The official history of peer-to-peer lending dates back to the 18th century. Someone Jonathan Swift, better known to the general public as the author of the famous novel "Gulliver's Travels", was the first to start introducing the so-called "social lending" in Ireland.
He was the one who created the first “Irish Credit Fund” to help financially low-income families from rural Ireland. The overwhelming majority of the local population was in great need of money, but did not know how to work with classical loans and did not have sufficient funds for collateral. Nevertheless, Swift loaned them small amounts, without charging additional interest.
The next two centuries have greatly expanded the practice of social lending, making it one of the most popular methods of obtaining credit in Europe as a whole. Only in Ireland, there were about 300 lending programs issuing small amounts of money for short periods of time. The situation changed when in the twentieth century centralized banks crushed almost all the basic methods of financial interaction between people.
Microcredit and microfinance concepts
The resurgence of peer-to-peer lending practices was associated with a banker, entrepreneur, economist, and active supporter of social ideas from Bangladesh, Dr. Mohammad Yunus. He was even once awarded the Nobel Peace Prize for the creation of the Grameen Bank and the development of microcredit and microfinance concepts.
The task was simple - to provide entrepreneurs of Bangladesh, too poor for traditional loans, with the opportunity to somehow expand their business. It was succeeded. At one time, about 8 million borrowers collaborated with the new social bank, and this practice itself significantly improved the trade and economic situation in Bangladesh.
The first online P2P platform was launched in 2005 in the UK. And at the current moment, the borrowed amount has reached 2.8 billion pounds. What is important - there is no fundamental difference between online p2p loans and the “social loans” of Swift and Yunus. Unless social loans were practiced mainly in countries with developing economies and a high percentage of poor people who were not able to apply to traditional banks.
However, after the bankruptcy of Lehman Brothers caused a global financial crisis in 2008 and a drop in confidence in traditional financial institutions - peer-to-peer lending began to be seen as a real alternative to traditional banking. Over the several 5 years since the onset of the crisis, the share of p2p lending has increased significantly, since it turned out to be a fairly profitable process for both lenders and borrowers.
Borrowers received lower interest rates and the opportunity to get a loan with a spoiled or insufficiently good credit history, and investors - deposits on more favourable rates than regular interest rates and various tax benefits. In addition, both sides found it very beneficial to have greater transparency in the financial exchange process.
Integration with cryptocurrencies
Peer-to-peer lending literally revolutionized the world of traditional financial relationships, but the process of change did not end there. Experts believe that actively developing cryptocurrencies can seriously change p2p networks that currently exist. Which is logical, since one decentralized network is much easier to integrate with another decentralized one. And cryptocurrencies with their high transparency, reliability and resistance to theft and hacking can be very useful as new means of lending.
However, it soon became clear that the advantages of cryptocurrencies do not end there. It turned out that you can create tokens tied to specific loan obligations and already interact with them. In essence, trade your loans with other participants in p2p networks. Particularly, this was the main advantage of the traditional methods of financial interaction implemented by banks.
Integration with cryptocurrencies for peer-to-peer lending also has great social importance. The fact is that a huge number of users of traditional banking services from developing countries are forced to pay huge percentages on official loans. Just because there is no alternative. But now it has appeared.
Technically, now any user of a p2p platform for lending has the opportunity to lend their money to anyone who wants anywhere in the world. From the point of view of investors, this seriously reduces the risk associated with the geographical diversification of the investment portfolio. Yes, and low operating costs are also extremely useful.
It is also worth to remember that according to the McKinsey Foundation research, approximately 39 percent of the world's population (about 2 billion) either do not have a normal credit history or cannot interact with banks. However, with the more active spread of cryptocurrencies, they will also have the opportunity to take loans.
So peer-to-peer loans in cryptocurrency are a new alternative to traditional banking services. Not without some drawbacks, of course, but with huge advantages for all participants in this process. Therefore, many experts argue that this phenomenon has very good development prospects. Not to mention its social significance and increasing the economic and technological education of the population.