The Impact Of Blockchain Technology On P2P Finance

As Bitcoin hits new record highs in ever-decreasing time frames, the conversation about it is filtering down from the tech-savvy geek to the bleeding-edge investor and now, finally, to Joe Public.

With it comes the conversation about Blockchain technology, the code and principles that allow Bitcoin to exist, but which occur entirely separately. Blockchain’s uses are far wider than simply replacing cash in a transaction or acting as a store of value.

We see the rise of blockchain as a huge opportunity for the P2P finance industry. Why? Read on to find out.

What is blockchain?

To save explaining blockchain every time we enter the subject, we’ll point you at this definition if you want to be brought up to speed.

How is blockchain technology shaping current markets?

Blockchains are useful wherever there is paperwork and trust, and allow a market to bring automation and 100% trust into play. Specifically, Ethereum’s Smart Contracts can allow for situations like:

• Automated deposit holding and distribution in property rental agreements
  • A tenant can deposit their funds into a secure wallet. At the end of the tenancy, if the criteria for a full return of deposit are met, then payment can be made automatically. If the full amount is not due, the smart contract can split the reduced deposit accordingly
• AXA has developed ‘fizzy’, which uses blockchain tech to automatically pay out insurance claims in the case of flight delays over two hours

The markets which are ripe for transformation using blockchain technology are those where there’s either a need for authentication or a process that is held up by repetitive administration tasks. Every action on a blockchain network is completely transparent and agreed upon by the network as a whole, removing the need for costly manual checks.

Why is the P2P market open to blockchain reform?

There is a huge amount of administration involved in a Peer-to-Peer platform. The list of administration tasks is vast, and not limited to:

• Due diligence on potential borrowers
• Know Your Customer activity for investors
• Investor involvement in individual deals
• Repayment status of funded deals
• Interest payments to investors

All of these tasks take time and resources. Smart contracts, as part of blockchain technology, can automate many of these activities based on a pre-defined set of rules. For instance, a process can be triggered automatically on completion of repayment of a deal to return capital and investment yields (minus any fees and costs) to lenders.

The ability to set up a series of rules in advance of any deal creates a ‘trust-less’ environment, where trust is not required to show the validity of any transaction or decision made by the network. By pre-defining the automatic outcome of payment or default, everyone who takes part in a deal can enter with full knowledge of the possible results of their investment.

By using blockchain technology, P2P platforms will have the opportunity to create a superior customer experience for borrowers and investors alike. They’ll be able to do this while also cutting costs and improving efficiencies, so I envisage we’ll see a few early adopters popping up over the next 12 months.

Who’s already making headway?

Clearly, I’m not the first person to notice that there is a great overlap between the benefits of blockchain tech and the needs of the P2P market, and there are already a couple of names I’ve seen making progress. LoanBit are somewhere close to their ICO and platform launch, according to their roadmap. Inspeer are also well on the way, but not looking to launch in the UK until sometime in 2019. Who is to say if these two will be the winners in the market, but I’ll be incredibly surprised if there isn’t a functional blockchain P2P platform live by this time next year.

If you are developing a P2P platform on blockchain technology, I’d love to hear from you. Drop me a line.