Do You Understand Blockmason's Credit Protocol?
Seeing @dana-edward's recent post Forget living on credit - credit cards are a bigger scam than the average ICO reminded me of Blockmason's Credit Protocol. I'd agree with that sentiment to a certain extent that debt is undesirable and that we shouldn't spend anything that we don't yet own, but credit remains to be part of our economic reality. I do use credit sometimes in small sums and out of convenience, always paying back at the end of every month.
I don't have much of an opinion yet, just a gut feeling there's something to Blockmason's Credit Protocol. Some people seem convinced the idea's on par with the likes of Bitcoin and Ethereum, maybe even bigger. Peer-to-peer credit on the blockchain - the cornerstone of trust?
Still scratching my head. Clearly, credit protocols are not my forte as I still don't really get it even after seeing some Steem users posting up their loans and obligations to each other on the Steem blockchain. I guess it's a complex matter that involves trust, identity, reputation, nature of relationship, time invested, method of dispute resolution.. etc.
Here's the description of their first already functioning prototype application:-
Friend in Debt is our first full-fledged (and functional!) implementation of the Credit Protocol. Until now, it was only possible to move money on the blockchain in the form of cash. Bitcoin democratized the transfer and storage of money, and Ethereum democratized the creation and storage of monetary contracts. Friend in Debt provides a full working demonstration of the next logical step in the decentralized economy: democratizing the creation of credit through permanently recorded debts and obligations between parties. Debt and credit are already extremely powerful financial tools, and now they will be protected and strengthened by the security and flexibility of the blockchain.
In similar vein, I find @neoxian's take on simple loans on the Steem blockchain pretty fascinating by the way: https://steemit.com/bank/@neoxian/bank-of-neoxian-status-of-all-loans. I probably can understand getting a small loan to buy cheap coins or avoid selling them in anticipation of a price increase. It's a gamble, but it doesn't mean that credit facilities are all that bad if there's mutual consent. Dispute resolution is kinda tricky though unless if it's a straightforward cryptocollateral-for-credit arrangement.
Vaporware or powerful idea for a protocol? Should we tokenise the credit economy? What are your thoughts? I do hold some, although the scope of the protocol is still a big haze to me. Plus, I'm not too big on ERC-20 these days. Plenty of ambition with a lack of solid plans for mainstream adoption. But the price of BCPT is currently around half the price from ICO, so it might be a good time to scoop some. As usual, this is not to be taken as financial advice.
Resources
Website: https://blockmason.io/
Whitepaper: https://blockmason.io/cp-whitepaper/Introduction-amp-Features/
Follow me @etherpunk / @kevinwong
Blockmason would allow us to prove that two parties agreed to a (monetary) transaction and what that transaction was. This is much like a cohabitation agreement between a couple.
The difference is ... for a cohabitation (AKA pre-nuptual) in Canada or US, you typically have to pay a lawyer $1000 to notarize that the two individuals did knowingly enter this agreement together. On the blockchain, using blockmason, the agreement is drafted and if both parties agree to accept, then it is notarized by the blockchain.
If the receiving party fails to repay the debt, there's still no method of enforcing the agreement, unless they go so far as putting some form of cryptocurrency in trust as collateral.
I don't think it will work. We don't even have identities of the people getting into agreement. And as you said, how do you enforce this agreement? Lots of questions with no answers
In a way, it is already working as influence tokens.
Taking a look at @bellyrub's creator @zeartul
I can loan @zeartul my SDB or steem in the form of influence tokens. He/she can then use those tokens to upvote people and try to earn more curation/author rewards than he/she agreed to pay me back.
Currently, we do it as a "gentlemans's agreement". However, using something like Blockmason to automate it would take all risk out of it. I would be guaranteed to get my tokens back plus the agreed upon "interest"
Agreed, so what happens if lets say you don't pay back the SBD that was borrowed, how will you enforce some sort of punishment; how are you guaranteed to get your tokens back?
For Real.
With Blockchain, you should be able to do that programmatically. So, as part of the contract, the funds are locked or something.
You don't need to enforce punishment for non-repayment. Just like in today's credit markets, non-payment is enough to alert other lenders that you are a bad risk. This could affect your ability to secure other things, like renting a home or a car as well.
I work in Real Estate and property management, and have analyzed many people's credit histories to determine if we can rent a property to them or not. Your reputation is paramount to that decision. While the person who lent the money is out of luck regarding the non-payment, the rest of the world is on notice about the bad risk of the borrower and the loan issuer knew the risk they were taking when they made the loan.
A prudent loan issuer would reflect the risk they took on an unknown or poor reputation borrower by charging a higher interest rate, by limiting the size of the loan, or by breaking the loan into smaller blocks of issuance at different times while the borrower proves their ability to repay.
Well, the thing with money is it is really debt. All debt.
You, as an individual, cannot make money with a positive value. What you can make is a thing, that someone else wants.
So, you have a cow, and butcher it, and since it is way more than you could eat before it rots, you share it with your friends. Now, they have a debt of obligation to you, and will likely share their chicken, hog or corn harvest.
If there was some money, they would probably give you some for the cow that you gave them. It represents a debt that got passed.
So, it is all debt. But loans, those are just waiting to be block-chain-ized
True, it really seems to have touched on the forefront of how things get their value.. so peer-to-peer credit it is? Are we oversimplifying this? lol
I do not feel it is going to be quite peer-to-peer. There are too many ups and downs in people's lives to deal with. This would cause ups and downs in income from lending.
If you are a land lord, you often find that people flake in December. So, while they are trying to make a happy christmas, you, as a land lord, have your leanest month.
Also, there is problems in lending to your friends.
So, I see a middle-man system. Something that collects all the incomes and apportions them all by whatever digital contract is chosen when lending. I guess this would be like buying insurance for your loans.
Thats a great explanation, thanks a lot @builderofcastles
Would the collateral for these block-chain loans be tied directly to block-chain assets? How could such a system hold the purchaser of these loan products accountable? I wouldn't want to be the insurer's insurer, oy vey.
The thing is its not really insurance. It would be spreading out the losses / gains.
Some of the schemes I have seen so far, is that you start rating the borrowers. And based on that rating, you choose the interest rate you will charge them. And that interest rate gains should be larger than the defaults. As a single person, most cannot accept 100% loss. But, collectively, if there is 3% loss on 5% loans, then you are making money.
There will be some loans that will put some collateral in escrow. And there will be some that just rely on people's good word. And, with the block chain, you can very accurately tell what a particular address' reliability is.
ah,. a man who read DEBT! :D
while I am not into taking out loan, borrowing sbd to buy steem at the current price seems to me good idea.
I think plenty from the ethereum community maxed out their credit cards a couple years ago. Not necessarily a bad idea, but still a gamble that could wipe people out..
I have thought about using credit card to get some more steem. Then I gave up on the idea. Didn't want to put myself in a situation I might regret.
Are you going to Steemfest this year? Will you be presenting Curie again? Just curious, seen videos from last year.
A matter of risk and returns I guess..
Oh nope, just gonna sit back this year, not gonna be presenting anything :)
Hi @Kevinwong,
I'm New to Steem, but fundamentally can't Steem be used as a way to fund credit?
Think about it:
Ok...Not sure about the last one. But the point is why do we need ETH, is it possible to implement a simple pure credit / loan and customized system using Steem....with CreditWitness to set Rates etc?
Any thoughts on this?
I think it's possible for sure. One thing Steem has is frequent users, probably moreso compared to other projects. At one point, we'd definitely have some identity system. Not sure if anonymity would work.. maybe it will.
Wish I can Double Upvote your Post....you are on to something here Kev.
Off the bat...
if a contract requires a user to stake a minimum of one token - what might we be able to infer about where token price could head...?
Many people might wanna buy hoping for huge price gains - but high token price would probably kill the user base by making the cost of contracts too high.
I might not be understanding something correctly, though that could be a significant flaw. If price was high, the service would be out of reach out of a lot of users - not exactly the best fundamentals for sustainable growth of either the user base or token price. Of course, MAYBE it’s the case that the developers of apps are the ones that have to stake the token, so it’d be a different matter. Though then again - competitive advantage would probably go to the apps that provide the cheapest service, equating to lower profits, equating to the question of how much they’re willing to / can invest/stake to keep their service running.
There’s probably some great points in the overall concept, though not confident this one has what it takes to grow out and stay for the long term. I’d think one of the most practical implementations for such a credit protocol would be in third world with micro loans - and I could foresee a lot better options coming into the market that are completely free or next-to-free to use, rather than having the token model make things more complicated and costly for users.
Of course, I could not be seeing the same they vision they do. Might be missing something. Not sure how much detail and substance they’ve got versus the broader surface-level concepts...
Good take on the matter @rok-sivante, indeed if the token price is too high it might deter any mainstream adoption, but then again the token would also have value in which people can sell off if they don't need that much bandwidth utilising the protocol. For one, if their credit rating works well then it might take off.
@kevinwong - I am a newcomer on crypto scene but not new to the peer-to-peer lending concept. Though not totally peer-to-peer, the Grameen Bank in Bangladesh, has been heralded as the largest community bank project and has a very negligible rate of default. The funding of the bank is by community and peer pressure as well as family respect protocols keep people motivated not to default on loans.
In the crypto and virtual world, the concept will succeed if community bonding and peer respect takes deep root. In my view, this is feasible but will be very susceptible to scammers who will try to operate on BTTLD concept (Build Trust, Take Loan and Disappear).
I would love to hear your views and views from other experienced Steemians on this.
Thanks - Interesting mental debate as usual for me after reading your article. Upvoted full
Regards,
@vm2904
Interesting.. which is why I think their focus for their first apps - Friend in Debt, and another for gift cards might work out well. Defaults happen all too often in this day and age if both parties are rather distant, attached only by a thin string of this thing we call "business relationship"
Exactly - finally- business relations involving money do take some form of trust. Even in the traditional banks, people trust well established international banks or they trust their local cooperative society banks
Do you think this really needs a whole new token and protocol? I'm not seeing it.
You can basically do this in a plain text document. "Joe owes John $100 by June 23rd."
For a bank or some other institution that issues credit regularly, the blockchain might not add any new features... since the whole point of blockchain is trustless applications, eliminating middlemen, right? and in the case of a bank issuing credit, the bank already acts as the trusted third party by default.
In the example of Neoxian's loans - a simple steem post accomplishes this task just fine. Why issue a whole ERC-20 token around it?
I guess a protocol allows for more complexity, although it's arguable that one should have avoided credit facilities if it involves a complicated arrangement lol
Hi Kevin,
I think credit based tokens are still a grey area now. This is because it will be difficult to determine how these credit contracts will be resolved when default occurs.
I think what SALT lending resolves this problem by holding your cryptocurrency as collateral and gives you fiat for that cryptocurrency which I think is really clever.
I think there is a limitations for credit tokens protocols for now, as enforcing these contracts and enacting punishment on parties that do not honor the contract is really difficult.
I've gotten hold of some SALT as well, can't wait to use it! lol. A generalised credit protocol however, might prove to be pretty big. So far SALT's focus on crypto collateral is much easier to pull off though.
Your post often gives me a good mental workout. As for this post I have a hard time to find where I stand.
I don't honestly think I completely get it. You still owe money right, and someone still wants it to be paid back, so what is the advantage of tokenizing debt ?
Is the interest rate to pay back lower ?
if the system with this credit model develops, there may be many who use, because the commercial system is now a lot of money borrowers are in arrears. certainly many banks are willing to adopt this, and the blockchain and bitcoin system more and more countries are receiving.This good start to change the economic system...