Blockchain-Based Lending Could Mean Trouble for Big Banks 0 2135

If there’s one industry that could use a good dose of disruption, it’s global finance. The established lending systems and their calcified pantheon of banking institutions are practically begging to be undermined with fresh, humanitarian technology.

To date, the banks have been iffy on acknowledging the legitimacy of the blockchain, trying to capitalize on it here, then publicly denouncing it as a fad there. Shortly after Goldman Sachs CEO Lloyd Blankfein called Bitcoin “a vehicle to perpetrate fraud,” Sachs hired a crypto trader as head of its digital assets.

Their waffling apprehension is no shocker. Blockchain is designed to cut out the middlemen in any given transaction. In the world of lending, that middleman is the bank. Seemingly all it would take is the public embrace of a blockchain-based lending system to set the classical era overlords quaking in their ivory towers. The public, meanwhile, stands to gain.

The Problem With Banks

It’s no news that the banking world is fraught with heinous ethical transgressions. When you bank with major institutions, you have no control over where your money goes. The bank lends it to whomever they choose. Wells Fargo, Citibank and Chase, to name only a few, contribute money to illegal and hazardous oil pipeline construction on First Nations’ sovereign land. Examples of problematic profiteering like this are plentiful.

And if it were up to the banks, you would never know. Because big banks are so entrenched in the global flow of money, exploited resources, and, consequently, political power, transparency is not an option. When it comes to giving and receiving loans, we need an alternative.

Blockchain Empowers Responsible Lending

Decentralized lending would theoretically solve these problems. You would lend your money directly, instead of giving it to a bank to lend out. You select ventures based on your own criteria, which are reflected in the smart contracts that govern the transaction. The whole process would be transparent and automated. At the end of a successful transaction, you reap the rewards directly in interest.

Conversely, borrowing would be available to everyone. And unlike banks, blockchain lending platforms could reward borrowers for completing successful loan payments as well. That’s what’s proposed by platforms like ELIX. They’re building a token-backed credit system to incentivize successful loan completion for both lenders and borrowers.

Trustworthy borrowers would gain tokens for timely payments and establish a credit reputation, readable in the ledger, to make themselves more attractive to future lenders. Lenders, in addition to seeing a return on their investment, would gain tokens as well. In classic blockchain form, everybody benefits.

Borderless Lending Would Promote Global Economic Equality

On a global scale, which ELIX is aiming for as a long term growth strategy, funds would be available to anyone, irrespective of their location or access to things like venture capital or amenable banking rates. This would promote equality of opportunity between the citizens of developing nations, and subjects of first world powers. Anyone looking to build a house or launch a startup, for example, could connect with financial backers directly. Backers would set their terms in smart contracts, and the whole process would be automated and tracked in the ledger. A rice farmer in Southeast Asia could get funding from a private citizen in Munich, a family member in California, and an investment firm in Sydney.

If this sounds like crowdfunding on a bigger scale, that’s no accident. In fact, ELIX includes a crowdfunding platform, as well. It improves on traditional crowdfunding platforms like Kickstarter and Indiegogo because it doesn’t need any kind of escrow or third party mediator to complete transactions.

Blockchain crowdfunding is one of those match-made-in-heaven ideas that has us all facepalming for not thinking of it first. But like most things blockchain, it’s still too new to see if it flies. Borderless crowdfunding and lending could revolutionize the way we finance, and everyone who’s not a bank stands to gain from it. But we have to try it first, and it has to strike a chord. Then there are the banks’ responses to consider.

It’s Not All Doom and Gloom for the Banks Who Will Play Ball

Adopting blockchain technology instead of competing with it could be the future of banking. Some banks, such as Spain’s Santander Group, are exploring the possibilities of using blockchain technology themselves. Santander recently introduced a blockchain-based service to facilitate money transfers across international European borders, for example.

According to the Financial Times, who interviewed a handful of bankers, consultants and analysts, the banking world has “a serious chance of being transformed by blockchain” in the following areas: clearings and settlements; payments; trade finance; identity; and syndicated loans. This assumes a bank’s willingness to adopt blockchain technology. It may be their only option for survival in the long run.

Whether blockchain lending topples the big banks or merely tills the soil of the financial world, the possibilities for the public make it hard to ignore. With its endemic transparency, automation and decentralization, blockchain looks like the ideal platform to support real world people looking to finance their dreams.

Previous ArticleNext Article
A tribal member of the Choctaw Nation, Brian grew up in the Silicon valley under the technological mentorship of Steve Wozniak. He's lived, worked and traveled all over the world, and now writes and makes films in the Pacific Northwest.

Leave a Reply

Your email address will not be published. Required fields are marked *

The Block Talk Award Winners Announced 1 1110

Thanks to everyone for submitting your favorite blockchain innovators and influencers. Our editorial team had a great time learning about new projects and individuals that are building a foundation for our future with blockchain technology, and realizing amazing technological feats in the present.

While it was difficult to select just one project or individual in each category, we’re excited to announce the winners of our first inaugural Block Talk Awards.

  • Best ICO Analysis & Commentary – Tatiana Koffman, Various Outlets
  • Most Engaged Community – Rod Turner, Various Outlets
  • Favorite Blockchain Blogger – Rachel Wolfson, Forbes
  • Best Crypto Journalist – Jordan French, The Street
  • Innovative Female Founder – Amber Baldet, Clovyr
  • Best Podcast Host(s) – Joel Comm and Travis Wright, Bad Crypto
  • Favorite Blockchain Event Host – Adryenn Ashley,
  • Top Crypto Speaker – Ian Balina, Crypto World Tour
  • Most Innovative Blockchain CEO – Trevor Koverko, Polymath
  • Top Social Entrepreneur – Evan Caron, Swytch

Winners in each category will receive a $1500 media credit on The Block Talk, access to a network of TBT Award honorees, and VIP access to TBT events in 2019.

Defrauding Crypto CEO Josh Garza  Sentenced in Landmark Case 0 98

The disgraced former CEO of fraudulent crypto company GAW Miners has reached the end of a legal saga spanning more than three years. Josh Garza has been sentenced to 21 months in prison and payments of $9,182,000 in damages. His prison term will be followed by three years of supervised release, including six months of home confinement.

US Attorney for the District of Connecticut John H. Durham announced the sentence, which follows Garza’s guilty plea to wire fraud.

How GAW Miners Lost Their Zen

GAW Miners started as a cloud mining service. Fraud allegations began to emerge in 2014, and formal charges followed. The SEC accused GAW with acting as a Ponzi scheme by selling more crypto mining power than they really had. Around that time, GAW also peddled its token, PayCoin, which they promised had a $20 ‘floor.’ That floor dropped out in 2015, to the ire of beswindled token holders. By the end of January, one PayCoin was worth less than $2.

According to the Department of Justice, Garza “stated that the market value of a single paycoin would not fall below $20 per unit because Garza’s companies had a reserve of $100 million that the companies would use to purchase paycoins to drive up its price. In fact, no such reserve existed.”

Nor did an $8 million transaction in which GAW’s parent company allegedly purchased controlling shares of ZenMiner (another company founded and operated by Garza). “Garza made multiple false statements related to the scheme,” the release states, “to generate business and attract customers and investors.”

The PayCoin collapse initiated the undoing of GAW and ultimately of Garza. GAW tried to bounce back with some unsuccessful endeavors like a crypto exchange called Mineral and a platform for making Amazon purchases called CoinStand, before the company went into default for failing to pay their power bill.

The truth eventually began to come to light after internal emails and documents surfaced, after GAW went under separate investigations by the SEC and the DOJ. A few years later, these investigations have finally resulted in Thursday’s sentence.

Justice and Fraud in CryptoSpace

The sentence is a win for the Department of Justice, which has been puzzling over how to govern the crypto world, and could set precedents for following cases, including investigations already underway.

A Bloomberg study has found that over 80 percent of ICOs are scams. Meanwhile, TechCrunch reports that over 1,000 crypto projects have failed in 2018, and $1.1 billion in cryptocurrencies have been stolen this year, according to CNBC.

The crypto landscape and the justice system clearly have some reckoning to do, but investors need to exercise serious caution in the meantime. Although Garza’s sentence sets a precedent, it’s based on a situation that’s not necessarily unique.

Garza’s Sentence May Not Satisfy Defrauded Victims

Critics of the sentence have pointed out how with good behavior Garza could be out in 18 months, a light load considering his fraudulent acquisitions through PayCoin could’ve totaled $20 million by some estimates, and considering the 20 years of prison time per infraction Garza was facing in court. The lighter sentence was part of a plea deal.

While Garza denied all charges at first, he expressed remorse about his actions in a courtroom statement Thursday, according to CoinDesk. Garza is ordered to report to prison on January 4th, 2019.

Most Popular Topics

Editor Picks