The Blockchain Technology And The Loan Industry

The cryptocurrency industry has finally captured the imagination of the world. The surge that has been witnessed this year is beyond anything that was ever imagined to be possible. Beyond peer-to-peer means of making payments, this industry or the technology that is the backbone of its ascension (the blockchain technology) is making headways into many sectors of life and business. From banking, to insurance, to healthcare management, self-driving vehicles, smart energy grids and beyond, the blockchain technology has taken it upon itself to revolutionize the way we live life on planet earth.

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The status quo is under imminent and some might say inevitable threat from this giant invention. From countries such as China, to big banking establishments around the world, the blockchain technology has forced everyone of worth to sit up and take notice. Long gone are the days when it was viewed as some geek-only idea that was bound to fizzle out of existence. Cryptocurrency is now a fully mainstream thing, and so is the blockchain technology becoming the standard of perfection in all spheres of life and industry.

One of the most crucial niches where this amazing technology will make waves is in the loans and credits industry. This mammoth of a field of business has been long criticized for being too rigid, too aloof from the needs of people, and too far behind in its operation than the times we live in. Everyday people often complain about how they are shut out of the loan markets due to its unreasonable and unrealizable demands before they are granted much needed loans. Small businesses often face excruciating credit problems due to the industry’s fixed set demands or crystallized requirements only upon which a business might be granted a loan. The blockchain technology and the Ethereum blockchain to be specific, is set to rid those needing credit from all over the world of all the headaches they currently face from an unwelcoming loan industry

The Ethereum Blockchain and Peer-to-Peer Loans

If the blockchain technology is a revolution, then the Ethereum blockchain is the revolution after the revolution, as it brought with it a huge new field of possibilities for businesses all over the world. Ethereum is a distinct blockchain platform which further decentralized an already individualistic industry by giving startups an easier way to set up their applications on its vast infrastructure. Ethereum is far beyond just a mere cryptocurrency as it is a whole ecosystem that allows tech companies to create their own niche industry applications or even other alternate cryptocurrencies without the need of setting up their own blockchain.

The democratization of the blockchain industry that was achieved by Ethereum which triggered the proliferation of ICOs, is what it will also bring to the loan industry. With the blockchain technology every user has a say, and not single entity has any ultimate power over how a certain blockchain is run. It often turns a whole industry on its head by putting the consumer in the driving seat instead of the big conglomerates that presently reign supreme. By its core philosophy of giving users ultimate control over the fate of their activities online, Ethereum is the ideal infrastructure that will make the loan industry finally accessible to everyone.

Some of the key features that make Ethereum perfect for this endeavor include :

• Peer-to-Peer Interactive Ecosystem: The Ethereum blockchain is notorious for its cutting-off of all middlemen and costly tech giants from the equation and leaving the only people that matter directly in charge in any industry. This peer-to-peer interaction is what is desperately needed in the loan sector as it will destroy every bureaucratic red tape and eliminate middlemen that often make loans inaccessible to people who desperately need it. While peer-to-peer payments has been made possible for long by Bitcoin and many other outfits after it, peer-to-peer transfer of other assets is what Ethereum has finally made possible, which is a key ingredient to the success of any decentralized loan industry.
• A Borderless Loan Industry: Ethereum is a completely stateless and borderless piece of technology that no government or company in the world has a way of either shutting down or even slowing down its processes. A real decentralized loan industry is one that is able to bring users from all continents of the planet all under one platform to freely transact with one another without any debilitating state rules that often cripple the fluid flow of business. With the Ethereum blockchain, a user in the US with extra amount of cash can easily give out those extra funds to another user in Mongolia all without the need of lawyers, or banks for that matter, and safely reclaim their borrowed amounts with interest at the end of the borrowing period.
• User Friendliness: Any piece of technology that requires specialized knowledge to be manipulated or used by the general public often remains on the fringes as its acceptability is greatly hindered. Ethereum was built with simplicity at its core, and making its facilities completely accessible to the layman with no coding knowledge has been key to its rise in the industry. Anyone can send out their loan request to the whole world with a few lines of instructions, and easily conclude their transactions when they find willing lenders all without needing the help of a tech geek.
• Incorruptibility: For anyone to trust their funds in the hands of someone they have never met and might never get to meet in person, it requires a platform of the highest degree of incorruptibility which the Ethereum blockchain is. This marvel of human creation is so massive in size that the computational power needed to suppress it, or alter even a single transaction for malicious purposes is simply non-existent in the hands of any single entity on this planet. This absolute level of security coupled with the fact that there dedicated developers all over the world that are constantly working on making it even more secure makes Ethereum the perfect platform to host a decentralized loans industry.

Smart Contracts

Upon all the points mentioned above, there is none that is more crucial in the deliverability of a fully democratized loan industry than Smart Contracts, which is the number feature as far as Ethereum is concerned. A Smart Contract can be easily defined as instructions that are attached to any Ethereum based transaction which states that a certain number of cryptocurrency should be transferred from one peer to another on the fulfillment of certain conditions. Smart Contracts are designed to be so easily created which is why it is touted as what will render lawyers obsolete in the field of drafting contracts for individuals and businesses.

To make it make sense for everyone, if Mr. A wants to send out a loan request for $5000, in order to enable him expand his restaurant business in Madagascar. He could do that by first tokenizing the title of an asset he has e.g. A car, or a valuable Wrist Watch and set it in a Smart Contract which states the amount he needs, the time period he wants to pay back the borrowed amount, as well as the interest he feels is a fair return for the lender which he intends to pay back with the wrist watch or car as the collateral for the loan. And if Mrs. B. from Canada sees that she as an extra bit of cash which she can use to gain passive income by loaning it out, she can either accept the Smart Contract Mr. A has put out as it is, or offer a counter offer for the loan applicant to get things rolling.

There are several reasons why Smart Contracts are the perfect fit that will fully give a decentralized loans industry the mechanism it needs to thrive, some of these reasons include:

• Protection of All Parties: A Smart Contract once initiated cannot be changed by either party. This ensures the protection of all participants bother the lender and the loan applicant. The person borrowing knows that should the applicant default on their loan, they have a safety mechanism in the form of the tokenized collateral which automatically becomes liquidated to accrue back their borrowed amounts. While the person borrowing the money knows that the lender cannot suddenly begin to demand back the borrowed amount unless the time for payment is due, and that as long as they uphold their own side of the bargain no harm will come to their tokenized collateral.
• Cost Effectiveness: A Smart Contract eliminates the need for an agent to facilitate the lending process for both the lender and the loan applicant. This greatly reduces the costs they both have to bear in seeing the loan process come to fruition. The borrower doesn’t have to pay any sizeable chunk of the loaned amount to an agent or coding expert to create the contract, while the lender doesn’t have to pay part of their interest payout to any loan agent either.

The ground for a decentralized, smart and efficient loan industry has already been cleared with several startups making headway in the market already. Some of the pioneers in this field include Wish Finance, ETHLend and the Ripio Credit Network. ETHLend for example is an Estonian based startup whose main goal is to completely remove any discrimination that arise in the loan industry by leveraging on the ERC20 tokens of the Ethereum blockchain. The viability of Ethereum is as real as it can get, as it offers everyday people from all over the world, the chance to meet and conduct business directly regardless of country, race or background. With the Ethereum blockchain, business is only about business, and business can go on no matter where you currently live around the world.