Digital Transactions Authoritative, insightful and timely information for payments professionals
Blockchain is robbing traditional banks. It’s yanking money from beyond concrete walls, metal locks, and private ledgers and putting it behind cryptographic walls, mathematical locks, and public ledgers. As legacy banks gasp for air, here comes the one-two-punch: LoanChain.
Its blow may be deeper at the core level. Banks make their money on the gap between the interest they charge borrowers and the interest they pay depositors. Banks flourish because they present themselves as the only safe place for money held by the public, so depositors are happy with the security and keep hundreds of billions of dollars deposited without claiming any interest, or minimal interest.
This abuse of depositors is waiting for a Robin Hood: LoanChain. It’s following its predecessor, blockchain. Blockchain is based on public visibility of all digital accounts, with cryptographic blindness as to the identity of the account holders. LoanChain is based on public visibility of traders wishing to borrow money combined with visibility of traders who wish to lend money.
As things are now, there is a mismatch. Borrowers vie for large loans for extended periods of time, while lenders would prefer to risk a low sum and get the money back quickly. LoanChain resolves this mismatch by constructing a chain, serving a yearlong loan with a succession of short-terms lenders. And on occasion, a single large-sum, long-range lender will be served by a chain of smaller-sum, shorter-range borrowers.
The chain of lenders passes the money from each lender to its predecessor, getting its money back from its successor. Meanwhile, borrowers have no idea that a chain of lenders is serving them. A loan of $1 million extended for a year can be served by 100 chains of $10,000 each, where each chain comprises 52 ledgers, each one week long.
LoanChain relies on instant payment protocols, like BitMint, where the transacted money is never in a state of ambiguity. At any instant, the money is either in the hands of the payor or in the hands of the payee. LoanChain involves a gusher of money movements all across cyberspace. Supply and demand are on naked display, dynamically moving the interest the borrower pays, the interest the lenders receive, and the profit of the LoanChain entrepreneur.
No money moves if there is no match between lender and borrower. No overhead, no elaborate long-term saving accounts, no money markets or similar drag.
Administering LoanChain is cyber-centric, with no branches and no sales gimmicks. In fact, t he digital realm offers staggering flexibility. You close business at 6 p.m. You don’t need your money before 8 a.m. the next day, so the LoanChain app is lending your money while you sleep. The funds are back at your disposal when you need them the next day. And legacy banks are nowhere near the action.
Using BitMint’s digital claim-check technology LoanChain establishes cash-ready collateral to mitigate the risk of failed loans. And borrowers will be building their credit rating by starting with small, short-range loans, paying them off and climbing further.
Much as with blockchain, the LoanChain solution will be offered to the public by competing entrepreneurs. Eventually, banks will be joining in. If the regulatory climate allows it, lenders will remain private, but no less eager. LoanChain’s efficiency stems from its global visibility and the fact that no deposit is accepted unless a borrower takes the money.
Digital money is paid through the devices belonging to the payors and the payees. In turn, the devices follow policy set up by a human agent. Execution involves AI optimization. Query the author for details.
Blockchain, Loanchain—what’s next?
—Gideon Samid gideon@bitmint.com
