Even 7 years ago, the microcredit market was firmly occupied by banks and large companies. But the world is fortunately changing. Services like Ebay, Uber, in which an ordinary person sells a product or provides a service to another ordinary person, are growing and flourishing. A good continuation of this trend is distributed lending in bitcoins.
Perhaps this is one of the most successful examples of the applied use of cryptocurrency. Coins make it possible to bypass the complex and expensive mechanism of licensing the credit business, implement an international lending system without involving traditional financial institutions and operate with microloans, performing fast transfers of funds around the world. Where else can you get a loan from an American farmer or a Chinese businessman without any problems? Or use your honestly earned $ 1000 by distributing them in the form of short-term loans to 10-50 people from different countries, while receiving a good percentage?
How distributed lending works in cryptocurrency
Specialized lending platforms bring borrowers and lenders together. Both are ordinary people who want their money to work, need a loan for business development or a consumer loan. The borrower creates an application for receiving funds, chooses the loan amount, interest on it, and repayment terms, as well as a payment scheme.
Other users who agree with the terms of the borrower respond to the application, offering to issue a certain amount in BTC (as a rule, several times less than the total amount required by the borrower). Any number of creditors can participate in one transaction. Each creditor chooses the amount himself and it can be arbitrarily small. This mechanism allows you to invest in more applications at once, minimizing the risk of losing funds.
Reducing the risk of default is also based on internal credit ratings of users. The higher the rating, the lower the percentage when creating a new application, and the more people who want to lend the user bitcoins. Rating is the level of trust in a user.
The site calculates it according to three factors:
Verification: confirmation of the user's identity, address of residence, his income;
History: previous successfully closed loan applications;
Reviews: positive recommendations from other users of the site about the borrower;
There is also a rating system for lenders. On many sites, you need to confirm your identity and the legality of the funds you want to operate with. When creating an application, a borrower can reject funds from a lender that does not inspire confidence in him (although, to be honest, this is not a common situation).
Overview of distributed lending sites
Over the past few years, there are a lot of peer-2-peer cryptocurrency lending platforms. The principle of their operation is the same, the differences are in details: verification methods, percentages, monetization schemes, target audience. Most popular:
btcjam.com is the market leader, the total amount of loans issued during the existence of the site is approaching $ 20M. Borrowers can take out a loan for business, consumer needs, medical purposes, etc. Business loans prevail.
YouHodler - the main direction - loans for small businesses, lending to eBay sellers, and online projects.
btcpop.co - position themselves as a full-fledged cryptocurrency bank, offer users a full range of banking services, including opening a savings account and lending.
loanbase.com is an American project of 2015, despite its relative youth, the project has amassed a large user base and is approaching the total amount of loans issued in $ 10M.
In addition to specialized sites, lenders and borrowers use forums. For example, the BitcoinTalk forum has a separate section dedicated to such announcements. The guarantor of safety here is the user's reputation on the forum and reviews of previous creditors. The risks of non-return, respectively, are higher, but the interest is also higher. In addition, the borrower does not need to pay a service commission.
Which site is better to choose?
We recommend starting with the market leader Youhodler to understand how cryptocurrency loans work and experiment. So the risks of losing funds and running into scammers will be much lower. In addition, in BTCJam you can find many useful articles and reviews not only in English but also in Russian.
How to make money on loans in cryptocurrency
Micro credits are a very tempting area for investment. The starting capital can be as small as you want and, as a result, you do not risk large sums. Especially if you distribute funds among a large number of borrowers, minimizing the risks of non-repayment. The verification process takes only a few days, no specialized licenses are required for lending.
Those who come into this topic "from the street" will find our review of the simplest asset monetization schemes using cryptocurrency microloan systems useful:
The simplest scheme
We issue loans to borrowers, receive interest according to a previously agreed-upon scheme. If your starting capital was originally in fiat currency, it is better to respond to applications pegged to the rate of this very currency, otherwise, if the BTC rate fluctuates, you may lose part of the funds. True, such transactions are less profitable (more orders are quoted without reference to the exchange rate), but you remove some of the risks.
The probability of non-repayment of funds is significantly reduced if the reputation of each borrower is carefully checked. For this, it is better to use not only the platform-tools but also additional services. The marketplace offers a large number of third party resources such as bitlendingbot.com.
And, the main rule: do not put all your eggs in one basket. Split your investment capital between many and many borrowers, significantly increasing the likelihood of returning funds and receiving interest on your transactions.
Arbitration scheme
We take a loan with interest n, lend it at interest k, where k> (n +% of the site). We take the difference for ourselves. A tangible profit can be obtained only on significant volumes and a large number of transactions. The scheme does not require start-up capital, but the risks are quite unpleasant: in the process of implementing this scheme, you may not receive BTC invested in one or more borrowers.
The advantage of cryptocurrency is the ability to arbitrate on several sites at once because bitcoins are easy to transfer within the network with minimal transfer losses. In manual mode, such a scheme will be time-consuming, but if you acquire a bot that would automatically select and process applications, the time costs will be significantly reduced.
Capital turnover
Do you know how to borrow 10 bitcoins and turn them into 20 in 3-6 months? Then we have nothing to tell you about capital turnover. If not, we advise you to start by learning trading strategies. Traders are regular customers in cryptocurrency credit networks.
In general, the best interest on applications and the most responses to applications on sites are received by borrowers who collect funds for projects or activities in BTC, when the turnover of funds occurs without exchanging crypto for fiat money. In addition to trading, this is, for example, mining (updating and increasing the capacity of the farm).
Legal information and risks of non-repayment of borrowed funds
Non-repayments in distributed credit networks are not as rare as we would like. It is very difficult to secure creditors at the legal level due to the dubious legal status of the cryptocurrency. Nevertheless, if you are a US citizen, then you have the hope of bringing unreliable borrowers to justice. There is at least one precedent in American practice when a court-ordered a borrower to repay a debt in bitcoins.
For lenders who do not have a United States passport, Loanbase has a mechanism for ensuring cryptocurrency loans. The site cooperates with collection companies and, in case of problems, transfers the malicious non-payers to them.
But, let's be honest, the most reliable mechanism is to protect yourself, carefully check the credited users, and include the risks of non-repayment in the credit strategy.
