LLending is as old as man. No matter how financially stable or independent one might be, situations could arise where there might be need for loans. Whether to solve pressing financial needs, finance a startup business, expand an existing business or sponsor an event, at one point or the other, everyone must have indulged in the act of lending or borrowing.
In simple terms lending can be said to be the act of “getting money on interest.” The lending system can be traced as far back as 3000 years ago in ancient Greece. The staking of collateral for loans was also introduced around this period.
Later in 1880, the lending industry witnessed a revolution thanks to the introduction of banks during this period. Emergence of a more institutionalized banking system in the 1950s improved the lending system. As at this time, more institutionalized lending institutions began to spring up.
At the dawn of the 21st century, and as digitalization began to spread, the lending industry also introduced digital lending systems. Although the lending industry had been institutionalized, digital lending brought back Peer-To-Peer lending. Before long, several website platforms began running Peer-To-Peer lending sites like Circleback Lending, Upstart, Funding Circle, Prosper Marketplace and a host of others.
The lending industry has come a long way, but it is not where it ought to be. At the moment, it is fraught with limitations such as high risks, limited accessibility, time consumption, etc. These limitations show that the traditional lending system needs a revolutionary disruption.
With the introduction of blockchain technology, there have been lots of projects built on blockchain that have attempted to improve the traditional banking system. This brings us back to the question; Can blockchain revolutionize the traditional lending system? The answer is unequivocally YES since there are projects already on the brink of achieving this. Also, the below features of blockchain technology is naturally what is needed to revolutionize the traditional lending system.
Ways blockchain technology edge the traditional lending system
Using traditional lending system is limited within a particular region. This makes transactions local, and available lendable fund relatively small. Using blockchain, lending would be global, since everybody with access to the internet can be part of the ecosystem. By implications, both lenders and borrowers can be connected under one ecosystem with limitless access to funds.
Using traditional lending institutions can be time consuming, as they usually require lengthy procedures before funds can be accessed. But with blockchain technology, there would be a direct link between the lender and borrower making transactions faster.
Removal of intermediaries
One essential feature of blockchain technology is its decentralized nature that helps eliminate any form of intermediaries, giving a direct link to both the lender and borrower. Traditional banking systems, on the other hand, are usually centralized, giving room for manipulation, increasing the risk of duplication and escalating transaction fees.
Using traditional lending systems are usually risky both to the lender and borrower. Errors can come from simple human mistakes. Moreover, the traditional lending system is usually plagued by cyber attacks, frauds and compromising central authority. A solution can be envisaged with the absence of a central authority using blockchain technology.