The term credit generally refers to a financial agreement in which a borrower receives a certain amount of money or a valuable and repays the lender at a later date, mostly with interest. Creditors grant credit to individuals and businesses based on trust and mutual agreements. For instance, banks will let a person borrow money through a credit card, in hopes that they pay it back within a stipulated period. The individual gets the loan after important data like their credit score, income, occupation, age, ongoing EMI’s, and repayment history are checked. The bank, on the other hand, charges interest for the service provided
Traditional credit systems have always worked in a certain kind of way. However, the introduction of cryptocurrencies to the financial domain has brought about some changes and innovations. Asides from the fact that crypto is increasingly interacting with credit cards and there are already over 20,000 Bitcoin ATMS where you can buy Bitcoin and other cryptocurrencies, blockchain enabled lending offers a more secure, efficient, and faster way of offering loans to individuals.
Unlike traditional banks that give out loans using a system of credit reporting, blockchain technology offers the possibility of peer-to-peer (P2P) loans and complex programmed loans that can approximate a mortgage or syndicated loan structure. Blockchain lending may be relatively new, but it is gradually becoming a norm in the Credit Industry.
The first-ever live securities lending happened in 2011 and it saw financial giants, Credit Suisse, and ING, partake in a $30.5m transaction. Also, a financial institution known as SALT lending, allows its users to borrow cash using a blockchain. The eligibility of a user is not based on their credit score, but the value of their blockchain asset.
Currently, not all companies accept cryptocurrency as a form of payment. While some have already included it in their payment options, others are hesitant to make a move. However, as cryptocurrencies become more popular and more people begin to use them the number of retailers and payment processors accepting them will increase.