Why is Bitcoin Important for P2P Lending and How Can the Industry Improve? ByKyle TorpeyPRO INVESTOR Updated: 29 August 2021 P2P lending is often brought up as an industry that could benefit from Bitcoin, and Coinbase CEO Brian Armstrong has even talked about how this will be one of the key areas of development for Bitcoin on more than one occasion. While there are a few different Bitcoin-powered lending sites available right now, the industry has been plagued by low-quality borrowers who are often able to escape the loan platforms without paying back their lenders. It’s clear that Bitcoin can be a powerful tool in bringing frictionless payments and permissionless access to the world’s financial system, but there is still plenty of work to be done when it comes to applying some of the legacy protections for borrowers in these types of systems. Also Read: PayPal To Integrate Peer-to-peer Payment Solution Venmo Soon Bitcoin Enables Seamless Cross-Border Lending Stu Lustman is a commercial credit analyst and P2P lending enthusiast, and he was recently able to shed some light on the Bitcoin lending industry via email. Before talking about the current issues with the Bitcoin P2P lending industry, Lustman provided a brief explanation of why cryptocurrency can be a valuable tool for this sort of online financial activity. Lustman explained that Bitcoin is perfect for cross-border money transfers, which is how he came across the technology in the first place: “Bitcoin lending is great for diversification or cross border lending. I found Bitcoin as I was searching for a way to do P2P loans to [non-Americans]. Every country’s own securities laws . . . required being a resident or a citizen [of that country], so the only way I could lend to non-Americans was through Bitcoin.” The Problems with the Current Bitcoin Lending Industry Lustman understands that Bitcoin is a useful option for connecting borrowers and lenders from around the world, but he also sees serious issues with the currently available Bitcoin lending platforms. In his view, lenders are the ones who are being shortchanged under the current setup. Lustman explained that the lack of a collections apparatus is hurting Bitcoin’s ability to expand in the P2P lending industry: “Some kind of collections apparatus needs to be instituted. It’s just too easy to walk away with someone else’s coin when there is so little to no consequence for doing so. Identity is only a factor to the degree that some real scammers try to open different accounts under different names, for example. Although, I think this is the minority.” Lustman claimed that these sorts of issues used to be more common on Bitcoin lending websites, and he also has a post on his blog about some of the work he is doing with the Chamber of Digital Commerce to help protect the lenders on these sorts of platforms. Using the Blockchain to Track Borrower Reputation A large number of individuals and startups are interested in using the blockchain for identity management, which means there’s also the possibility that the system could be used for tracking people’s credit histories. If Internet users begin to use some sort of entry on a blockchain-based system as their online identities, it could also make sense to attach credit histories to those identities. Lustman called this concept a “great idea” via email, but he also stated: “I still think that Credit Scoring, like what FICO does in the US, requires both information and human interaction since strength in some areas can make up for shortcomings in other areas, and you can’t program for every scenario.” Stu Lustman will be featured on a Bitcoin lending panel at the upcoming Inside Bitcoins Conference in San Diego on December 16th. Lustman claims that he’s excited for the panel, as he will be the only American. He noted: “It’s going to be full of insights on how businesses can access BTC as capital for their business as well as how BTC can be used as an investment tool. It’s going to be awesome.” Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, RT’s Keiser Report, and many other media outlets. You can follow @kyletorpey on Twitter.