Let's suppose that Mr. John Doe has somehow managed to accumulate 10 BTC. He holds on to them for dear life as it's his one and only savings/lifeline. He has essentially zero fiat money. Only a bank account. His coins exist on an encrypted wallet.dat, created on a dedicated computer and redundantly backed up.

John has heard of all this "defi" stuff, but doesn't understand how it works in practice. He has spent many hours reading and asking questions related to this, but has still not been able to get it all straightened out. He just gets frustrated and irritated trying to make sense of the fuzzy sales talk found on all these slick websites.

Importantly, John has no ability to do "KYC/AML", and doesn't trust centralized entities either way. John is fine with providing his full name and bank details to any entity -- the only problem is producing a "photo id", since he hasn't got one and doesn't want to ever get one again. This is important to John.

John wishes to somehow get a steady monthly "income" from his ten digital gold bars (Bitcoins, that is), most likely in the form of some sort of "interest". John is not well educated in economic terms and therefore might not be using the correct financial terms.

Is there some way that John could enter some kind of command into his Bitcoin Core which creates a "smart contract" directly on the Bitcoin blockchain which, in some manner, "locks" the coins from being spent by him, but still doesn't make him lose control of them (the private keys stay with John)? That is, so that "some other entity" in some way derives value from this so that they will send John some reasonable sum of fiat money to his bank account monthly or yearly?

And if this is possible, how exactly does that other entity derive value from this smart contract if they don't control John's coins? They are just "locked" in the sense that John cannot spend them for some pre-determined amount of time, or until both parties agree to dissolve the smart contract. (This is what I'm guessing from my understanding.)

And assuming this is possible, what amount of USD would John get per month from such a setup? Are we talking $1,000 or $100 or even $10? John doesn't think it's worth it if it's less than $1,000, which has become sort of a "Western bare-minimum monthly income" for basic survival. Even if people trust these "smart contracts", there's always the risk of a bug or glitch which would make him lose all his hard-earned satoshis. That is a nightmare scenario for John.

In fact, the "monthly allowance" doesn't necessarily have to be paid in fiat money. It can just as well be Bitcoin or really just any altcoin supported by Bisq, so that John can trade them himself to end up with fiat in the end. If that makes a difference. (Maybe there's less regulations and legal obstacles for an entity to hand out some weird coin rather than dealing with bank transfers.)

I would highly appreciate if somebody could explain what I'm missing about this, sticking to John in the situation described here.

Please do not redirect this to an existing question; I have more than likely read it and the answers already.


No this isn't possible.

Firstly Bitcoin core's graphical user interface doesn't support complex transactions

Secondly no one is going to give John an income without receiving something in return that is more valuable to them. In particular some control over collateral that can be used to generate income now or in future by some conventional mechanism.


Is there some way that John could enter some kind of command into his Bitcoin Core which creates a "smart contract" directly on the Bitcoin blockchain which, in some manner, "locks" the coins from being spent by him, but still doesn't make him lose control of them (the private keys stay with John)

  1. Command will be to send bitcoin
  2. Smart Contract can be on Bitcoin or Layer 2
  3. John will have keys from a multisig used in the Contract

Everything involves risks that are associated with any lending or providing liquidity in markets. Also the security and decentralization of the smart contract being used.

  • The native Bitcoin blockchain itself (not Layer 2) does not allow for complex smart contracts, so "smart contract can be on Bitcoin" is just completely incorrect. You also can't create or manage layer 2 solutions via Bitcoin Core, and a production-ready layer 2 solution for lending Bitcoin does not currently exist.
    – ieatpizza
    Feb 15 at 12:31
  • 1
    Smart contract doesn't need to be complex to be called a smart contract. You can add features in the open source project if you want to use only bitcoin core wallet for everything. Production ready layer 2 solutions for lending bitcoin exists.
    – Prayank
    Feb 15 at 12:44

It's not possible in the way you suggest.

Crypto lending services usually work by having the borrower offer some collateral, and the borrower gets full control of the crypto assets they are borrowing, with the collateral being offered in case the borrower defaults on the loan. You are offered "bonds" in exchange for lending your crypto assets, and the "bonds" represent the value you have offered for loan. Nobody is going to pay you interest merely for having your crypto assets locked up if they can't use those assets.

Such de-fi contracts may be possible on a future 2nd layer to Bitcoin, but is not possible in Bitcoin natively (so it won't be possible using Bitcoin Core). These 2nd layer solutions include sidechains such as Sovryn -- if you want to lend Bitcoin specifically, and you don't want to use a centralized service, you may be interested in looking into these sidechain projects.

  • HodlHodl Lending works without KYC, user lending owns one key in a 2 of 3 multisig: lend.hodlhodl.com (You can lend only stablecoins right now and borrow stablecoins with bitcoin as collateral but lending bitcoin will be possible) there are few other options available to get yield by providing liquidity including on-chain (Joinmarket), Sidechain (Sovryn, TDEX) and layer 2 DEX protocols using LN like OpenDEX may support it as well
    – Prayank
    Feb 15 at 11:45
  • @Prayank Well, that centralized website has a "Sign up" button and asks for e-mail addresses and usernames and has a Google reCAPTCHA thing on it. Hardly anonymous or "defi" in any way?
    – John Doe
    Feb 15 at 12:02
  • @Prayank "If you want to lend Bitcoin specifically, unfortunately your only option at this time is to go through centralized lending services..." From quickly checking on HodlHodl, they do not currently allow lending Bitcoin, as you acknowledge yourself. Please retract your downvote.
    – ieatpizza
    Feb 15 at 12:20
  • If you can correct few things in your answer I can retract the downvote. 1. Not possible in Bitcoin natively 2. No contract has been deployed yet 3. Your only option is to use centralized and KYC services. All these points are INCORRECT
    – Prayank
    Feb 15 at 12:39
  • @john-doe It is peer to peer, no KYC requirements and users hold one key each in every contract. Not sure what is your definition of DeFi.
    – Prayank
    Feb 15 at 12:41

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