HOW BITCOIN MAKES GLOBAL PEER-TO-PEER LENDING POSSIBLE

Posted by Ben Jonas on June 9th, 2021

San Francisco-based startup BTCJam is using Bitcoin to provide peer-to-peer lending to customers around the world. The company said that by avoiding legal currency restrictions, the company allows any individual in the world to obtain loans through their platform.

However, traditional wired transfers are expensive and not easy to operate. Bitcoin allows borrowers who support BTCJam to receive funds almost instantly, no matter where they live or whether they have a bank account.From banker to bitcoin business

Pitta from Brazil worked in the financial industry before founding BTCJam. “I work for Citi. Knowing the internal working mechanism of the bank, I think I can do better: a peer-to-peer lending website.”

However, Pitta encountered the first obstacle when he discovered that starting an unauthorized lending service in Brazil would be punished.

"I noticed that if you are engaged in borrowing in Brazil, you will have to be in prison for 10 years," he said.

This sounds absurd to some people. This potential obstacle is to make Pitta make up his mind to start a company's business in digital currency instead of trying to become an authorized bank, which is costly.

Pitta said that BTCJam has provided more than ,000,000 in loans to people in more than 100 countries around the world.

Investor returns

In peer-to-peer lending, a team of investors does not need to provide loans to individuals through traditional financial entities such as banks.

In the past 10 years, this concept has developed into an industry. Last year, in the United States alone, Lending Club and Proper, the two largest fiat currency P2P platforms, exceeded billion in loans.

BTCJam believes that P2P lending has a market of at least 0 billion in the world, and this concept is very valuable to Bitcoin holders who are beginning to lend their funds.

Pitta told Coindesk that the market department of BTCJam usually has 20 investors in one loan, and the average annual return rate is 19.

This sounds high, but, like any loan, the profit is based on recovering the loan, Pitta said, explaining:
"If your credit is not good, then the borrowing rate is obviously higher."

All that aside, bitcoin borrowing at this interest rate is a good thing for many people, Pitta pointed out. In Brazil, some lenders charge 10% of the borrower's fees every month.

Moreover, he said that Bitcoin scattered around the world can better promote the use of digital currency through different exchanges and wallets, even if the borrower has a vague view of this fact.

Global Credit Score

BTCJam has also solved another problem, that is, many other P2P lending websites restrict geographic areas. By using a "machine learning" artificial intelligence method to build his own credit scoring system, the company can rate the credit of borrowers around the world.

"People don't have credit scores, which is very common." Pitta said, "This makes it difficult for us to make loans. Our technology allows us to make a credit score evaluation based on a lot of data collected from users."

When a user registers on the BTCJam website, he can complete the credit score evaluation through many confirmation questions. Confirmation verification is required, but there are other options to create a reputation profile.

Users can link their social media accounts, proof of income, verify phone numbers, and even upload personal information to prove their credit without historical credit, because this system is still not established in many countries.

Bitcoin and fiat currency exchange

Many companies using Bitcoin to provide remittances or other financial services often encounter the so-called "last mile" problem. The problem is that although Bitcoin can quickly transfer money around the world, it is almost impossible to transfer money every day for daily expenses.

Although BTCJam has his own Bitcoin wallet, the company understands that lenders need to convert digital currency into legal tender locally. Therefore, the company thought of a way.

Pitta said, "We are now integrating exchanges around the world. This will allow customers to convert it into fiat currency once they receive a loan."

For example, in the United States, users can link their BTCJam wallet with Coinbase, which makes it easy to transfer funds to a bank account.

Moreover, BTCJam has been integrated with exchanges in Brazil, and plans to reach partnerships with exchanges in Mexico, China and other places. Pitta said.

Coindesk price

Although the advantage of Bitcoin is that it is easy to transfer, BTCJam still has to calculate the value of the loan in local currency, so that it is easier for the borrower to know the amount of money.

"We allow people to use the local currency exchange rate when borrowing." Pitta explained.

At the moment a loan is issued, BTCJam uses CoinDesk's Bitcoin Price Index API, which can obtain price data from many exchanges and calculate the amount of Bitcoin in local currency. Therefore, if the customer is in India, the system will use the exchange rate between rupees and bitcoin and calculate the number of rupees.

"When we borrow money, we keep an eye on the exchange rate between fiat currency and Bitcoin. CoinDesk BPI is very good because it is very timely and trustworthy compared to the APIs of other websites." Pitta said.

Regulatory aspects

BTCJam was established in the 500 Startup Acceleration Center in California in 2013. Earlier this year, the company received a ,200,000 investment led by Ribbit Capital.

In fact, they lent millions of dollars through thousands of transactions, which clearly shows that global P2P lending is a viable business. At the same time, BTCJam is also fulfilling the role of a financial company, and supervision has always been the company's concern.

"We have spent a lot of time thinking about regulation. We have a law firm that is working on this, and we hope to follow the regulation."

Even so, Pitta is not too concerned about supervision and stifling the innovation of the digital currency economy. Judging from the recent news of a German central bank, this shows that startups like BTCJam have had an impact on the banking industry.