PEER-TO-PEER lending may have revolutionised how individuals save and borrow money, but cryptocurrency fans are now turning their attention to the sector.
Crypto or digital currencies such as Bitcoin or Ethereum have gained public attention recently amid the emergence of initial coin offerings (ICOs) — a fundraising that rewards investors with supposedly-tradeable tokens in return for supporting a business using the blockchain technology behind cryptocurrency. Some providers are looking to combine the principle of P2P with cryptocurrencies.
All argue that using blockchain technology is faster than traditional banking or P2P and can help those particularly in developing countries where the credit scoring or financial system may not
be as advanced.
For example, Sikoba, founded by Luxembourg-based financial consultant and researcher Aleksander Kampa, is offering ERC-20 tokens in return for backing a platform that provides a P2P IOU system, extending lines of credit to users who know each other around the world.
Another ICO, ETHLend, founded by Finland-based Stani Kulechov, is offering LEND tokens to fund a
P2P lending platform that issues loans in Ethereum. The tokens can be used for discounts on fees for lending and borrowing that cover the registration of the transactions on the central ledger.
Kulechov argues that using cryptocurrencies is advantageous for investors and borrowers as all user
details are stored on the central ledger and it is faster, while payments can be pegged to fiat currencies such as pounds or dollars to avoid the volatility associated with digital versions.
Regulators such as the UK’s Financial Conduct Authority have warned this area is high risk and
unregulated as there is no guarantee of returns or that the ICO will be a success.
The risks of cryptocurrencies were highlighted in May when Bitcoin P2P lending platform BTC Jam,
backed by Funding Circle supporter Ribbit Capital, announced it was closing after five years. It cited
regulatory challenges and the difficulties of introducing the technology in the poorer developing nations it was trying to help.
Analysts are also nervous about combining P2P and cryptocurrencies. “Cryptocurrencies are exceedingly speculative investments, meaning they have little or no intrinsic value,” said Neil Faulkner, chief executive and founder of P2P analysis firm 4th Way.
“When it comes to converting back to pounds, speculators buying loans in cryptocurrencies are
therefore hoping that the next person will buy them out at a higher price than when they started.
Read more: Blockchain special feature
“The bottom line is that cryptocurrencies multiply both the potential gains and potential risks to
“This puts them in a completely different risk category to P2P lending.”