BYOB: Be Your Own Bank

Using P2P Lending and Bitcoin to Take Control of your Money

New innovation in financial technology has made it possible to take control of your personal finances like never before. Today you can see your credit score for free with an App on your phone, get a loan within minutes online, and invest in a fully diversified portfolio.

You can now move money or “value” quickly, easily, and safely to anywhere in the world instantaneously — with no trust of a third-party required.

This next generation of Financial Technology or “Fintech” has made it possible for you, the consumer, to do business just as a typical banking institution. Yes, you can BYOB! No, not bring your own beer — but be your own bank.

In the U.S., we have the world’s reserve currency — for now. But after reading about the events in Greece, you may have realized that not everyone is so lucky. Also, after the 2008 financial crisis, many Americans have become increasingly skeptical of big banks.

Be Your Own Bank

A typical banking institution holds deposits and lends out money. In a time before banks had FDIC insurance, many would hold their own cash as physical bills — essentially being their own bank. Often people would “stuff they money in their mattress”, but that isn’t a secure way to store money. An alternative would be in a safe at home or safety deposit box at the bank, but this makes it harder to spend your money on demand.

Finally, before taking this step, consider if you really want to BYOB? Only you are in control of your money, but only you are in control of your money. This means that there’s no FDIC insurance or government entity to bail you out if you lose your password or “keys” to your electronic vault.

Here you will learn how to hold deposits in bitcoin (BTC) and lend out in U.S. dollars (USD). While you can also lend out in bitcoin, this network effect hasn’t been built out enough yet to be completely viable. You could try experimenting on a website called BTC Jam with very small amounts of bitcoin.

This article reflects the opinions of the authors and in no way contains opinions of any companies mentioned herein. This article is for educational purposes only and not an endorsement of or recommendation to buy or sell securities, currencies, or financial products of any kind. One could start with less than $100 in total — $25 in bitcoin deposits and $25 on each lending each platform — to learn and educate oneself.

Lastly, a Google search of “Be your own bank” gives results of “Using Life Insurance as a Source of Liquidity” information, which has nothing at all to do with this article.

Holding your own deposits in BTC

1. Get into the BTC network and out of USD

The first step to becoming your own bank is getting out of USD and exchanging into the bitcoin currency through a gateway. The most popular company for buying bitcoin in the U.S. in most states is Coinbase, which has a low fee of 0–0.25% on their exchange, depending on the price action of the order book.

You can buy bitcoin with Coinbase here.

It can be debated whether bitcoin is or can be a store of value. In the early days, market participants holding bitcoin experienced high volatility. However, the price of bitcoin has been relatively stable over the past few months.

2. Get a Decentralized Wallet and Take Control of your Private Keys

If you are satisfied with just moving out of USD then you can stop here. But if you want to fully become your own bank, you will need to move your bitcoin out of Coinbase and into a wallet where only you control the private key or keys. Think of your private key like the password that allows only you to move money around. Since Coinbase is like a bitcoin bank, they control these keys for you. This would be similar to removing the physical bills from a regular banking institution. Then you don’t have to worry about fees or government intervention in your account.

There are many decentralized wallets and they have very different features. BreadWallet is a great option for iPhone users due to its consumer friendly nature. First, download the BreadWallet App in the Apple iOS App store and it will prompt you to write down a series of words. It’s vital you don’t take a screenshot of these words, but instead keep them a piece of paper. You should also keep several copies in different safe and discrete locations. For Andriod users, the Mycelium wallet is a good option, but there will be a slightly different setup process.

After setting up your BreadWallet, you will copy your bitcoin address, which will look something like this: 19KJZ5aqWnrrCaNAS5Pbd4uknPFBxjALRt.

To do this just swipe right to see the QR code and then tap the screen to select “copy address to clipboard.” This address is what you will give to people who want to send money to your wallet. Think of it like a checking account number that you might give to someone to ACH money into your checking account.

Then login to your Coinbase account and paste the address into the “Send” area to transfer the balance to your new wallet. After you have roughly 6 “confirmations” on the blockchain, then you can know with reasonable certainty that the bitcoin has moved into your wallet safely. You can check this on by pasting your wallet address in the search box. It is worth mentioning to beginners that your “bitcoin” doesn’t exist as actual coins but as transactions in this global ledger we call the “blockchain.”

Congratulations, now you are in full control of your own money!

Keep in mind that the Internal Revenue Service (IRS) has issued guidelines on digital currency such as bitcoin and has ruled that it is not a currency, but rather property. They have their own reasons for making this ruling, but bitcoin works as a currency, store of value (like a digital gold), and a payment network all at the same time — whichever way you want to use it.

Lending out your deposits in USD

In the past, when someone needed a loan they went to the bank, a shady loan shark, or asked family and friends. But in 2007, a company called LendingClub came along and changed that. They allowed investors to lend small amounts of money — as low as $25 — to “crowdfund” a loan. That means if 100 people put in $25 each, then someone could take out a loan of $2,500.

This type of P2P or “Peer to Peer” model helped lower fees for borrowers and allowed investors to earn higher rates of return while diversifying their portfolios within the network and adding to or taking the place of traditional banking investments like a Certificate of Deposit or Savings Account. For the first time ever, the investor could “become the bank” themselves.

1. Get your USD into a P2P Lending company network

The first step to lending is putting money in to the network of a P2P lending company. The two largest are Lending Club and Prosper. To do this, you will transfer your U.S. dollars out of your traditional bank with an ACH transaction, which will take a few days.

2. Lend out in USD with Small Increments

Now you are ready to start lending. Both platforms have an automated system where they can invest the money for you. Alternatively, you can go through each loan and sort by type (reason), maturity, and credit score to find loans to invest in. The platforms take are of all the paperwork and you will receive monthly statements that show details like amount of interest paid and principal outstanding. Also, note that you will owe taxes on income earned from these platforms.

Congratulations on being your own bank! You are now successfully holding your own deposits digitally in the bitcoin currency and you are lending out U.S. dollars just like a typical U.S. bank would.

So, give it a try. With less than $100 of downside, there isn’t a lot to lose. You might be amazed at how easy it is. You might be surprised at how it makes you feel. And you might realize that it might be time for a change — it might be time for Plan B! educates consumers and companies on the benefits of bitcoin. This article is for educational purposes only and not intended as investment advice or an offer to buy or sell securities, investments, or currencies of any kind. Follow us on Twitter @Buy1Bitcoin and tip us on @changetip if you enjoyed this article.
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