UNITED STATES—The cryptocurrency lending world can get a little frustrating at times for Bitcoin holders, who are often left out of the Ethereum-dominated DeFi world.

Whereas Ethereum-based assets are easily lent and borrowed on decentralized platforms like Compound Finance, Bitcoiners have much less utility with their idle holdings.

This is not a dead-end, however, as plenty of options do still exist for Bitcoin holders in both the decentralized and centralized finance space.

So what options exist for bitcoin lending and loans, and how do they work?

Bitcoin in DeFi

Decentralized finance (DeFi) refers to financial services executed entirely on a blockchain.

Rather than depending on a third party such as a bank to facilitate lending and loans, DeFi harnesses the power of smart contracts to automatically hold, transfer and manage these transactions.

Due to Ethereum’s popularity and its ability to execute smart contracts, it has become the primary network on which DeFi platforms and services are built.

Unfortunately, assets from other blockchains are not yet smoothly interoperable with the Ethereum network. Put simply, Bitcoin and other blockchain assets can’t interact with Ethereum’s DeFi services – at least not directly.

Bitcoin can still be lent and used in DeFi through a tokenization process, which “locks up” Bitcoin and issues a tokenized version on Ethereum. Services such as Wrapped Bitcoin (WBTC) and TBTC both provide their own solutions for this, however it can require difficult extra steps.

Users can lend and borrow WBTC on Compound Finance.

Bitcoin in CeFi – BlockFi

Centralized finance (CeFi) refers to more traditional financial platforms that are controlled by a singular third party. This third party (a bank, or similar) is in charge of facilitating loans and exchanges and holds assets on behalf of the participants.

CeFi companies are not restricted to a single blockchain and can also operate within the traditional financial system, which means they can offer fiat currency services.

This is extremely helpful for those who want to take out loans in fiat currency (e.g. US Dollars) against cryptocurrency collateral.

Currently, the easiest and most reliable way to lend Bitcoin is through BlockFi. Blockfi is a non-bank finance company that provide fiat currency loans, secured with cryptocurrency collateral. They also offer Bitcoin (and other cryptocurrencies) interest accounts, which pay interest rates like a regular savings account. You can view blockfi interest rates but for many currencies, they are between 4-6%.

BlockFi provides Bitcoin (BTC), Ether (ETH) and USD Coin (USDC) holders with:

  1. An easy way to earn interest on idle cryptocurrency holdings
  2. An alternative to selling cryptocurrency when you need cash, by providing fiat currency loans against cryptocurrency
  3. Money markets for cryptocurrency without smart contract risk, or a need for technical knowledge.

They have been around for almost three years now, receiving funding from notable names including Valar Ventures and Winklevoss Capital.