<p>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.</p>

<p>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.</p>

<p>Lending offchain is possible, but very fraud prone due to it being hard to enforce repayment. Also see: <a href="https://bitcoin.stackexchange.com/q/11392/5406">Why there's no bank or institution lending Bitcoins?</a></p>

CC BY-SA 3.0
2015-06-08T16:28:59.807Z
So, a script is only tied to one transaction? A script cannot make new transactions for covering interest?
Geremia
CC BY-SA 3.0
2015-06-08T18:01:39.643Z
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
CC BY-SA 3.0
2016-02-03T16:53:20.933Z
Sidechaining would enable enable a script to "make new transactions for covering interest," right?
Geremia
CC BY-SA 3.0
2016-02-03T17:23:31.590Z
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
CC BY-SA 3.0
2016-02-04T00:04:13.340Z
But a contract on a sidechain could be used to move money back, within the sidechain, couldn't it?
Geremia
CC BY-SA 3.0
2016-02-04T13:46:23.137Z
@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
CC BY-SA 3.0
2015-06-08T15:34:33.847Z
2015-06-10T14:23:57.670Z
2017-04-13T12:47:36.707Z
Murch
<p>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).</p>

<p>On the other hand, if you mean just creating repayment links for the agreed amounts it is just following the instructions of <a href="https://en.bitcoin.it/wiki/BIP_0021" rel="nofollow">BIP21</a>.</p>

CC BY-SA 3.0
2015-06-08T16:30:37.440Z
"that is not possible since that depends on the external world." A script couldn't schedule new transactions for covering interest?
Geremia
CC BY-SA 3.0
2015-06-08T13:42:39.753Z
2015-06-08T13:42:39.753Z
sortega
<p>It's absolutely possible to loan money with Bitcoin. <a href="https://www.reddit.com/r/FairShareLoans/" rel="nofollow">FairShareLoans</a> is a subreddit where money is automatically loaned out in ~20$ increments.</p>

<p>Collecting on those loans, on the other hand, is more difficult. <a href="https://www.reddit.com/r/FairShareLoans/comments/35vc5s/the_current_loansheet/" rel="nofollow">https://www.reddit.com/r/FairShareLoans/comments/35vc5s/the_current_loansheet/</a> They appear to have a non-repayment rate of about ten percent.</p>

CC BY-SA 3.0
2015-06-08T21:36:51.047Z
I clarified my question to specify that I'm talking about collecting interests on loans within the blockchain.
Geremia
CC BY-SA 3.0
2015-06-08T21:38:31.907Z
These are on the blockchain.
Nick ODell
CC BY-SA 3.0
2015-06-08T23:19:13.093Z
@NickODell: The Repayment contract isn't is it?
Murch
CC BY-SA 3.0
2015-06-09T03:41:18.153Z
@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
CC BY-SA 3.0
2015-06-08T21:06:03.410Z
2015-06-08T21:06:03.410Z
Nick ODell
<p>Are loans with interest possible in Bitcoin, such that repayment is enforceably encoded with Bitcoin <a href="http://chimera.labs.oreilly.com/books/1234000001802/ch05.html#tx_script" rel="nofollow">Script</a> on the blockchain from the establishment of the lending contract?</p>

<transactions><script><economic-theory><contracts><loans>
Are loans with enforced repayment possible on the blockchain?
Geremia
# Are loans with enforced repayment possible on the blockchain?

(Asked by: username_0 on 2015-06-08)

Are loans with interest possible in Bitcoin, such that repayment is enforceably encoded with Bitcoin [Script](http://chimera.labs.oreilly.com/books/1234000001802/ch05.html#tx_script) on the blockchain from the establishment of the lending contract?

**Tags:** transactions, script, economic-theory, contracts, loans


---

## 3 answers

### Answer by username_1 on 2015-06-08. Score: 3 | Accepted answer

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?](https://bitcoin.stackexchange.com/q/11392/5406)

> **Comments:**
> **username_0**: So, a script is only tied to one transaction? A script cannot make new transactions for covering interest?  
> **username_1**: 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.  
> **username_0**: Sidechaining would enable enable a script to "make new transactions for covering interest," right?  
> **username_1**: 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.  
> **username_0**: But a contract on a sidechain could be used to move money back, within the sidechain, couldn't it?  
> **username_1**: @username_0: 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?  

---

### Answer by username_2 on 2015-06-08. Score: 3

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](https://en.bitcoin.it/wiki/BIP_0021).

> **Comments:**
> **username_0**: "that is not possible since that depends on the external world." A script couldn't schedule new transactions for covering interest?  

---

### Answer by username_3 on 2015-06-08. Score: 1

It's absolutely possible to loan money with Bitcoin. [FairShareLoans](https://www.reddit.com/r/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.

> **Comments:**
> **username_0**: I clarified my question to specify that I'm talking about collecting interests on loans within the blockchain.  
> **username_3**: These are on the blockchain.  
> **username_1**: @username_3: The Repayment contract isn't is it?  
> **username_0**: @username_3: 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.  

---

