Blockchain-Based Lending Could Mean Trouble for Big Banks 0 2253

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.

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I grew up in the Silicon valley under the technological mentorship of Steve Wozniak. I'm a proud member of the Choctaw Nation, I've lived, worked and traveled all over the world, and I now write in the Pacific Northwest.

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Kenya Looks to Blockchain for Affordable Housing Project 1 191

The “Silicon Savannah” is moving deeper in direction of tech. The Kenyan government has announced a plan to manage the property allocation and funding of 500,000 affordable housing units with blockchain technology.

The units, which the government aims to build by 2022, will be set aside for households with an annual income below 100,000 Kenyan Shillings, about $990 USD. The World Bank estimates Kenya’s gross national income per capita at $1,290, according to Business Daily.

Blockchain will help ensure that the affordable housing is in fact going to those who fall below the average income bracket. Land title fraud has caused problems for Kenyans, as land grabbers target homes and even schools for illegal sales and development. Blockchain’s ability to store verifiable proof of title could help safeguard against fraudsters.

“Kenya will use blockchain technology to ensure the rightful owners live in government funded housing projects,” said Principal Secretary of Housing and Urban Development Charles Hinga, speaking with the World Bank on Monday.

Hinga said the plan will be financed by the National Housing Fund, which will raise over $59.5 million per month to get the project underway. But Cabinet Secretary for Transport, Infrastructure, Housing and Urban Development James Macharia said it will take $31.7 billion to build a million homes, each of which will cost between $3,000 and $30,000. Macharia called for support from private sector financing.

Under the financing plan, working Kenyans will contribute 1.5 percent of their salary, which will be matched by their employers. “On affordable housing one should not spend more than 30% of their disposable income for housing,” Hinga tweeted yesterday. “Anything above 30% is not affordable.”

A Trustless Relationship Between People and Government

The initiative represents a considerable push to solve housing and title problems for the nation’s lower income families. But how will the government decide to whom the housing units will go? With so much talk about financing underway, people are already calling on the government to outline a plan for how they’ll distribute the affordable housing units.

The government will need to deliver the housing projects in a time when, Hinga acknowledges, the public is skeptical. Earlier this year $78 million went missing in a corruption scandal involving the National Youth Services. Where there is little trust between the people and their government, Kenya hopes to establish transparency through the blockchain’s distributed ledger system.

Kenya’s Move Toward Tech

In March, Kenya’s Ministry of Information, Communications and Technology appointed a blockchain taskforce to explore the ways the nation could use blockchain technology in the public and private sectors. They called it the Distributed Ledgers and Artificial Intelligence taskforce, and by September its chairman, Bitange Ndemo, was calling on the government to tokenize the economy.

Ndemo also proposed government implementation of blockchain to certify the authenticity of retail goods, so consumers can be sure of where their food is coming from, for example.

Governor of Kenya’s central bank Patrick Njoroge has also voiced support for the use of blockchain technology to strengthen service delivery, although he’s opposed the use of tokens and digital currencies.

But the affordable housing initiative could be the Kenyan government’s first real world implementation of the blockchain.

There’s an Inflatable ‘Bitcoin Rat’ Staring Down the Fed 13 223

Someone has put a giant inflatable rat outside the Federal Reserve Bank in New York.

It’s covered in Bitcoin code, printed in rainbow colors, and is apparently a piece of installation art aimed at subverting the federal institution that controls the US dollar. Or is it pale, puffed-up pariah a commentary on Bitcoin bros themselves? Or does it have something to do with Warren Buffett, who earlier this year called Bitcoin “rat poison squared”? According to CoinDesk, who first reported on the inflatable rat, the meaning is intentionally ambiguous.

The artist behind the puzzling prank is Nelson Saiers. He describes his own work as “mystifying” and “singularly original”, notwithstanding the long history of rats being inflated as protests or used as economic and political icons in art and entertainment around the world.

“It’s art, so I hope they’re entertained by it,” he said, apparently implying that art is entertainment. “It’s informative, I hope people will learn [and] I’m hoping it’ll at least help people understand bitcoin better and be kind of faithful to what Satoshi would have wanted,” he added, citing the mysterious pseudonym of Bitcoin’s founder with a touch of reverence.

A $50 Million Artist

Saiers, a phD in theoretical mathematics, was a hedge fund manager who did that thing where you give up all the money to chase your dream of being an artist.

His financial experience includes a stint as managing director at Deutsche Bank’s prop trading desk, before becoming CIO of Saiers Capital, the hedge fund that bears his name. His creative career gives credence to the theory that working as an artist is more and more a privilege of the very wealthy.

CNBC estimated Saiers’s wealth to be around $50 million at the time of he departed from the financial industry to pick up his paintbrushes.

The Rat Joins a Tradition of Sculpture-as-Commentary in FiDi

The Bitcoin rat, which stands on Maiden Lane, isn’t the first pop up sculpture to grace Manhattan’s financial district. Last year, Kristen Visbal’s 50 inch bronze ‘Fearless Girl’ statue made waves by staring down the famous ‘Charging Bull’, to the outrage of ‘Charging Bull’ sculptor Arturo Di Modica. The 3.5 ton ‘Charging Bull’ itself was left on Wall Street in the middle of the night when Di Modica originally created it, obstructing traffic and drawing the curiosity of passers by.

When Saiers placed the Bitcoin rat, he initially set it up on private property and was promptly ushered off by security guards, who he says were good natured about the situation. He expects the sculpture to be more temporary than the aforementioned Wall Street bronzes, and will probably only be around for a few days.

A Critique of the 2008 Bailouts

The placement of the rat on Maiden Lane seems to be no accident, but rather a reference to the Maiden Lane Transactions, more commonly known as that time when the Fed bailed out the big banks after they all caused the 2008 market crash. The Bitcoin crowd’s antipathy towards the Fed and the big banks is palpable in Sairs’s rat sculpture, and while a more specific meaning eludes, perhaps the success of the piece depends upon its ability to start conversations about the state of finance.

We’ll leave it to the viewers to decide who’s the rat—the Federal Reserve, or Bitcoin itself—and what that means for the future of currencies.

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