Blockchain: Are We Ready for Decentralised Lending?
Decentralised and immutable, Blockchain is essentially a public digital ledger that verifies and stores transactions. Although synonymous with Bitcoin, this transparent and traceable technology has already started to transform multiple industries, with applications across a range of sectors.
This includes supply chain management, where Blockchain is currently being utilised to prevent illegal fishing. It does so by following the journey of a tuna, from its capture to a consumer’s plate.
Recent research indicates that Blockchain spending is predicted to reach almost $12 billion worldwide by 2022. The finance sector expected to be at the forefront of this growth as more banks, lenders and financial firms adopt this technology. But what does this mean for the industry? And is the sector prepared for decentralised lending?
The Potential of Blockchain Lending
Arguably, the biggest appeal of Blockchain is its inherent trustworthiness, thanks to decentralised records that can be readily accessed, are verified by multiple network users and cannot be altered. As such, there are many ways this technology could be utilised in the financial industry.
Using smart contracts – coded blocks containing an agreement that when the conditions are met, automatically fulfils the agreed outcome – lenders could make their processes more efficient, both in terms of time and cost. This could reduce the occurrence of human error, save time on manual administrative tasks, lower the risk of fraud, and automate payments, all of which could help banks and lenders to streamline their processes.
Additionally, it could provide customers with more direct access to both lenders and the decision-making process. Transparent and automated, records could be updated in real-time while credit checks, lending decisions and access to funds could be almost instantaneous.
Challenges and Development
While Blockchain lending does offer much potential, there are also areas that pose risk and require further development. For example, while funds could be automatically released through a smart contract, repayment could be more challenging. Furthermore, although free of geographical borders, global regulation may be required in order to legalise and enforce smart contracts worldwide. As such, the implementation of decentralised lending among major banks and credit providers would be a slow process, to allow for alterations to infrastructure, technology and legislation.
Blockchain has grown rapidly in recent years and has already been adopted across numerous industries. With potential benefits for both finance companies and their customers, further development could result in decentralised lending becoming standard practice.