Using bitcoin as collateral provides particularly easy access to credit systems for developing countries. In places with little access to credit markets like Indonesia, bitcoin will be adopted as a savings tool and eventually be used for credit.
In addition, bitcoin opens up a much more private economic system. A lender can use a cryptographic key to authenticate a borrower without requiring the borrower to reveal sensitive private information that could then be leaked over the Internet in the event of a data breach.
Finally, much like selling a stock, a bitcoin sale can be done quickly if a borrower defaults. Unlike the stock market, bitcoin markets run 24 hours a day, 365 days a year. A sale can therefore be made at any time if necessary. Property, on the other hand, usually has to go through an auction process if the borrower defaults. This is another reason why bitcoin is destined to be used as a security. Due to the volatile bitcoin price, most lenders require bitcoin-backed loans to be oversecured. However, this is more of a feature than a bug as it requires more financial discipline from the borrower, which usually leads to more efficiency and higher productivity. However, as volatility decreases with increased adoption, this practice will also change in the future.
Conclusion
Overall, bitcoin’s excellent properties make it the ideal type of security for borrowers and lenders alike. Bitcoin lending services will reduce the incentive for anyone to sell, which of course will have a positive impact on the price – see: Allen Farrington and Sacha Meyers, “Bitcoin Is Venice,” page 161.
The improved property systems in the West in recent centuries enabled economic actors to discover and realize the potential of their economic activity and generate additional productivity. Fiat money has distorted this system. Bitcoin will restore it and expand it worldwide. As digital property, bitcoin will create a financial system where owning property and using it for credit will be far more accessible than it is today. This enables greater productivity and efficiency in the global economy.
This is a guest post by Leon Wankum. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
