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Author Topic: Smart Contracts Bring Transparency and Security to the Lending Market  (Read 87 times)
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December 21, 2017, 11:55:34 AM

Access to financing for individuals and businesses alike can be quite the uphill battle. For existing businesses, the outrageous interest rates for loans are often a deterrent. Organizations offering lending services can also experience difficulties due to loan defaults, bogus identities and claims, hitches in the verification and more. At the same time, there are only some limited options available when it comes to verifying the credentials of the unbanked population, who are looking for financial support due to the absence of a credit record. To put this challenge into perspective, the unbanked population across the world currently stands at around 2 billion.
Most of these problems can be attributed to tedious paperwork, red tape and human elements in the chain, take for example a vending machine dispenses an order so long as the terms of engagement are met – electricity and input. However, a human vendor has too many variables ranging from attention span to memory, temperature, emotion and communication barriers.
Smart contracts are perceived to be the automatons of trust; making them the ideal instruments for brokering business relationships within a trustless environment. They are programmable to execute within an environment of strict adherence to stipulated terms and conditions within a decentralized system as contained in the contract.
The financial and economic system have taken to this phenomenon with serious intent. In industries where trust currently plays a crucial role, this innovative approach can bring greater efficiency, while eliminating the need for a trusted intermediary. Most notably, smart contract protocols make it possible for lending services to achieve their target objectives.
In a lending environment, trust is a crucial element alongside guarantees to security, rights, and claims. For any business venture operating a lending service, the importance of a seamless and efficient means of establishing business transactions cannot be undermined.
The financial "enabling" environment of the lending market has proven to be a formidable ally to many business enterprises (including small and medium scaled) through the smart contract protocol operated on the Ethereum blockchain.
In simple terms, the smart contract is a document resembling the traditional legal languages printed on paper and enforced by the law; only in this case, these documents are lines of computer codes decentralized across a global network and capable of automatically executing itself once the parameters set to initiate the program have been actioned, without the need for a third party, that constitutes the business arrangement. When a particular event code within the contract is executed, a transaction is facilitated between the addresses of those involved.
Worthy of note are the advantages these smart contracts confer to the lending business:
Firstly, transparency is a major challenge in terms of financial capitalization between vendors and clients who use lending services. The blockchain, the platform on which smart contracts find expression is essentially a peer-to-peer, decentralized accounting book system capable of registering information in an immutable fashion. Consequently, the blockchain is dependable with regards to the information stored within its blocks. More so, the procedure for writing information onto the decentralized system makes it impervious to alteration. As an added advantage, the ledger is made public and accessible globally providing copies to the entire public ensuring its transparent history and public scrutiny.
However, the blockchain can also be private – in other words, sensitive data around the privacy of financial information can still be maintained. Secondly, using two sets of encrypted keys, a public and a private key to validate transactions provides the security needed to ensure the smooth transition of business transactions.
Smart contract powered loans are becoming increasingly popular in the peer-to-peer lending markets, as it eliminates third-party interferences and provides a trustless ecosystem for financial services. As every vendor now appreciates the ease through which distributed ledgers promote their services and keeps them ahead of the game compared to those using traditional contracts to execute financial tradeoffs. 
The CEO of Etherecash, Jacky Thanh Ly believes that the smart contract technology simplifies the entire financial industry. He said,

 “I particularly like smart contracts due to their intrinsic logic. Once the conditions and actions are set they are immutable and they require no external intervention. If these conditions are met they will do whatever was set to do. There are no misinterpretations, no misunderstandings, no changes in between. They are clear and under the same events they will have the same results. Isn’t it safer than traditional contracts, always subject to interpretation, exceptions and that sense of uncertainty? Of course they are, and they can be used to protect all parties involved.

Now, if we go for a practical case like P2P lending, there is no interpretation. Both parties are assured of how it will turn out. The conditions are set and there’s nothing that will change the outcome for each combination of different inputs. Both the lender and the borrower know from the very first moment what and how it will happen. It will self-execute in a predefined way. Now, that’s what traditional contracts are supposed to do, but they don’t do it, and smart contracts deliver the expected result.”
The peer-to-peer financial services platform, Etherecash is working on a blockchain initiative to bring some much-needed transparency to the financial sector. With the ICO recently completed, the platform under development, those interested in being part of the revolution should keep a close eye for more opportunities to be a part of Etherecash. Visit
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