How Lenders and Borrowers Directly Deal through the Blockchain

Traditional banking and loan companies essentially serve as intermediaries between lenders and borrowers, making their relationship indirect and complicated.

By implementing blockchain in microfinancing industry, we can change that, and let lenders and borrowers communicate on a personal level. This technological development allows lenders and borrowers to connect on a close-to-personal level, without the need to go through a third party like a bank. Intermediaries usually complicate the process of borrowing and lending, and blockchain does the opposite – it provides a direct link between them.

How does blockchain create a direct connection between borrowers and lenders?

Blockchain is a decentralized network where smart contracts function.

Smart contracts are essentially:

  • The agreement that a lender and borrower make (including all conditions on loan, like interest, length, and monthly payments).
  • Completely self-executing, which means that there is no need for a middleman to keep a close track if both sides are adherent to the terms of the agreement.

Direct relationship is established, thanks to the blockchain and the ability to transfer cryptocurrency from one person to another one, without someone in between to coordinate the transactions. I can imagine how visually unimaginable this process can be, let me explain it to you by explaining how we got Bitcoin transactions through my sister.

My sister was a bit resistant with buying a cryptocurrency and imagine how would she react when her friends offered her to repay loaned money with Bitcoin. We had to go through the whole process of explaining how Bitcoin transactions work and convince her to invest in a growing currency.

How Bitcoin transactions work:

  • Have the amount of bitcoin that you want to send.
  • Have the address of the recipient.
  • Send the amount from your digital wallet (online, mobile, paper, hardware, etc.).
  • Send the amount and wait for a confirmation (transactions need to be confirmed to avoid double-spending).
  • See your confirmed transaction – it will be added on the block on the blockchain (once the transaction has been validated, it can’t be undone).

It did not change her mind about investing in cryptocurrency, but she did see potential in borrowing and lending crypto by clearing up the process of transactions for her. She even managed to rule out the banks and intermediaries in the financial relationship between her and her friends.

I might even introduce her to AssetStream later. AssetStream is a blockchain-based microfinancing platform that creates a direct connection between lenders and borrowers.

Why is this direct connection important?

Traditional banking institutions and loan sharks usually charge a hefty fee for performing the services blockchain platforms such as AssetStream can do automatically. This means that the same service costs considerably less money when you decide to use the services of a peer-to-peer lending platform instead of a banking institution.

The fact that all information is automatically available for both sides on a contract means that lending and repaying happens in a matter of seconds, compared to several days, or even weeks, with other types of lending services. Such fast transaction times are unmatched in the industry.

The best thing about this direct connection between borrowers and lenders is that everything happens online. Blockchain allows for the platform to be accessible for anyone and from anywhere in the world, as every process necessary for the approval of a loan is completed online, through your smartphone or computer. This enables lenders and borrowers to reach out to untapped opportunities, which were previously unavailable simply because of location.

Tired of the sluggish bank procedures? Join a blockchain-based lending platform!

As technology advances, financial service providers are upgrading as well, so don’t miss out on your chance to ride the wave of innovation and join a blockchain-based platform like AssetStream.

Disclaimer: This is a guest article. The views, opinions and positions expressed within it are those of the author alone and do not represent those of Cryptopolitan. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.

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