Cryptocurrency has evolved massively on all fronts. Since its establishment about a few years ago, Blockchain and Cryptocurrency have set new trends in the financial industry. Today, it is possible to borrow cryptocurrency from Blockchain backed market lenders. Not only that, cryptocurrency institutions and individual investors can now borrow whatever top cryptocurrencies they desire, and at whatever rate they need.
An important reason for the massive thrives and success of Blockchain-backed loans is the increasing digitalization of more financial instruments. Financial influencers like programmable money, digital assets, smart contracts, etc. are quickly becoming digitalized. These changes are rapidly redefining the banking and financial markets. Digital lending solutions that use Blockchain-based technology are rapidly increasing. The trend looks a lot like one that’ll revolutionize the crypto market place.
Another relevant factor responsible for the growth of Blockchain-based lending is email marketing. There’s now more focus on end-to-end encrypted emailing. To this effect, Blockchain-based coded emails have thrived. Mails sent using the Blockchain-based technology is highly secured and challenging to infringe. Blockchain-emails, therefore, have several benefits for Blockchain lending.
Blockchain has provided innovative solutions for various institutions across multiple industries, and email services are one of them. Blockchain offers an open distributed ledger that can be replicated over several computers. These ledgers have no central point of access. This improvement makes it immune to threats from harmful sources. Features like this make it appealing for Blockchain-backed emailing.
2. What is a Blockchain-backed loan?
Blockchain-backed loans are decentralized cryptocurrency loans you can collect for personal or business use. Blockchain loans can be used to pay off credit card debt, take vacations, buy investments, or pay for other expenses and so on. Digital assets like Bitcoin usually collateralize Blockchain-backed loans.
To repay loans, you need to make monthly installations of principal plus interest.
3. Scope and Benefits of Blockchain-backed Lending Technology
Experts expect that shortly, in the coming years, the Blockchain-backed technology will evolve significantly. Anyhow, the plan doesn’t provide a clear roadmap like the working methodology of programming and software. Here, we cannot accurately highlight what happens at each phase. However, Blockchain-backed technology can be understood not just as a modern platform for business, but also as an essential tool that facilitates other business processes. Blockchain can improve productivity, business operations, and also increase revenue
In terms of security, Blockchain is useful to avoid or significantly minimize errors and control risks. Also, technology introduces newer trends like unique automation. There are several other benefits, as well.
4. Blockchain-backed Mortgaging
Blockchain-backed technology offers the opportunity for end-to-end secure business processes. This technique has a better advantage as it allows lenders and customers to review each stage of the mortgage life cycle effectively.
Blockchain is implementable for business processes that have consistent behavior and a predictable time frame for outcomes. Some good examples include lead generation, closing, servicing, processing, and origination, among others.
Some key areas that Blockchain-backed lending technology is targeted include the following:
Blockchain-backed technology offers a central system of information for all leads as well as prospects from multiple channels. It will also make sure that customers receive the best products. This introduction will reduce the need for customers to visit the bank every often. Through this system, the required pricing models can be integrated into the bank’s shared ledger. The system can be automated to reward the original lead generators.
Often, during business processes, some fees are exclusively anchored on the lender’s choice. Some good examples include underwriting fees, application fees, prepayment penalties, and discount points, etc. This lineup of fees is essential to the bank and is implemented exclusively of the bank’s policies.
Blockchain-backed technology can help to make things easier. Through Blockchain’s unique network integration, customers can get loans faster.
Often during the mortgage process, property appraisals can turn out to be a massive hindrance in the mortgage process. Blockchain can offer various solutions, including cases where the appraisal is lower than the desired amount.
The appraisal vendors may also need to work hand in hand with other parties such as private/public records, local listing services, county data, etc.
Developing a secure and efficient system where all these parties can be catered for is useful to validate data authenticity. Also, this step can help to avoid re-ordering the reappraisal.
Title search queries are essential for checking legal history, especially when multiple title providers are involved. Blockchain can help to authenticate the processes more accurately. This way, both providers and customers can quickly ascertain that there is no other holder of documents to a property.
Lenders are usually very concerned about whether the property is in a flood zone. This inquiry often brings about an extra cost along with flood insurance.
Blockchain offers a secure method to gather any needed mortgage data. Also, it provides since it is going to be working with data generated from Blockchain’s trusted network of mortgage companies.
Blockchain-backed lending efforts can also help to give insurance. Although there are fees associated with alleviating mortgage risks, the average insurance cost still adds as a burden on the borrower.
A single source like what Blockchain provides can help to authenticate the need for particular insurance. This process can be achieved by reevaluating the accuracy of the appraisal, title, and so on. Blockchain also offers various stakeholders the opportunity to be a part of the process. All records can be authenticated using a single resource for the records that Blockchain provides.
5. Why Pay Attention To Decentralized Lending By Blockchain?
While the average customer is more familiar with stock and equity markets, the debt markets are a lot more robust. In the year 2017, corporate bonds of over 2.2 trillion were issued. That number superseded the $79.99 billion available in new corporate equity. From the statistics, it is clear that the debt markets have a more robust customer and active investor base compared to the equity markets.
These statistics goes on to show the vast business opportunities available in the debt markets. It is therefore a lucrative opportunity for investors.
As amazing as the prospects for the debt markets sound, however, there are also a few downsides. One of the major barriers of the debt markets is ineffectiveness. Other notable problems can be extracted into one or an array of core points. On that list problems like liquidity risks and difficulties in interoperability across markets and regions are prominent.
Other factors of concern include the possibility of a downward turn owing to the intense concentration of active influencers that are vital to market procedures.
However, with Blockchain incorporated into financial trading, we can now rest assured of transparent pricing, quicker payment processing, more alternative markets, indisputable transaction recordkeeping, among other things. Ultimately, with Blockchain’s ledger technology, people can now trade at lower rates and at more rapid speeds than what was previously available.
Blockchain has continued to attract interest wherever it is incorporated, whether it is integrated into crypto trading platforms or deployed as a smart contract tool. This track record creates enormous future potential for Blockchain in the financial market and trading industry.
6. How Does Decentralization Affect the Five C’s of Finance
The five C’s of finance include: Character, Capacity, Capital, Collateral, and Conditions.
More often, end users don’t care much about decentralization per se because they are more interested with how the available platforms fulfill their needs. This raises the need to evaluate the decentralized trading platforms according to the five C’s.
Following this, we can rate the effect of decentralization and the various platforms thus:
Character – Excellent
Capacity – Excellent
Capital – Average
Conditions – poor
Collateral – Excellent (since the collateral involves digital assets that are volatile, hence they can only secure 60 to 70 percent of collateral)
7. How Effective/Ineffective are Decentralized Credit Lending Platforms
Business Model and Cost Savings: Decentralized lending platforms utilize digital assets as collateral. Meanwhile, interest in digital assets is growing rapidly across multiple industries. Also, there is more interest in its adoption and utilization across various industries/institutions around the world.
Because decentralized platforms utilize smart contracts to provide automation, they offer more cost savings compared to other solutions.
Decentralized Distribution of Collateral: The traditional lending system allows a single entity to handle the collaterals of all the loans. This technique is risky when you consider it from the perspective of security. However, with decentralized credit solutions, collaterals are evenly distributed across a range of disparate entities, thereby distributing the risks across all the stakeholders.
Data Transparency: This involves monitoring, detecting, and recording the origins of data and its movements from one database to another. Needless to say, transparency in lending and in the financial institution generally is crucial.
Censorship:Centralized platforms exclusively decide both the on-boarding and off-boarding of users on their platform. Government regulations also disapprove of certain industries such as gambling, etc. However, decentralized crypto platforms enable cross-border lending that does not have barriers. Also, crypto assets offer multiple advantages to both the lender and the borrower.
In addition to a wide range of advantages, crypto offers users the advantage of variety and flexibility. Users have the opportunity to seamlessly broaden their investment portfolio across various countries and continents of the world.
8. Strengths, Weaknesses, Opportunities, and Threats of Decentralized Lending in the Future
Strengths: The strengths of decentralized lending are quite obvious. Some of them include:
High rate returns go back to the lenders
The system offers borrowers a competitive rate
Decentralized lending is not hindered by geographic diversity
Weaknesses: Some of the weaknesses of decentralized lending include:
Lack of awareness about various platforms
Some of the lending platforms are limited to a single form of lending like crypto to flat only, etc.
Opportunities: There are many opportunities for decentralized lending. Some of them include:
Smart contracts will provide more efficiency and transparency
The system provides superior screening for borrowers thereby reducing loss of assets
Digital assets look to be here to stay and are growing rapidly
Threats: The crypto world and Blockchain have continued to gain more interest and relevance over the years. As such, its security, potency, and sustainability is a matter of concern. Some of the major future threats of the decentralized lending system includes:
The websites associated with cryptocurrencies are rapidly becoming prime targets for hackers.
Crypto-backed collaterals can experience high volatility. This can be a huge risk for lenders on decentralized lending platforms.
Conclusion: Blockchain provides a comfortable, quick, safe and secure medium to handle various transactions throughout the financial industry. Following the enormous success of Blockchain and the cryptocurrency, today, we can even receive Blockchain loans both individually and as an organization. Blockchain’s lending platform has seen increasing levels of success since its introduction. More institutions like Online Writers Rating and individuals are taking advantage of a secure opportunity. Blockchain is the future that has begun and is already setting new trends all over the financial institution today. With further developments added daily, there is more to come from Blockchain and cryptocurrency than we know.
About the Author
Gregory V. Chapman
Gregory is passionate about researching on new technologies in both mobile, web and WordPress. Gregory is in love with stories and facts, so Gregory always tries to get the best of both worlds.