Category Archives: Bitcoin

What is a bitcoin loan and how does it work? – Pros & Cons

What is a Bitcoin Loan?

Bitcoin loans are pretty much like any other loan where you can borrow specific amounts from a lender and pay them at certain interest rates. The only difference is that in this type of loan, cryptocurrencies serve as your collateral or the item or asset used to secure the loan. 

The rapidly changing value of Bitcoin is the clear reason why it isn’t easy to just borrow Bitcoin from someone you know. In cases like this, the lender and borrower need reassurance that the requirements from both parties can and will be met. So if you want to either borrow or lend crypto securely and reliably, exploring crypto or Bitcoin lending platforms might be the most appropriate solution for you. 

How does Bitcoin lending work?

A bitcoin-backed loan uses digital currency as collateral, similar to a securities-based loan. The basic principle works like a mortgage loan or auto loan — you pledge your crypto assets to obtain the loan and pay it off over time. You can get this type of loan through a crypto exchange or crypto lending platform.

While you retain ownership of the crypto you’ve used as collateral, you lose some rights, such as the ability to trade it or use it to make transactions. Also, if the value of your digital assets drops significantly, you may end up owing back much more than you borrowed should you default on the loan.

People may consider crypto loans because of the benefits they provide and because they have no intention to trade or use their crypto assets shortly. The acronym HODL, which stands for hold on for dear life, is a common refrain in crypto-focused online forums.

Advantages & Disadvantages

ProsCons
Bitcoin lending involves borderless online transactions and it is one of the pioneering cryptocurrencies to be accepted in almost every part of the world.Bitcoin lending faces tough competition from other emerging crypto lending services.
Bitcoin runs on a decentralized blockchain and is not controlled by any central authority. Due to its decentralized nature, BTC assets are not vulnerable to the governance-based manipulation of political bodies, banks, and other financial institutions. Bitcoin lending faces issues due to the infamous volatility of BTC prices. If the price drops dramatically to an all-time low, the Bitcoin lending platform faces complications in serving its lenders and borrowers. Therefore, this unpredictable price swing makes Bitcoin lending risky for investors. 

How do you get a Bitcoin loan?

To get a Bitcoin loan, one can browse through multiple Bitcoin loan sites. These websites are the Bitcoin lending platforms that can provide instant Bitcoin loans to their users. In these platforms, the process of lending Bitcoin in the form of cash loans is simplified in many ways. This is done to make Bitcoin loans more accessible for the greater public. By following these steps, one can get a Bitcoin loan without losing time on traditional loan procedures.

Step 1 – Select a Bitcoin lending platform
Step 2 – Create a user account by verifying the trust score and cryptocurrency support
Step 3 – Select the type of Bitcoin loan based on the collateral requirement, interest rate, DeFi/CeFi, etc
Step 4 – Submit the loan application or accept the loan offer and get the loan in a few hours after the borrower accepts the loan terms

Important things required for Bitcoin loan application

  • Proof of being a registered user of the lending platform
  • Documented proof of age (18+ years)
  • Digital verification of email and phone number
  • Documented proof of Bitcoin holdings (crypto wallet, crypto exchange, etc.)

Applying for Bitcoin loans is easier for registered users of crypto lending platforms. Moreover, it is easy for registered users of leading cryptocurrency exchanges such as Binance. Such users have enough verified data to prove their identity during the application. While borrowing crypto loans, it is equally important to check the cryptocurrencies and the fiat currencies supported by the Bitcoin lending platform.

Bottom line

With all the things we’ve discussed so far, you’re probably thinking about whether trying your hands on crypto loans is a good idea or not. So here are other key points you might want to look into to help you come to a decision.

If you’re a newbie in the crypto space and want to have fractions of BTC by not taking the trading route, you can opt to borrow Bitcoin to get started. Sending and receiving money through cryptos is much cheaper and faster than with many banks and other third-party financial institutions. 

Bitcoin Basics For Beginners

What are bitcoins?

Bitcoins are decentralized, purely digital virtual coins exchanged directly between two parties online with no middle man. Unlike modern fiat money, Bitcoin, is not controlled or backed by any bank or central government authority.

Are bitcoins anonymous and untraceable?

No, contrary to popular belief, they aren’t. A traceable trail of each Bitcoin transaction is left behind in a public log known as the blockchain. The public record prevents people from spending the same bitcoins more than once.

How does Bitcoin work?

Each bitcoin is a computer file stored in a digital wallet on a computer or smartphone. To understand how the cryptocurrency works, it helps to understand these terms and a little context:

  • Blockchain: Bitcoin is powered by open-source code known as the blockchain, which creates a shared public ledger. Each transaction is a “block” that is “chained” to the code, creating a permanent record of each transaction. Blockchain technology is at the heart of more than 10,000 cryptocurrencies that have followed in Bitcoin’s wake.
  • Private and public keys: A bitcoin wallet contains a public key and a private key, which work together to allow the owner to initiate and digitally sign transactions, providing proof of authorization.
  • Bitcoin miners: Miners — or members of the peer-to-peer platform — then independently confirm the transaction using high-speed computers, typically within 10 to 20 minutes. Miners are paid in bitcoin for their efforts.

Bitcoin value follows the law of supply and demand — and because demand waxes and wanes, there’s a lot of volatility in the cryptocurrency’s price.

Besides mining bitcoin, which requires technical expertise and investment in high-performance computers, most people purchase bitcoins as a form of currency speculation — betting that the U.S. dollar value of one bitcoin will be higher in the future than it is today. But that’s difficult to predict.

How to store the Bitcoin?

Bitcoins can be stored in two kinds of digital wallets:

  • Hot wallet: Digital currency is stored in the cloud on a trusted exchange or provider, and accessed through a computer browser, desktop, or smartphone app.
  • Cold wallet: An encrypted portable device much like a thumb drive that allows you to download and carry your bitcoins.

Basically, a hot wallet is connected to the internet; a cold wallet is not. But you need a hot wallet to download bitcoins into a portable cold wallet.

How bitcoins are purchased?

There are four ways to get bitcoins:

  • Cryptocurrency exchanges – There are a number of exchanges in the U.S. and abroad. Coinbase is the largest cryptocurrency exchange trading more than 30 cryptocurrencies.
  • Investment brokerages – Robinhood was the first mainstream investment broker to offer Bitcoin and other cryptocurrencies (Robinhood Crypto is available in most, but not all, U.S. states). Tradestation, eToro, and Sofi Active Investing also offering cryptocurrency trading in most U.S. states.
  • Bitcoin ATMs – There are more than 7,000 bitcoin ATMs in the U.S. 
  • Peer-to-peer purchases – True to its original spirit, you can buy bitcoins directly from other bitcoin owners through peer-to-peer tools like Bisq, Bitquick, and LocalBitcoins.com.
  • Bitcoin mining – You can earn bitcoins through mining, but the technical expertise required and computer cost put this option out of reach for most.

Which companies accept Bitcoin payments?

Thousands of businesses throughout the world currently accept Bitcoin as a form of payment, including reputable e-commerce businesses like:


Burger King
Overstock
Microsoft
Subway
AT&T
KFC

Bitcoin is an incredibly speculative and volatile buy. It’s worth remembering that stock trading can give you a similar thrill — and picking stocks of established companies is generally less risky than investing in Bitcoin.