Quote from: refta on April 04, 2013, 06:01:55 PM

you are right. but let me ask, do you loan out coins based on collateral or just pure instincts?

I'm a science guy, so math means a lot more to me than gut feelings. I would loan money if I had secured collateral greater than the value of the loan. This is tricky to do in practice, but imagine Bob wants a 4BTC loan from me. We are able to meet in person and he gives me a gold ring as collateral. I then loan him the value of the ring, perhaps it's 5BTC. I have to loan him a bit more so that he can be assured that I don't run off with the ring. however, I would only charge the agreed interest on the 4BTC.

Upon successful payment of the principal and interest the ring is returned and everyone is happy.

Any bitcoin loan does have one additional, unique factor. What if Bob borrows the bitcoins intending to buy some later to pay his loan and the price skyrockets? If he had made a 30 day loan last month for 1 bitcoin. That one coin cost $45 when the loan was made, but he must spend $130 today just to pay the principal. What an awful deal for him! He would be better with a payday loan or even a mafia loan-shark.

Basically, bitcoin loans are a bad idea.