Credit for bitcoin. Why is it advantageous to use cryptocurrency as collateral

Credit for bitcoin. Why is it advantageous to use cryptocurrency as collateral
Credit for bitcoin. Why is it advantageous to use cryptocurrency as collateral

Laying bitcoin during the “bear market” is the only way to get money without losing money due to a depreciation. Loans secured by collateral become relevant. Most often, borrowers take money against auto, real estate and jewelry.

You can talk a lot about the ethical side of the issue, but for 4000 years, since Sumerian civilization, the very form of issuing loans on bail has not changed much, only collateral has changed. At first, it could be cattle, plots of land, houses, luxury goods, then shares, bonds, and other securities were added to this list. With the development of digital technologies, we can talk about a new type of collateral – cryptocurrencies.

Digital voice

The idea of granting loans secured by cryptocurrency is in the air for a long time. There are already several projects of this orientation. Of the most notable are saltlending.com, nexo.io, ethlend.io and coinloan.io. The project saltending.com is already working, the rest are either in the development phase or in the ICO phase.

All of them take coins from the top ten largest in terms of capitalization: bitcoin, bitcoin cash, Ethereum, Litecoin, Dash, Zcash, NEM and some others. The amounts of issuance are also different everywhere, on average it is 70%, 60% or 50% of the current market value of the collateral. In the future, banks can enter this market.

Suppose that the cost of your bitcoin is $ 8,500. You need money, but you do not want to sell a coin, because it is likely that in a few months its price will be $ 20,000.

Then you register on one of the services, determine the desired amount, send your deposit and receive money. When you no longer need this money, you can withdraw your coin.

In this case, you will return exactly the amount that you occupied, even if during this time the value of the pledge grew tenfold. It is more profitable and safe than selling a digital currency and serves as a protection against volatility. In addition, if you bought bitcoin for $ 15,000, selling it for $ 8,000 is not a good idea.

In this light, laying bitcoin during the “bear market” will be the only opportunity to receive Fiat without losing funds due to the fall of the exchange rate.

Problematic model

The most obvious problem for the organization of issuing loans is the availability of really large capital from the lender. At the same time, it is not very interesting for large investors to engage in private small loans because the collection of interest takes too much time, which is also known to be money.

In addition, when transferring private funds to another individual, many risks may arise, including due to incorrect assessment of collateral. All this significantly narrows the scale of the p2p-lending market.

The creditor is much more convenient when the main work is transferred to the intermediary company, which can professionally assess the risks and is ready to answer to investors with its finances.

In fact, the investor should not even be interested in whom he issued the loan, because he gave his money in circulation, and then this is the problem and responsibility of the company. Of course, such a company should be reliable, because there are many pyramids disguised as credit systems. The means of investors must be either insured or at least secured by the company’s money.

The legal side

The order of purchase and sale, exchange, pledge, donation, inheritance and other operations related to cryptocurrencies is not regulated in the legislative framework. But since the legal status has already been determined, there should not be any problems with cryptocurrency pledge in the future.

Any legal relationship related to the transfer and sale of cryptocurrency, can now (in theory) be regulated in court. And the smart contracts used on credit platforms make the conclusion of such contracts automatic, you use it – it means that you have accepted the terms.

A smart contract cannot be violated, it can not be negotiated, it works when certain conditions come – for example, when the debtor returns the entire amount, he returns a pledge. Or, if he does not return, he transfers the pledge to the creditor. This makes the entire system reliable and eliminates the need for legal proceedings.

Today, there are more and more opportunities for smart financial management. Anyone can improve their financial situation by making the right deals and investing in the right trends. Cryptocurrency is one of these trends.

Being used as collateral, bitcoin can be as valuable as your property, and even more, because unlike, for example, your car, it does not necessarily lose its value over time.