How is Blockchain Revolutionizing P2P Lending?

Blockchain technology is disrupting the FinTech industry. Blockchain is poised to enhance the way assets or information will be shared, exchanged or accessed across the digital network. The potential of blockchain cannot be overlooked as it is proving its worth in every industry.

One of the industries to benefit from the blockchain technology is P2P (peer-to-peer) lending. P2P crypto lending exchange is a digital marketplace where borrowers and lenders connect for borrowing and lending. Since P2P crypto lending involves digital currencies and leads to automated and more transparent transactions, it is more quick, easy and secure than the traditional lending process that involves banks as the lenders.

Potential of blockchain technology in the P2P lending platforms

The integration of blockchain in P2P lending platforms plays a major role in realizing the benefits of both technology platforms.

Blockchain and P2P lending platform are natural allies

A P2P crypto lending exchange platform works on the mechanism of allowing borrowing and lending of funds directly between the borrowers and lenders, without the intermediation of any third party. The basic mechanism of blockchain technology also allows transactions between two parties in a secure and tamper-proof manner. It observes that funds are not merely copied but are efficiently transferred and recorded into the system to reduce the chances of double-spending. In the conventional method, intermediaries are required to maintain and record funds but the newer version drives transactions through smart contracts.

Attributes of blockchain technology that are promising the future of P2P lending

Let’s consider the principal characteristics of blockchain technology that are making a significant impact on the P2P crypto lending exchange platforms. The considerable features of blockchain are minimizing the risks in the P2P lending platforms that can be described as below:

• Decentralization: The transactions or data are maintained and controlled across a series of blocks of multiple network database. This signifies that anyone or everyone with permission can access and supervise the entire blockchain. It minimizes the chances of any fraud or malicious activities by fraudsters.

• Authentication: The transactions on the blockchain are performed on the pseudonymous basis, which means every participant on the blockchain can view the entire history of transactions but remains unaware of the actual private information. Therefore, every transaction is traceable like a clear network of the database without disclosing the identity.

• Immutability: Blockchain works on the mechanism of cryptography. This system makes the transactions immutable and irreversible in nature. It prevents any mishandling of data and funds.

Consolidation of blockchain and a P2P crypto lending exchange platform reduces the risks factors such as lending risks, cyber attack, money laundering, and many others as it allows transactions to take place directly between the participants in the network.

Improves Transaction Settlements

Blockchain technology eliminates risks and enhances the transaction settlement process. It is mainly due to the smart contracts which make real-time settlement possible with certainty.

• Real-time transaction settlement: The transactions are initiated in a real-time or instant basis with the use of smart contracts. This enables the transfer of loans directly and automatically into the respective accounts without any intermediation. It reduces risks and increases the certainty of transaction settlement. The transactions are authenticated by consensus mechanism which immediately validates a transaction and records it on the blockchain.
• Certainty of transactions: There is certainty of transactions that the settlement would be processed instantaneously. Blockchain technology manages the spending and maintains an immutable record. Once the transaction is done, it seizes the funds and marks them spent by the borrower. In this way, a borrower is not able to spend the same amount twice, which helps maintain a clear flow of funds.

Collateral on blockchain

The blockchain technology makes effective and fast processing of capital. Further, we will consider how blockchain technology is suitable for enforcing terms of the contract to make the execution of loans productive.

In a blockchain-based P2P crypto lending exchange platform, security of loans is considered an important factor. Therefore cryptocurrencies are used as a form of collateral. This particular mechanism is mostly used by individuals who have crypto assets and wish to hold them for a longer period but also need immediate cash and they are not willing to sell their crypto assets. So P2P crypto lending platforms consider the interest of hodlers and fulfill their demand for cash by providing them credit on their cryptocurrencies. The lenders earn interest on credit that they lend and the borrowers can get their collateral back after repaying the loan amount in full.

Conclusion

Blockchain-based P2P lending platforms have the potential to disrupt the entire ecosystem and address the risks of the conventional lending system.

If you are planning to build a P2P crypto lending exchange platform, we can help. We offer a highly-secure white label lending solution that can expedite deployment and reduce your development cost. Our white label solution is fortified with market-leading features like FinTech KPIs, smart contract-based Escrow, LVR calculation, flexible interest calculation, hot wallet integration, auto-renewal of loans and more.

Schedule a free demo of our white label P2P crypto lending exchange or connect for a friendly chat to share your business needs; no obligation.