Have a small business idea but don’t feel comfortable getting a loan from a big bank? Need a small loan to purchase a car, some textbooks, or put down the deposit for an apartment? Millennials can often feel intimidated by the whole process of borrowing.
Banks have been the “bad guys” our whole lives, and, frankly, that portrayal may not be so far off. From risky financial instruments to outright dishonesty, traditional banking has created quite a bit of earned skepticism from those coming of age in the past few years. As a result, many millennials feel apprehension towards lending, borrowing, and generally creating a dependency on powerful financial institutions.
But borrowing is vital for personal economic growth. Being able to buy that car can lead to new job opportunities. That ability to buy textbooks could alter your whole earning potential. And in terms of the millennial generation contributing to the economy at large, the ability for millennials to consistently and safely borrow is vital for growth. However, without a trusted, transparent, and secure way of handling information and credit, millennials are wary of entering into business with traditional banks.
That is why one blockchain startup, Alchemy, is using the technology to create a peer-to-peer (P2P) lending system that ensures transparency and guarantees security to its participants. Alchemy hopes to be the first stop for any millennial that needs to borrow money to grow their business or move to a new home, but doesn’t need the anxiety and headache of dealing with a big bank.
P2P lending is already a growing industry, with an estimated value of almost $500 billion by 2020. Alternative P2P companies like Lending Tree have been operating for decades, creating and sustaining a healthy market. With less overhead cost of traditional banking, P2P are able to charge less fees for both the lender and borrower, as well as avoiding the possible abuse of consumer trust that traditional banks have been doing caught time and time again.
Alchemy works by matching lenders and borrowers for the requested amount of capital. Because of the instant, global, and secure peer-to-peer interactions that blockchain facilitates, costs of service are kept incredibly low. Interest rates are kept as close to a free market determination as possible, ensuring a fair consumer experience that often eludes customers of big banks.
Even more importantly, transparency is preserved. The nature of blockchain makes the entire system auditable by any participant, all while maintaining the anonymity of users. The security and transparency of the system is what Alchemy hopes will draw millennials. As a generation not only built on instant service, but belief in higher ideals, a freer and more peer-oriented way of borrowing is a perfect fit.
Once the funds are reallocated, the debt itself is reorganized by risk into a Collateralized Debt Obligation or CDO, and sold on an open market. This mirror more traditional financial instruments, but also allows Alchemy to ensure that it can keep its cost to customers as low as possible. For millennials seeking to gain passive income, CDO’s are a great way to lend passive savings.
Just as the first cryptocurrency boom introduced a whole generation to speculation and arbitrage, Alchemy could introduce more sophisticated financial instruments to a new generation. Alchemy could be the point of entry for millions of young people to enter into the large financial ecosystem of the US economy.
Blockchain has already transformed so many industries, but perhaps one of the most important things it has done is engage a new generation into the ideas of investing. Especially after the 2008 Financial Crisis, it seems that investing has never been riskier. For those born in the last two or three decades, cryptocurrency was introduced as an anonymous and secure investment opportunity (with risks of course), and even in its decline has made this generation wiser and savvier.
Alchemy hopes to have the same positive effect on the world. By providing a safe, secure, and ethical alternative to traditional banking, Alchemy hopes to be the borrowing and lending choice of the future.