Updated: Feb 28
I’m never bored about hearing new ideas that people have developed with the arrival of cryptocurrency and blockchain technology.
Last month, I attended the Blockchain Summit Latam in Chile. I was introduced to cryptocurrency loans provided by ETHlend. This start-up was launched in 2017 and its focus is providing loans using cryptocurrency. It’s a decentralized marketplace built on the Ethereum Network and it allows lenders and borrowers worldwide to participate in this peer-to-peer lending system using Blockchain technology and Smart Contracts.
ETHlend takes it to the next level and brings a new method to the financial system. Nowadays, it's very common for people to take normal fiat loans from different entities, such as banks, retail, among others. Despite being fiat money, I believe loans have helped many people that don’t necessarily have all the money they need at the time to invest or buy property. The downside of it is the amount of debt that has been created.
Yes, I believe people should be smarter with money; ultimately, it is their decision whether they receive a loan from a bank. Nonetheless, I do feel that our current financial system, one way or another, makes it impossible at times not to be in debt. When you realize you are in debt, you can spend years just paying off interest.
It is common that a bank requests your personal and financial information. If the latter has a bad credit report, you can say goodbye to getting another loan.
According to Investopedia, “Banks make money by lending money at rates higher than the cost of the money they lend. For most banks, loans are the primary use of their funds and the principal way in which they earn income."
So, how do you make loans work in a decentralized network?
ETHlend created a lending token with the use of ERC-20 as collateral. Investopedia states, “There are several different tokens which may be used in conjunction with Ethereum, and these differ from Ether, which is the currency native to the Ethereum blockchain. Tokens, in this case, represent digital assets that can have a variety of values attached. They can represent assets as diverse as vouchers, IOUs, or even objects in the real world. In this way, tokens are essentially smart contracts that make use of the Ethereum blockchain."
This new way of loaning money gives you the liberty to decide how much to lend and at what risk, instead of letting a bank work and profit from your money. With a start-up like ETHlend, you have the opportunity to profit from lending money in a secure way.
I do feel that this new loaning system is still in its early stages because cryptocurrency itself is still rather new. I believe a person has to first become familiar with the use of cryptocurrency to later consider a crypto loan. Nonetheless, the financial world is changing and I believe it is giving more power to the people to decide what to do with their money without a third entity imposing their rules and regulations.
Hope you enjoyed it! Feel free to comment.