Blockchain and Cryptocurrencies

August 1, 2018

By Keith Novick (Stone Edge Consultancy): In 2017 cryptocurrencies and blockchain technologies came front and center in the investment World. The news of people in this space making huge returns on their investments has led to a record number of new companies launching in the cryptocurrency and blockchain spaces and record investor money inflows.

Blockchain, also known by distributed ledger technology (DLT), has broad application abilities and will have a major impact on the investment industry going forward. Blockchain is an open, distributed ledger that records transactions between two parties in a verifiable and efficient manner. By distributing the ledgers to large numbers of people in different locations, it prevents anyone from going back and making changes. Putting digital assets such as financial data and contracts on blockchain technology helps build a wall against unauthorized access and prevents fraud. Thus, the blockchain helps maintains transparency and build trust between entities such as an investor and a hedge fund or a business and employee.

Companies are attempting to use cryptocurrencies and the blockchain technology to change the way people bank. They are trying to replace the current banking systems with cryptocurrencies to take control away from the governments. This creates major issues for anti-money laundering, KYC, and fighting crime. The World banking organizations are working hard to figure out how to handle this.

The creation of cryptocurrencies, or digital currencies which are not backed by anything scares a lot of people. Cryptocurrency companies are trying to create platforms to tie their currencies to products on their platforms by giving rewards in the form of their cryptocurrency coins and by providing competitive pricing of goods and services.

We will see what effect this will have on alternative investing and small business lending. The financial crisis which started in 2007, brought alternative lending by hedge funds and private equity to the forefront of lending as banks had tightened their lending policies. Borrowers have gotten comfortable using online alternative lenders since then and the alternative lending numbers have grown rapidly. Customers love the ability to get their loans quickly, avoiding divulging certain personal information, and not having to have the best credit to secure a loan. Investors love the ability to get good returns.

Like any transaction, it’s important for borrowers to do their homework to find the best lender for their situation as well as avoid some predatory lenders who try to take advantage of their customers. You should do a Google search on the companies before engaging them. Lenders are differentiated by, rates, length of loans, ability to fund quickly, good service, and the willingness to help their customers when a difficult situation arises. Many lenders have come and gone over the years as a good underwriting team and good management is crucial.

Blockchain has the power to allow alternative lending companies to scale effortlessly and solve fraud and KYC issues haunting the industry. Lenders who are able to get their blockchain game right should see renewed investor interest and benefit from higher unit economics. We will see over time how these technologies evolve and effect the investment world.