What is Bitcoin Lending And How Does It Work – 2021 Guide

People say that the market is controlled by numbers, and this is becoming more obvious in countries with fiat currency. The money supply can be increased or decreased at will by the country’s respective bank. If the bank decides to print more money (quantitative easing) it means that there are excesses of cash floating around which causes inflation, meaning if you had $100 right now, a year from now it would be worthless because of all the extra cash out there driving prices up. This happens when a country prints more money than they have reserves for it. For example, Jordan has one of the highest rates of inflation in the world. However, their Gross Domestic Product is only about 16 billion dollars USD per year! How can they support their own population with only 16 billion dollars? They can’t, so they print more money to fund their expenses. This causes inflation which has made the Jordanian dinar lose its value over time.

Cryptocurrencies

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Whilst this is happening, cryptocurrencies are becoming ever more popular because of their deflationary currencies that ensure that their holders have purchasing power for longer, rather than being eroded away by inflation. One of the major players in this space is Bitcoin. But how does one actually use bitcoin? What can you do with it? Well actually there are many things you can do with it- by the end of 2018, there will be thousands of online stores accepting it as payment! You can even buy stocks on Wall Street using bitcoin too!

The most popular cryptocurrencies are not just being bought and held as a speculative investment, they’re actually being used for a purpose. There is a new breed of entrepreneurs that are leveraging this technology to create efficient decentralized networks via blockchain technology. This has created some really interesting products such as decentralized storage (SIA), social media (STEEM), and cloud computing (Golem).

But what if you want to actually make money with it rather than spending it? Let’s dive into the world of bitcoin lending!

What is bitcoin?

Bitcoin is a cryptocurrency, a digital asset designed to work as a medium of exchange that uses cryptography to control its creation and management, rather than relying on central authorities. It was invented by an unknown programmer, or group of programmers, under the name Satoshi Nakamoto and released as open-source software in 2009.

What is Bitcoin lending?

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According to chesworkshop.org this is essentially what we are talking about here is loaning out your bitcoins and expecting them back at a later date (with interest). I know this sounds like a payday loan, but if you give someone $100 and expect it back with maybe another $5-10 on top it’s not much. Now think of loaning out 1000+ dollars worth of bitcoin expecting 1000+ more dollars worth of bitcoin in return. This is where the real potential is- expected profits can be huge.

The mechanism works by opening up an agreement between two parties. The moneylender gives the borrower their bitcoins under an agreed time frame for interest/terms, and the borrower pays back the money plus interest rates. The good thing about this is that it’s all automated by smart contracts on the blockchain- meaning there are no unnecessary intermediaries to take their cut of your profits.

Obviously, there are some risks involved with bitcoin lending- prices can fluctuate wildly (today its gone down substantially) or something could happen which prevents your repayment of the capital- but if you research into finding a suitable lender then you reduce these risks as much as possible. There are also ways to spread your risk across many different loans using diversification whilst earning more interest than any traditional savings account can offer, so be sure to do enough research before committing funds. If you want to make money with bitcoin rather than spending it, lending is one way you can do so.

Benefits of cryptocurrency lending

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– You can make money regardless of whether the price of bitcoin is going up or down, but you have to work at diversifying your loans so you do not lose out if one fails.

– No need for paperwork as all contracts are automated.

– Potential to earn more interest than traditional savings accounts let alone inflationary currencies.

– You are in control of your bitcoin, but just have to trust the lender that you will get it back.

– High risk compared to traditional investments, so do research before committing any funds.

Things to consider before engaging in a cryptocurrency lending

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– If the price of bitcoin crashes, you might lose your entire capital.

– Could be hard to find a good lender. Be sure to research people you lend money to and their reputation on forums etc.

– Will does not make money while bitcoins are lent out (you won’t get any interest).

– Potentially high returns, but also potentially no returns.

– If you want to actually use your bitcoin then this is not for you!

Conclusion

So how does Bitcoin Lending work? It’s simple, you just have to imagine that there are no unnecessary intermediaries between the lender and the borrower, it works only because of the blockchain technology. Interest rates paid in bitcoin can be high depending on how much risk you want to take but also if your smart contract agrees with the borrower.

This process makes bitcoin lending a very flexible market which you can take advantage of by borrowing or lending bitcoins. And always remember: make money with bitcoin not spending it! Before you take on any form of crypto lending It’s vital to know the risks, particularly what might happen if the value of your crypto drops quickly and dramatically. If you’re thinking about crypto lending in any way be sure to consider the advantages and disadvantages and the other options available before making a choice.