It's pretty easy to get unsecured credit for a bitcoin business. The APR is in the 20s, but it beats the average bitcoin loan which is in the 200-400% APR range. As far as I can tell, these microloans are for people who want to buy something right now and thus don't want to wait for their money to clear through dwolla/gox or are short a little on a purchase and can mine the difference in a week or so. There doesn't seem to be an appetite for large loans both on the borrowing side because the APRs are too high and on the lending side because the risk of default is too high.

Look guys, there does indeed a place where loans with huge interest rates like the ones being discussed in this thread happens all the time: The loansharks business.

Now, the interest rates for you get from those upstanding individuals are all over the place. In some super-desperate situations it can even be a daily 10% but, in general, it is usually nowhere near that high. 10% Monthly (A bit above 2% weekly, which puts it very close to the BTC rates) is quite usual in some low-risk markets. That is, there is some collateral, and the shark is not lending to a (known) crack addict.

The thing about loanshark loans is that they're a very personal, almost intimate sort of loan. The loanshark knows you personally, knows where you or your grandpa live. On the other hand you know that, in the case that you cannot pay back, then you -or maybe sweet old grandpa- is going to get a visit by some dudes with lousy manners and baseball bats. Even knowing all this, people who desperately want to pay still default, because that's just how the world works. So faces are rearranged and bones get broken.

If the defaults happen when there is such a clear incentive for the borrower to avoid them at all costs, then how is it possible that the BTC borrowers can pay similar rates with such certainty as to be able to properly fund a company giving 1.5% return weekly? I mean, on one side we have an almost-anonymous, zero-collateral, electronic, distant transaction with some technical-minded guy in the internet and on the other we have a personal, with-collateral, in-real-life one with some huge dude with plenty of bats in a shady part of town. And while sharkloans have plenty of losses somehow BTC loaners are secure enough to ask for investors to come and join the good life?

Now, I am not saying that it is impossible for that to happen. I bet lots of people do pay their loans properly. But having enough people taking big enough loans, for long enough to fund a good-sized operation and having all of them properly pay back their loans? while still possible it's *extremely* unlikely. The winning the lottery 3 times in a row kind of unlikely, the one that smells fishy. Sorry dudes, but I really don't think you're better than loansharks at getting your loans paid back, yet you keep increasing your operations and asking for more capital.

You might try reading what I'm writing then.

No, not at all.  Pirate's default was absolutely inevitable. Reasonable people gained no new information from Pirate's default.

It's not sustainable because he is taking all the risk, doing all the work, and keeping a tiny sliver of the profits.

If that's what he was doing, his number one priority would be to reduce the amount he is borrowing to zero. No rational businessman would be making any kind of decent profit and yet continue to borrow at comically high interest rates. It makes no sense. If you think that model is great, think about how great it is when you're not paying absurd amounts of interest.

You don't have to ask the guy who claims he can make money by turning invisible to explain the details about how he turns invisible, how he makes money by becoming invisible, and so on. If Patrick expects people to trust them with their money, *he* has to make the case that this trust is justified. This isn't some minor deficiency or a case where there's some specific detail I'm asking for that other people might not particularly care about. This is the big pictures that's clearly broken. For example, if Patrick defaults, how will investors know that this is due to a legitimate investment loss and not due to Patrick deciding not to pay people? And on what basis can the risk of default be assessed? These are the most basic questions. It's not like there's some ultra-specific detail I want that Patrick could give me if I just asked for it clearly enough.

You base your trust on the person, Joel (and I and many others) base our distrust on the business model. I dont know Patrick, but that doesnt matter, since I might not even be able to spot a ponzi scam artist if he lived under my own roof. OTOH,  its fairly easy to spot a businessmodel that has all the trademarks of a ponzi. IOW, leave your trust or distrust of Patrick out of it, if anything, Pirate should have taught you that lesson. Instead focus on what is known and unknown about the business.

Why borrow at all? If he's making a narrow profit margin, why does he bother taking all the risk? If he's making a decent profit, why not use that profit to pay down debt?

Only an idiot would pay 100% APR to short with zero leverage.

People convincing others to invest in something that looks exactly like a scam does not help the Bitcoin community one bit. The community was worse, more acerbic and heavily divided, before Pirate defaulted than after.

Bitcoin mining != Bitcoin itself

Although I do agree that most Bitcoin mining is a bad investment and people largely do it as a hobby or for fun. Those people who do it as a business generally do take a large risk and don't make a very large profit. Compared to buying Bitcoins and holding them, mining isn't usually a good deal. The biggest problem is technology raising the difficulty before you can pay off your hardware expenses.

I agree with this. It also means you get to pay off your mining gear with other peoples money.

Puzzle out why a bank might pay you interest on the money you deposit on account with them. Now reflect that answer back to the pre-FDIC days. Is your answer still valid? If so, I'm guessing you have your answer as to why Patrick would pay interest to his depositors. (hint: it optimizes his personal TVM)

I remain keenly interested in your reply to BurtW's question explicitly addressed to you. Is there any single economic activity you would deem rational for someone who is long bitcoin?

Holding, it may be argued, is not an economic activity, as it does not result in trade involving bitcoins. While it stretches the point, the same could be said of mining.

Perhaps you missed the post, or the points therein, in his post: https://bt.irlbtc.com/view/92279.msg1170475#msg1170475

But more to the point, the returns PatrickHarnett is making are clearly not impossible. The Lending forum is replete with records of such returns. You could argue that you don't think such a biz could scale, and you could argue that in your opinion, it does not make sense to expand such a biz using others' capital. But that would be projecting your internal bias upon others' reality.