With the increase in the use of information and technology, several digital lending platforms have developed to cater to financial needs worldwide. These platforms are made to ease business transactions and ease trading across the world through the internet. Some platforms are made to ensure people can borrow and make payments over the internet. The lenders need not necessarily meet the borrower physically. They only meet over the internet and transact their business online. On the other hand, some platforms like cryptocurrencies increase the liquidity of cash since digital currencies cannot be easily stolen. These currencies are widely accepted today because they minimize the risks and uncertainties associated with solid cash.
(i) Microlending
This is an online platform that offers financial support in the form of small loans to people worldwide to start a small business to improve their livelihoods. Individuals issue loans rather than credit institutions and banks. The loans are offered to a vast number of individuals who contribute a proportion of the total amount. The loans are usually given where the traditional finances may not be readily available to all people. The lenders will receive interests on the loans advanced to their clients. The loans are issued at friendly interest rates, usually made to entice and encourage many people to borrow.
Microlending serves to provide accessibility of capital to people in third world countries to set up businesses. The lender avails capital to the borrowers in the countries for entrepreneurial, who pledges to payback after a specified period. For example, Kiva, a lending company, offers micro-lending for humanitarian reasons. The borrowers apply by sending a brief business detailing the type of business. How to operate, day to day operations, and a shorty biography. Finally, microfinance finances people who have lousy credit rating and cannot obtain financing from the banks or those who want a small amount of money below bank requirements. For example, prosper and Lending club offer s micro-lending for people for various reasons. More than $15 billion has been lend by Prosper, and more than $45 billion has been borrowed through Lending Club. These companies earn profits from the interests on the loans.
Pros of microlending
The worldwide internet connectivity has facilitated microlending, where lenders and borrowers find each other online and transact. The lenders earn relatively higher returns than traditional saving methods since the borrower’s credit history is determined by the past credit they had taken; thus, even those with excellent credit scores pay more than the traditional method.
Lenders invest a small amount on a loan so that many microloans fund fort folio. The borrowers’ loans are funded by many lenders who contribute a small percentage to the total loan amount. The risk is spread among various lenders to ensure that their portfolio is not entirely wiped out in case of loan default.
Cons of the micro-lending
Any collateral does not back the loans compared to the other loans; if the borrowers fail to payback, the lenders expect nothing or a little to be recovered from the borrowers.
Microlending is only accessible to people who have internet access only. This means that most people who don’t use the internet are not eligible for this funding type. Thus it lacks the inclusivity of all societal members.
(ii) Bitcoin
A bitcoin is an online virtual currency that is not backed by any physical commodity or any sovereign obligation. It uses peer to peer technology and a combination of cryptographic protection. Nakamoto introduced bitcoin in 2008. It has boomed over time and generated billions of profits for those engaged in the bitcoin business. Bitcoin has a chain of transactions from one owner to another. A public key, which pseudonym identifies the owners of the bitcoins. The owners can use any number to address and activities using one set of addresses and not tied to their activity using another set.
For every transaction, the previous user signs a secret signing key that corresponds to his address of the transaction in which he received the bitcoin and the address of the next owner. Bitcoins transactions are in the form of chains. Bitcoin’s validity is determined by checking the validity of the signatures for each address in the chain; the user should be aware of the transactions in the system to avoid double-spending. The transactions are grouped in blocks to enable users to determine the first transaction to the last one. This process forms a blockchain available to the public and is available to users in the system. The blockchain describes bitcoin transfer and broadcasts transactions to users of the system.
Some companies have accepted bitcoin as their medium of exchange. A notable example is Etsy, an online market where people buy and sell goods .the merchants here accept bitcoins as the only payment form.
The pros of bitcoins
Bitcoins have low operations because there is no need to pay commission and fees financial institutions like banks. It only needs mathematical computations that do not need money. The commission fees are usually meager.
The bitcoins payment has no boundaries .the payment made through the systems not possible to cancel, and thus they cannot be faked, spent twice, or copied, thus guarantees the integrity of the whole system.
Bitcoin is not affected by inflation. The maximum number of coins is limited to twenty-one millionbitcoins.no external force can change this set order, and it’s transparent.
The Cons of the bitcoin
The bitcoin has strong volatility. Bitcoins’ challenge is that its value relies on the statements issued by governments of various countries. It was thus creating problems in the short run.
Bitcoin is associated with the risk of money laundering and other illegal malpractices since it lacks a central issuer, thus no formal legal entity.
In conclusion, micro-lending and bitcoin are increasing their use in many countries across the globe. During this period of globalization and e-commerce, people are shifting from analog to digital. The transactions are now being digitized. Looking at the vision 2030, the future of business is in cryptocurrencies and blockchain technology. This is because there is continuous improvement in information commination and technology.