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What is Distributed Credit Chain and why is it Important?

Despite not lifting the base interest rate for more than a decade prior to November 2017, the BoE has since increased this from 0.25% to 0.75% in just eight months.

Many households have subsequently seen the cost of repaying their mortgage increase, as banks have been quick to apply the base rate hike to their variable rate products. However, only two have agreed to pass all of the recent 0.25% hike to their savers, with the rest deciding to increase account rates by around 0.01%.

This highlights one of the primary issues with the existing financial system in the UK, as it remains highly centralised and at the mercy of monopolistic institutions. We’ll explore this in the article below, while asking how a distributed credit chain can help to resolve the issue.

What is a Distributed Credit Chain?

A distributed credit chain is a relatively new phenomenon, and one that is powered by innovative blockchain technology. It’s also a key driver of a truly burgeoning marketplace, with the blockchain sector set to achieve a cumulative value of $16 billion by 2024.

In simple terms, a distributed credit chain (DCC) is a decentralised banking blockchain that employs an infrastructure to interact with lenders and financial services providers.

By leveraging blockchain, it moves control of the financial system away from individual banks and lenders, creating a fairer and more transparent market for all parties involved.

What are the Benefits of a Distributed Credit Chain?

While a decentralised financial system will help savers across the globe, deploying individual distributed credit chains will also change the nature of borrowing.

If you look at the centralised credit model, you’ll see that financial institutions are often enticed to deviate from their primary purpose of serving customers. As they subsequently prioritise profit ahead of people, borrowers are squeezed by higher interest rates, hidden fees and rising transaction costs.

While some traditional lenders such as Likely Loans may buck this trend, there’s no doubt that it provides a major issues in the financial world. Distributed credit chains provide the ideal solution, as they create a more even playing field and immediately reduce the overall cost of borrowing money.

A distributed credit chain also improves the efficiency of verifying borrowers and issuing loans, with these processes costing lenders considerable amounts of time and money.

This is particularly true in instances where applicants fail to meet the lenders’ risk criteria, and a distributed credit chain will make it far easier to vet borrowers effectively within a short space of time.

The Last Word

For now, blockchain remains synonymous with Bitcoin and cryptocurrency, but there’s no doubt that it has potential applications across an array of industries and marketplaces.

While banks remain sceptical of cryptocurrency, however, they see huge potential in blockchain and this association could well revolutionise the financial system across the globe.

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