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Would it be hard to start a service to let people short bitcoins? You'd basically just be "lending out" the bit coins to people and making interest.

Would there be a lot of regulations to deal with, or no?

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Services have existed with margin/option trading, but some of them have shut down because they were hacked. New ones that come out every day are too insecure to be trusted.

In fact, just today a margin trading website was exposed as having tons of SQL injections and storing user passwords with unsalted MD5 hashes. Until somebody can step up to the plate stability will be an issue.

Which reminds me, I have a rather nice domain name and experience with bitcoins and security, if only I had the financial/regulatory know-how...

Stop worrying about the financial and regulatory know how and just try out your idea. You might find it goes nowhere and you will have wasted your time thinking about "regulations". No one is going to shut down your website making 10$ a month and if you do start to grow then you will be able to pay the right people to deal with the right problems.

With all the recent hacking of Bitcoin services, maybe it's this kind of thinking which is causing more problems.

I don't think regulation helped any of the banks with high profile credit card hacks recently. Don't confuse regulation with security. Regulation is not necessarily in place to provide security for the end user, only barriers to entry. Once you do start to grow obviously the correct precautions should be taken.

"Stop worrying about the financial and regulatory know how and just try out your idea."

Internet Libertopia!

I have started to think about it. You just have to consider things like what happens when the lenders want their coins back and users have valid short orders out. Think about the incentive here. The lender is giving his coins to people who he knows are betting the price will drop. This means that when the price does start to drop the lender could want to sell the coins to prevent further loss. However, the other user (the one who got the lent coins) may not be ready to return then.

There was a service that allowed shorting (Bitcoinica). But all that seemed to come to a very abrupt and painful end. While it was running it did serve a valuable purpose.

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