What is Bitcoin Lending
Bitcoin lending services range from legitimate to outright scams. Learn how to lend Bitcoin wisely and avoid losses
If you have some Bitcoins, you may want to see them work for you instead of lying around in a wallet. That is where Bitcoin lending services come in. Lending in cryptocurrencies has the noble idea of providing financing for world areas where finding bank loans may be difficult or impossible. Also, it is a tool for traders who want to sell borrowed Bitcoin at a high price and then buy them again to return the loan.
Lending on BitBond
BitBond and similar platforms are the plainest forms of lending. They are the cryptocurrency version of peer-to-peer online lending. The loans reach the persons directly, and creditors have the chance to look through profiles and ratings. Strangely, the BitBond loans mostly sought cash, and there were limited opportunities to lend Bitcoin. But the principle remains- loan duration and personal risk are up to your discretion and the probability of default is high.
Some services running P2P lending did not survive- BitcoinJam, one of the most used services, tanked on a series of bad reviews and closed in May, just before the biggest Bitcoin rally in history. The site aimed to bring lending to third world countries. But citing regulation, it claimed this task was impossible.
So far, BitcoinLoans.com is still working, offering worldwide exposure to lenders and easier loans to borrowers.
The most accessible lending platforms allow users to lend Bitcoin directly. But others are more complicated, using a native token. Which leads us to:
Lending on BitConnect
BitConnect is a platform that uses its BitConnect tokens for loans. You can buy the tokens with Bitcoin, and the rewards come in the native BitConnect token.
There is a catch though: you cannot withdraw the new amount of tokens. You can only withdraw your initial investment plus interest, meaning you will lose most of the tokens. BitConnect is also an investment platform that has received criticisms about running a pyramid scheme.
But because of its widespread marketing and generous referral program, BitConnect is ubiquitous, and you may come across its services if you want to lend your Bitcoin. But you may want to avoid this product unless you can afford to lose your investment in whole or in part, and receive a smaller payout than expected, as the terms and conditions state.
Lending on Poloniex
Lending on Poloniex is a different marketplace where traders lend funds so that other traders can take up positions. While lending funds, the user cannot move them off the platform.
Bitcoin Lending Scams
Even the best lending sites and services contain risk, and despite due diligence, the receiver of the loan cannot be fully vetted. Users on Reddit have been critical of Bitcoin lending, at the time when direct gains from the market price appreciation of Bitcoin are much higher than interest rates.
If it sounds too good to be true, it probably isn't. Anyone that promises to double your Bitcoin in 24 hours is probably running a short-term pyramid scheme.
At BadBitcoin.org, you can check any service or address before sending Bitcoin. Remember that any Bitcoin transaction is irreversible and non-refundable. Even if the address does not bear the signs of a scam, research it to be certain it would not lead to losses.
The Silver Lining
The best thing about Bitcoin loans is that for some services, you can choose to diversify your lending and participate in several loans with a small amount, instead of sending all your money to one borrower. But always be aware of the risks, and check if the site takes its commission before or after repayment. If the site takes fees when the user repays the loan, this is a good sign since there is an incentive to only allow high-quality borrowers. Otherwise, the site has no incentive to block borrowers.