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1529 sats \ 18 comments \ @sandbeach123 25 Nov 2022 bitcoin

Picture this You live in a country with bitcoin as only currency. Everyone buy stuff with it, and pay taxes with it as well. Banks are a thing of the past because most people (hard bitcoiners now) prefer to keep their coins with their own private keys, being their own banks. Now you want to start a coffee place, but you need a loan. Who will you ask for it? A friend? A relative? The mafia? The government? I see a very non-competitive market for credit, without commercial credit entities (aka banks).

I remember Saifedean's book when he said even a hard-money economy needed banks in order to match disposition of savers with the disposition of borrowers, finding the "market interest rate", which is the right one, in contrast to the artificial (aka FED) rate.

My question is, how will credit be provided in a bitcoin society? Will we have to trust in banks or people that will centralize demand for credit and supply of savings (and manage the risk), or will we have this solved via "smart contracts" maybe DLCs?. Will bitcoiners be willing to lend? Maybe no credit?

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490 sats \ 2 replies \ @pillar 25 Nov 2022

For your coffee-shop scenario:

You can find a capitalist partner, who will put his Bitcoin into the business for a % of the shares. It used to be a thing in the past that many new businesses would have capitalist partners (commits money/land/machinery in exchange for shares, doesn't actively work on the business) and working partners (commits expertise/effort/contacts, actively works on the business).
You can get in debt in something that's not Bitcoin. For instance, you could give away 1000-coffees vouchers to friends and family for investing.
You save the capital yourself.

Also keep in mind that which is not seen: precisely because committing capital is hard without credit, only the best endeavors find it easily. Paradoxically, that creates a positive spiral, since good endeavors find resources easily since they don't need to compete with a thousand stupid ideas that would only get funded in an environment where credit is cheap.

For example: I see people celebrating weddings which are basically a financial suicide. They get indebted up to a year of salary just to throw a big party. If getting credit was dramatically difficult, this would probably not happen. And this means that all the resources that would go into making the wedding happen (the photographers, the catering, the transportation) are out there in the market, seeking someone that puts them to use for a cheaper price.

Now imagine a new factory is opening in a rather abandoned area in your town. You come up with the idea of opening your cafe there, because currently the factory workers have nowhere to go for breakfast/lunch/dinner. You run the numbers, it looks like a great idea. In a hard-credit world, the catering personnel that is unemployed because the weddings are not happening can be employed at your cafe. Now imagine you need 50K to start the cafe. You can put 10K yourself from savings. You ring up the company that has opened the factory and offer 33% of the cafe's shares in exchange for committing the missing 40K. They check your numbers and they seem reasonable, plus the interests of your cafe and the factory are aligned. They agree to partner up with you.

The idea of that which is not seen (created by Bastiat) is very important. In economics, you generally don't have perfect decisions, but rather trade-offs. You are focusing hard on the bad things of hard money. But to have a well formulated opinion, you also have to think about the good things it brings.

6 sats \ 1 reply \ @sandbeach123 OP 25 Nov 2022

I see your point. Starting a coffee by raising capital and giving some shares seems logic. The capital provider gets a share of the business. It understands your business and how good it is, so he is considering the risks of starting a coffee with you. Maybe this will derive in specialized capital providers that are experts as risk managers. They may not use others money (savers) but their own, and are constantly joining new ventures. Interesting thanks!

11 sats \ 0 replies \ @pillar 25 Nov 2022

If this world endured for some time, eventually people with a great eye for spotting great business ideas across all the options would eventually find a way to match entrepreneurs and capitalists that are looking for investment opportunities and sort of act like a bank (and take a cut for their service). They key difference is that the money is not created out of thin air, and that failed business would die, instead of getting perpetuated indefinitely through more cheap credit.

126 sats \ 0 replies \ @02bfa78361 25 Nov 2022

I think credit will exist. I believe that banks will also exist too. The reality is that people are probably not prepared to self custody both on a technological knowledge level or based on responsibility.

Banks have a 'trusted' place in society and possibly will continue on that path. We already saw that people trusted ftx based on faith in institutions so its probably jot such a stretch that banks will custody digital assets like bitcoin and nfts proving ownership for most people.

They will supply the credit also through cbdcs I guess

52 sats \ 0 replies \ @inevitable 25 Nov 2022

Hi :)

I think this part is very unlikely: Banks are a thing of the past because most people (hard bitcoiners now) prefer to keep their coins with their own private keys, being their own banks.

There will be custodians, because some people and companies will still need them. I don't think they will be lenders though, unless they will act as a intermediary between the bitcoiners looking for yield and the borrowers.
There will be entities owning large sums of money, willing to lend it – banks and non-banks (eg. companies with cash surplus).
The smart contracts will be a natural way of sorting things out.
In a sound money environment the growth will be indeed slower than now, but without the extreme boom and bust cycles – and it's good. It will be calmer, less greedy and more natural. The sound money provides better life for everyone, so the incentive for high-yield, high-risk ventures will be less. But there always be people wanting more and they will find ways to finance it.

IMHO.

36 sats \ 0 replies \ @sommerfeld 25 Nov 2022

Credit will still exist, it will just have a smaller role.

Equity based investments will replace pure credit.

You want to buy a house? The bank will own part of the house and over time, you can buy its share of the house in an ongoing permanent negotiation. As the house market price fluctuates, so does the value of the banks' share. That means if the house appreciates in value you need to pay them more, if it crashes, you can buy the rest at a discount.

42 sats \ 0 replies \ @Louferlou 25 Nov 2022

Of course loans and credit will still exist in such a world. I hope the word bank will be mostly used to designate custody services entities which will still exist, the only difference being that this time people will have a choice on how they use and keep their money. Without inflation and money depreciating, giving custody of your funds to a third parties hoping to get a small interest rate will be much less appealing and more risky than today.

But there will be credit services providers for sure. The interest rate will be a true interest rate (which actually measures the willingness of people to give their money to third parties in order to get their interest rate) given by the market minus the deflation rate if it exists.

In fact this world would be very similar to ou today world it's not an utopic thing at all. It's how things naturally work without a monopoly on money printing....We just have to get out of our fiat mindset teaching us that inflation is natural and good for us, and it's the most difficult part IMO

32 sats \ 0 replies \ @cascdr 25 Nov 2022

I think the point you're driving at is: it will be harder to get loans.

As others point out: it's about tradeoffs. In the current world that's an upward difficulty adjustment in loan mining is justified. There are so many bullshit business that never had any place expending resources in the first place. Big banks who loaned the money get bailed out by the Fed and you pay for it. It's not sustainable and we're feeling the effects.

What's the right sweet spot? Not sure, but as you point out emergent markets will take hold and probably find it.+

50 sats \ 2 replies \ @selfish_gene 25 Nov 2022

тебе нужно что то отдать в залог. или... строители строили строили, да и все построили... а как открыть что то без денег? по тихоньку... если твоё кофе не сможет принести прибыль для тебя и для % что будешь делать?

1 sat \ 1 reply \ @sandbeach123 OP 25 Nov 2022

Quite interesting. I see using one's own capital and starting slowly is an option. For example a coffee stand (like these hot dogs stands in the street). I see this exactly happens either when banks see you not credit-worthy or when your idea and project is so crazy and misunderstood that no one will finance it. Never thought about that. It is so logic I feel stupid. Спасибо!

0 sats \ 0 replies \ @Taranis 25 Nov 2022

bootstrapping is the way and it perfectly aligns with the bitcoiner ethos.

22 sats \ 0 replies \ @cointastical 25 Nov 2022

Maybe my idea to start a coffee shop isn't the best allocation of capital and I won't be able to get a loan.

Maybe the lenders think lending to the widget factory for them to buy new tooling has a better chance of seeing full repayment.

But you make it sound like we have a choice ... go into a bitcoinized world and see less (or no) credit, or take the other pill and continue the status quo.

The era of can kicking is ending. I know it. You know it. They know it.

If there's less "credit" / lending in a bitcoinized world, then we adopt to a world with less "credit" / lending.

21 sats \ 1 reply \ @CheezeGrater 25 Nov 2022

Check out Layered Money by Nik Bhatia:

https://www.goodreads.com/en/book/show/56598876-layered-money

It deals with credit in society and how Bitcoin fits into it.

22 sats \ 0 replies \ @sandbeach123 OP 25 Nov 2022

Thanks I will!

10 sats \ 0 replies \ @cryptocoin 30 Nov 2022

Maybe no credit?

https://i.postimg.cc/httdYLq9/image.png

Source: https://twitter.com/BitcoinIsSaving/status/1597620675614998528 [Nitter]

10 sats \ 0 replies \ @iguano 26 Nov 2022

Banks are needed, is just they are out of control at the moment.

10 sats \ 0 replies \ @Coinosphere 25 Nov 2022

It will be a mix of lending institutions (that we still call banks) & lending marketplace apps that could in fact be completely decentralized.

0 sats \ 0 replies \ @LowK3y19 22 Sep

I think banks will always exist and they might even play a big part since they are trying to buy up a lot of the bitcoin that’s out there. Who knows maybe the the new etfs banks can take control of huge amount of bitcoin and give out loans that way.