BTCjam, the Bitcoin-based peer-to-peer lending site, has begun offering refinancing options for borrowers who face difficulty repaying their loans. Cryptocurrency networks operate without the credit
BTCjam, the Bitcoin-based peer-to-peer lending site, has begun offering refinancing options for borrowers who face difficulty repaying their loans.
Cryptocurrency networks operate without the credit infrastructure that banking systems developed over centuries. Credit matters to economies. It allows people to borrow against future earnings, start enterprises, and create value. Traditional banks sit between savers and borrowers, collecting deposits, issuing loans, and extracting fees and interest spreads. Peer-to-peer lending platforms remove that intermediary. Bitcoin removes another barrier: borrowers and lenders no longer need to funnel transactions through fiat currency.
Banks do offer refinancing to struggling borrowers. The arrangement favors the bank. Financial difficulty becomes an opportunity to restructure terms and collect additional fees. BTCjam works differently. A borrower seeking refinancing must find new investors willing to fund someone with a payment problem. That's a harder sell. Early refinancing requests on BTCjam show little traction. Several borrowers attempting to refinance have already failed to pay their initial loans. One applicant lost money in the Paycoin collapse and is now seeking new funding. When a refinancing deal closes, the new money goes to the original lenders, settling the old debt.
The structure creates a conceivable vulnerability. A borrower could invest in their own refinancing offer, then withdraw their share of the new capital while the platform lends out the remainder to them. Nothing prevents this. Borrowers also can request more than their original loan amount. BTCjam lends out any excess beyond the original sum to them under the requested terms.
BTCjam displays all loan histories and applies a credit rating system to participants. Investors familiar with the platform know which borrowers demonstrate repayment discipline. Among borrowers rated C or above in BTCjam's credit classification, repayment is the norm.
The platform proved that Bitcoin could support peer-to-peer lending. The refinancing feature adds flexibility to the platform. How often borrowers needing to refinance will use it, and what volume of deals the feature will generate, remains uncertain. The experiment is underway.
