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Are loans with interest possible in Bitcoin, such that repayment is enforceably encoded with Bitcoin Script on the blockchain from the establishment of the lending contract?
Are loans with enforced repayment possible on the blockchain?
Answers
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Script is employed to encode the rules under which a Transaction Output may be spent. E.g. the most common Script requires just proof of control over an address. Thusly, scripts cannot determine circumstances beyond a single transaction.
As a consequence, it appears to be infeasible to set up an enforceable credit contract with interest, because the loan repayment would lock in an amount of bitcoins greater than the loan. Evidently, the borrowing party doesn't have that amount of money to render unspendable at this time, or otherwise they wouldn't be borrowing in the first place.
Lending offchain is possible, but very fraud prone due to it being hard to enforce repayment. Also see: Why there's no bank or institution lending Bitcoins?
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What do you mean by "loans with interest"? If you mean guaranteeing being payed back the principal plus some interest that is not possible since that depends on the external world (i.e. it is offchain).
On the other hand, if you mean just creating repayment links for the agreed amounts it is just following the instructions of BIP21.
"that is not possible since that depends on the external world." A script couldn't schedule new transactions for covering interest? – Geremia – 2015-06-08T16:30:37.440
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It's absolutely possible to loan money with Bitcoin. FairShareLoans is a subreddit where money is automatically loaned out in ~20$ increments.
Collecting on those loans, on the other hand, is more difficult. https://www.reddit.com/r/FairShareLoans/comments/35vc5s/the_current_loansheet/ They appear to have a non-repayment rate of about ten percent.
I clarified my question to specify that I'm talking about collecting interests on loans within the blockchain. – Geremia – 2015-06-08T21:36:51.047
These are on the blockchain. – Nick ODell – 2015-06-08T21:38:31.907
@NickODell: The Repayment contract isn't is it? – Murch – 2015-06-08T23:19:13.093
@NickODell: A hash of the contact may be, but that isn't a use of the blockchain to ensure or force repayment. That's really what I'm asking. – Geremia – 2015-06-09T03:41:18.153
So, a script is only tied to one transaction? A script cannot make new transactions for covering interest? – Geremia – 2015-06-08T16:28:59.807
Correct on both counts. Actually, each transaction encodes a set of rules for each Unspent Transaction Output to be fulfilled in order to access the money. – Murch – 2015-06-08T18:01:39.643
Sidechaining would enable enable a script to "make new transactions for covering interest," right? – Geremia – 2016-02-03T16:53:20.933
I don't think so. I think it could be evaded by the borrower by just not ever moving any money back into the address of the contract. – Murch – 2016-02-03T17:23:31.590
But a contract on a sidechain could be used to move money back, within the sidechain, couldn't it? – Geremia – 2016-02-04T00:04:13.340
@Geremia: Only if the money were under the control of the borrower in advance. Otherwise, how would he bind it in a contract? I'm not sure if I'm getting your objection, I pretty much explained the same above already. Could you perhaps specify your scenario in another question or describe it in your own answer? – Murch – 2016-02-04T13:46:23.137