow bitcoin, spend it on an investment, and then both return bitcoins - with an interest rate! - and still have some personal profit from the investment, is that if the risk-adjusted return from the actual real-world investment is 91%. But that makes bitcoins impossibly expensive to denominate the loan in.
What if we denominate the loan in dollars? Well, during a deflationary period, anyone would be nuts to lend bitcoins and receive 91% less back the following year, recouping just a little bit in interest rate. The interest rate would have to be around 91% just to cover the new value of the bitcoins being returns. Essentially, a lender of bitcoins would be short selling them. A huge risk. It might well be the case that they lend out 100 bitcoins, and a year later get back 1 bitcoin. If they had held onto the bitcoins instead of lending them out, they would have enjoyed a +10,000% return on the real value of that specific holding. Instead, the real value of the holding has remained steady at 110%, since it was denominated in dollars.
This establishes a very difficult hurdle rate. Currently bitcoin does not experience such a deflationary period (indeed, it is worth less than it was at xmas and before), which makes lending denominated in usd considerably easier.
At other times however it will be far more difficult.
Essentially, bitcoin lending works "ok" as long as bitcoin itself is not taking a large role as a money supply. If it does, then due to the impossible of scarcity (again, reasonable target is $300K/bitcoin under this scenario) lending will grind to a halt where lending is used for real-world production of value.
Lending may still occur under literal ponzi schemes. (Borrow 10 bitcoins, promise to pay back 12 in a month...which you do - how, because in the meantime you've borrowed 14 bitcoins, promising to pay back 16 in a month...which you do - how, because in the meantime you've borrowed 18 bitcoins.... );
I think if you take a good, hard, look, at the source into the way in which these bitcoins are being paid back, you will find more than one literal ponzi scheme under BTCJam. There is scarcely other explanation for the lending behavior of many of the entities there. (Despite
Bitcoin is easy to understand - it's like gold, which derives its function as money from its scarcity, transferability, fungability, and verifiability. Most of the same holds true for bitcoin.
However, there is an important difference. By my estimation it is approximately one hundred quadrillion times more likely that all offline wallets can be rendered simultaneously unusable at parity value (i.e. that an offline wallet containing 100 bitcoins no longer contains 100 bitcoins, without any interference to the offline wallets) than that the same occurrence can happen with gold. (Anywhere in the world that there is 100 grams of gold, it turns into not-100-grams-of-gold.) Such an occurrence would have to happen through other than literal means: physical theft, legal, etc, and on an individual basis. Can't happen on a protocol basis.
However, the same is not true of bitcoin. The entire P2P bitcoin infrastructure, or the software, might have fatal flaws - and at the end of the day, the "true" location of an offline wallet is in a blockchain, which in a sense is a social construct. A bitcoin does not have a physical sense of existing outside of the blockchain.
This is not a minor point. No software is secure, and there have been close calls in the history of the development of bitcoin. There is no physical law that prevents the breaking of the entire bitcoin model, or that ensure the network - and one and only one unforked network - will always operate.
Whereas, there are very strong physical laws keeping gold stored at a location from turning into anything other than gold without anybody touching it.
Secondly, there are also strong physical laws that imply the scarcity of gold. Again, in the history of bitcoin there have existed flaws that made bitcoins less scarce: . In the past three hundred years nobody has come much closer to "printing" (e.g. synthesizing) gold. It needs to be "mined" - an analogy for getting it with difficulty.
"On 6 August 2010, a major vulnerability in the Bitcoin protocol was spotted. Transactions weren't properly verified before they were included in the transaction log or "block chain" which let users bypass Bitcoin's economic restrictions and create an indefinite number of bitcoins. On 15 August, the vulnerability was exploited; over 184 billion bitcoins were generated in a transaction, and sent to two addresses on the network. Within hours, the transaction was spotted and erased from the transaction log after the bug was fixed and the network forked to an updated version of the Bitcoin protocol." [1]
So there are a few major concerns that keep bitcoin from being a good analogy with gold:
1- Bitcoins do not have a guaranteed phsyical lifespan and location and can disappear at the whim of a network.
2- Bitcoins do not have a guaranteed scarcity and can appear at the whim of a network.
In both of these senses it is quite analogous to a fiat currency. It just does not have some of the physical properties that gold does.
Nevertheless, insofar as the protocol mimics gold in several important ways (including scarcity, storage of at least parity value [0.5 btc remains 0.5 btc in a wallet, just as 0.5 grams of gold remain 0.5 grams of gold], fungability, and mining) there is good reason to believe it can take a very similar role.
If it does, then a good target price for btc is approximately $300K per bitcoin today, which would enable it to take on a total money supply role similar as the total US money supply, or a price similar to the price of the total amount of all gold ever mined (at total spot prices). (Actually bitcoins are considerably more useful than gold for many reasons, including secure storage and transfer; nobody sends gold across continents to render payment, but this is easy with bitcoin. So the total value-as-money of all gold could be a bit lower than the total value-as-money of all bitcoins.)
That is a very large "if" however. I have absolutely 0 faith whatsoever that bitcoin the current protocol can last even 3 years, let alone 10, 20, or 100. If God himself said, "You know what, I shall will the bitcoin protocol into working perfectly forever" and were to fully meet all of its design constraints with no further input from anyone - if offline wallet became equivalent to a safe with gold in it, if transfers worked exactly as handing someone some gold does, and if scracity worked exactly as advertised --
then there is no reason the general protocol could not come to represent more money and velocity than dollars or gold do today. If that were to happen on an international scale, then the 21-million bitcoin limit (ever) would be a problem: to some extent the price of gold will always be kept in check by the ability to mine further gold. The price of gold can't be infinite (or close), as that unlocks further physical gold mining operations and brings the price down at least to an extent. However, if there is a hard limit on the number of bitcoins, then the value of a bitcoin can tend toward infinite without any corrective increase in the amount of the money supply. (The u.s. dollar money supply can increase even more easily, and the economy is never starved for dollars.)
In that case, many people would hoard bitcoins, and it would face a serious impediment to adoption as a currency: too much scarcity. A currency is no good if you can't get your hands on any at all, and the world economy has a rather large need for liquidity.
A good replacement for cash should be able to take on a total-money-supply role in the tens of trillions - that implies values of $1M or so per bitcoin given its absolute limit. But it is fairly obvious that it would be difficult for bitcoins to take on that value while continuing to service the world economy.
The truth is that there should be a bitcoin-like protocol that contains real-world regulatory action: if such a coin were pinned to the dollar, ($1/coin) and surges were met with lending (creation out of thin air and lending the created coins to borrowers) so that it would be spent and brought back down in value, the protocol would be able to replace fiat currencies much more easily.
In addition such a centralized money would be able to finance the operation of its authority, by means of collecion of the interest rates charged on new money.
As long as bitcoin will become absolutely scarce (unlike gold, which does not have hard physical/protocol absolute limits on the rate it can physically enter the economy, or dollars, which purposefully are the opposite in nature), nobody will ever lend bitcoins out for productive uses. (The hurdle rate, of natural deflation, would be far too high.)
Therefore there is a gaping hole of a market opportunity right now for someone to create a central bank of internet money, a kind of private federal reserve like skype (as opposed to a pure p2p system - which in this analogy, voice calls, never existed).
There are several good reasons that skype won out over some sort of truly p2p voice conversation network, and many of the same facts will allow a private skype-like bitcoin network to prevail over a pure p2p bitcoin.
if someone is interested you can email me. let's open a central bank of internet money together that can at its whim print and lend out more money, and does so whenever, and to the extent that, the real-world price of the currency is too high.
by strategically meeting the money supply needs of people who do not have to mine it or pay for it, it is also far easier to get the currency adopted. today, someone who hasn't mined bitcoins, and isn't paying for them, won't have any.
the same isn't true for dollars (they can just get some lent by a bank or government).
We can do better than bitcoin. Unlike the bitcoin people, we can also have massive revenues to spend on further development and security. (Again, inflation of the money supply is a secret tax.)
You had said: "The bitcoin price doesn't matter for the linked loans" - well, sure, for USD loans by people who arne't using up their BTC investment holdings.
In this sense you can use anything that has a spot price, including rice, pork bellies, or gold, to make a 'loan' that is really denominated in USD.
Presumably, nobody is actually borrowing the pork bellies for some investment purposes qua pork bellies. It's just a medium of exchange.
On the other hand, even if you denominate a bank loan in USD and have to make it in pork bellies, to be received back in pork bellies at a future price, - this raises the problem of actually having to source those pork bellies.
It may not be a problem if it is possible/easy to buy BTC. On the other hand, hoarding behavior may make the purchase of the BTC a bit more difficult to acquire so that, like pork bellies, it's a rather poor medium of exchange for actually making the USD loan.
Regarding my suggestion that you look at whether some BTC loans are ponzi schemes (relying on previous investors being paid off and happy, to secure ever larger loans and reputatoins by the same party), what did you find personally (not speaking as an employee or on behalf of your company of course)?
I'd be interested in your thoughts.