With the advancements in the field of science and technology, the inner workings of different fields are changing, and the same goes for the world of business and finance. A new term that has evolved on the scene as of recent is Blockchain Technology. Blockchain has suddenly become an important factor for business and the financial world. The below study will provide the required details about Blockchain.
What is Blockchain
Blockchain is a record-keeping system. The term blockchain refers to a chain of the digital blocks in which information and transactions are recorded on a real-time basis. An important point to notice is that the information in a block includes the basic information about a transaction. This information is number figures, dollar amounts, the date and time of the transaction. Along with the information about the transaction, it also includes information about the involved parties of the transaction.
However; a point that should be noted is that the details of the parties involved in the transaction are not public. Rather, this information is shared with every individual using blockchain technology, and every user is assigned a specific user code, which is also known as a digital signature in technical terms. The signature that is assigned to users allows them to complete the transaction without being noticed and by staying anonymous.
To keep the procedure updated and recognizable, every block is assigned with a unique user code so it can be identified in multiple blocks. A single block can save one Megabyte of data. When two or more blocks relate to each other, it becomes a chain. It should be noted that two or more blocks become a chain only if a decentralized computer network approves the transaction after it verifies the details of the transaction. After blocks are chained together, the blocks are hashed together. When a block is assigned with a unique identification code, it is called hash, and this whole procedure is called hashing.
Who Uses Blockchain Technology
Blockchain technology is created with the conjunction of cryptocurrency bitcoin. The owner of bitcoin wanted to ensure that the double spending of the digital currency should be registered and noted in a server. So, for this purpose, blockchain technology was invented in 2008.
Although bitcoin has used blockchain technology in the first place, however; other cryptocurrencies are observed to be using the same technology. It should be noted that business applications of blockchain technology are much broader than cryptocurrency, and different businesses are accepting the idea of blockchain technology.
As per IBM, both tangible (cars, real state, and food) and intangible assets (bonds, securities, etc.) are all fair game when it comes to relying on blockchain technology. An example that can be shared regarding this procedure is Everledger, who has secured over one million-dollar diamonds through blockchain technology.
Few of the names who have secured their businesses through blockchain technology are IBM, Spotify, Walmart, Bank of America, Microsoft and FedEx.
Why People Use Blockchain
The main reason for using blockchain technology is that it is very safe and secure. It is not possible for hackers to sneak into the system to alter the record books, as all the system is interconnected in chain form and in order to change a record of an only single block, hackers will have to alter the whole string of a chain.
Every business person wants to save money in every way possible without hurting the business operation. Further, blockchain technology reduces the cost of amount transaction that is heavily featured in a regular currency transaction. Blockchain technology is the fastest method to get paid provided the involved parties have completed the terms and conditions. Blockchain technology has a built-in tracking system that helps to end any dispute before it appears on the scene.
As we have understood by this moment that blockchain technology is the safest and secure method of transaction, we should now understand how the lending procedure works in blockchain technology, which has evolved to become the most popular helping aid for the businesses around the globe.
How Does Blockchain Lending Work
As blockchain technology can avoid and remove any middleman, the lending procedure through blockchain technology can revolutionize the current banking system.
Before the involvement of the blockchain system, the lending procedure was handled on peer 2 peer or simply a P2P system. Loans in the blockchain system are based on that old school P2P system, as it’s just a spin of the P2P system. Blockchain P2P system allows individuals or businesses to loan money to other individuals or organizations. Forbes has mentioned that in the blockchain system, lenders and borrowers work with each other under the agreed set of rules. This creates a sense of trust and responsibility between the blockchain parties.
Now, let’s take a moment and see what the popular blockchain lending solutions in the market are.
Although many lenders in the market work on the blockchain system, however; in the following, we have listed the most trusted ones.
Most important loans that people and businesses these days are looking for is the loan on digital currency or cryptocurrency. Most famous cryptocurrency is bitcoin and bitcoin loans can be obtained through online services like Unchained Capital or Bit Bond. Both parties have their own set of rules, and some individual parties or entities can provide Bitcoin loans.
SALT (secure automated lending platform) is a platform which allows the user to secure loans through doge, Litecoin, Ether, and Bitcoin. SALT is a membership platform, and it is designed and built only to connect borrowers and lenders. SALT acts as a middleman and offers the lowest rates of 5.99 percent, and parties can select the duration of terms from one month to 36 months. SALT also have no credit check, and when a loan is secured through them, they instantly deposit in US bank account of the party.
A point that should be clarified here is that SALT is sometimes called as salt coin and can easily be confused with another cryptocurrency salt coin or SaltCoin.
Just like other lender options, Ethlend is also a decentralized system. However; it is operational on the Ethereum Network. They do allow the borrowers to set their terms and conditions and also don’t require an intermediary. Tokens must be purchased through the Ethereum network to secure a loan through this channel.
To place a loan request on this platform, a borrower will require you to submit the set of rules on the portal, and if any lender agrees with the rules, the loan can be provided and based on the above-mentioned P2P system loan system.
As mentioned, the online marketplace offers different options to secure a loan but which option can be selected by new businesses in the market. The most preferred and most used option for lending is Unchained Capital. It operates like SAALT but offers 10 to 14 percent interest rates. This rate is not best for the borrowers but very suitable for lenders.
All the options in the market are great, but we pick Ethlend. Ethlend provides interest-free loans and provides flexible terms and condition for borrowers.
Risk of Blockchain Personal Loans
In P2P blockchain lending system, the majority of the risk is on the lender, but it should be noted that in case, the loan goes to default by any means, then the borrower will risk their online reputation in the digital marketplace.
We should be thankful that there are many cryptocurrency platforms in the market, so in case the reputation of the borrower is on the stake, a different platform can be selected.
The Benefit of Blockchain Lending
Although there are risks involved in blockchain personal loan lending system. Small businesses and individuals can increase their wealth by interest.
If you are lender, all three of the lending mentioned above platforms can bring you the best interest rate and the best part is that the lenders don’t have to accept the terms and conditions that they are don’t agree to. Blockchain lending system helps the banking system, and an individual can become bankers. The best example to suit this notion is that Bank of America is interested in blockchain lending system because they see the future of blockchain.
There are some points that the beginners should take note of before starting to take an interest in the blockchain system.
- The most important point is that a beginner should note that not every individual can become rich by using cryptocurrency.
- Cryptocurrency and its rates are not fixed and can vary in a blink of an eye due to market.
- Every platform is not right for the beginners. You should be selecting a single platform.
- Although modern internet pioneers are predicting that cryptocurrency can replace the normal banking and financial system. However; it is not a guarantee yet. Don’t rely only on digital currency.
- The most important and obvious point of all is that keep your internet credentials and blockchain credentials private.
Future of Cryptocurrency
We cannot ignore the importance of cryptocurrency in today’s digital world. Organizations like IBM and Microsoft have shown their interest in cryptocurrency and businessmen are looking to use it for investment and trade in the future. Although we can’t guarantee that it will replace the traditional currency, however; it is becoming a phenomenon that can’t be ignored.