As Bitcoin gains new ground as a currency in 2014, services aimed at the dollar such as lending, ATM machines, and money transmission will soon take advantage of the benefits it offers.
In the early 90’s…The online lending industry began with meager beginnings. At that time, many consumers were uncomfortable supplying banking or personal information to online websites.
Over the years online banking has become very widely used and acceptable. Applications for mortgages, auto, personal, and business loans are commonly filled out on various websites like lendingtree, prosper, and lending club.
Internet users have grown to feel more secure when filling out an online loan application, and more lending transactions than ever are taking place online.
As Bitcoin becomes mainstream, there will be a growing demand for new online Bitcoin lending services. For example, auto lending services will be needed if car dealerships begin accept the digital currency.
Last year, a Lamborghini as well as a Tesla were paid for completely in Bitcoin. Although this might be an uncommon occurance now, making large payments with Bitcoin can reduce the costs of spending money on a large purchase. It will also eliminate the need for a wire transfer or credit card to make a large purchase of this type.
What Types of Loans are Currently Available in Bitcoin?
Currently, the online lending field for Bitcoin is wide open… There are a few newly started Bitcoin loan startups that take advantage of the unique technology it has to offer.
These advantages include crowdfunding, cheaper money transfers, an undeniable public record of the transaction, as well as immediate or automated payments.
Any common type of loan including auto loans, mortgages, business, personal, and cash advance loans would be applicable if Bitcoin was widely adopted. Lending in the digital currency space is still in its infancy, but is primed for worldwide adoption.
Right now, there is an underground market for Bitcoin loans scattered throughout the internet.
Borrowers on these underground websites most often seek Bitcoin loans for digital currency mining equipment, or funding of Bitcoin based startups. This industry to completely in its infancy and still needs time to mature. As it becomes more commonplace, lenders will begin to offer any type of loan that can be found in U.S. dollars.
What are Bitcoin’s Advantages in the Lending Space?
One of the most interesting innovations that Bitcoin allows for is crowdfunding.
Crowdfunding is a completely new way to fund a loan through the internet. Crowdfunded loans work by having a borrower fill out a public profile or application. This “application” is then verified and rated based on credit scores and other information like eBay ratings or other types of social media data.
The crowdfunded lending site, (like Btcjam) then allows the applicant to have this loan funded by internet investors. These investing users can then automatically be paid interest on this investment directly to their Bitcoin wallet. These crowdfunded loans represent a completely new way to find money or invest in an online loan for a return.
Crowdfunding also dramatically changes the game for online borrowers who may not be able to access a traditional loan. They may not have access because of location or reduced access to banking. This would allow people in impoverished areas to acquire business loans and lift themselves out of poverty. In addition to improving conditions for 3rd world borrowers, crowdfunded loans to fund borrowers who might have credit issues.
Borrowers no longer have to rely on the traditional banking industry to get funding!
They can go directly to the internet to get money for a business, mortgage, or auto loan… Of course, this is no guarantee that a borrower will get the money they need, but it is a completely new option for them to fund a loan.
In addition to crowdfunding, Bitcoin allows for quick and almost free transfers of money from one wallet to another. Money transfer fees can add up, especially on large dollar amounts. If lenders adopted Bitcoin, these fees could be avoided. This would save the borrower money by reducing the transfer fee and would help the lender by reducing their expenses.
In addition to reducing transfer fees for lending, it could reduce the transfer fees on remittances. In countries like India, The Philippines, and Mexico, remittances (citizens sending money home) make up a huge part of the overall economy.
The currently favored remittance institution, Western Union, can charge up to 10% to transfer money. That would add a $100 cost to a $1000 dollar instant money transfer. If this payment were conducted in Bitcoin, it would bring the overall expense from $100 to just $1 dollar!
Public Records Stored in the Block Chain
The advantages of using bitcoin for lending also include a public record of the transaction permanently stored in the block chain. As the cryptography is solved by the network, the block chain keeps a record of each transaction from wallet to wallet.
The permanent record which is created by this process can reduce legal issues and prove that certain transactions have taken place. A money receiver cannot dispute whether or not the money was moved in their account, because this transaction is a record stored within the block chain.
This record of transactions will help reduce the need for paperwork as well as provide a necessary record for the borrower and the lender.
Is Altcoin Lending Next?
With the rise of Bitcoin and other Altcoins like Litecoin, Dogecoin, and Namecoin, a market may begin to emerge for the lending of these altcoins. Currently altcoins are mostly speculative, but this may change if merchants begin accepting them as payment.
Right now some merchants like TigerDirect have begun to experiment with Bitcoin and Litecoin payments. As consumers are able to spend virtual currencies on cars, computers, or whatever else, the demand for loans in the alternative currencies will grow.
Recently, the market has become flooded with new Altcoins, so a clear leader such as Bitcoin has yet to emerge. These new altcoins are being created every day and include recent additions like Peercoin, Tagcoin, and Particlecoin. Currently, Litecoin seems to be favored as the second runner up compared to Bitcoin, but the newer currencies still have a lot of catching up to do when compared to the dominance of Bitcoin.