The Future of Finance: How a decentralized credit network can compete and benefit everyone (except the super rich)
For many people, credit cards are a way of life. With no extra money after their cost of living, a credit card can provide a lifeline to pay for just about anything. And even if you can’t pay by credit, they offer a feature where you can get a cash advance. On the surface, credit cards seem like a great piece of finance that benefits everyone; it allows borrowers to spend beyond their immediate means allowing for more consumption, hence, growing the economy. The only problem is the fees. The average interest rate on a credit card is 16.13% as of the day of writing this story. In addition, the merchant has to pay a 1.3–2.9% fee on each purchase. That means everywhere you shop with a credit card, they are typically on a cost of around 2–3% to pay for the transaction cost. If the borrower carries a balance beyond a grace period, they are charged interest based upon the terms of the card.
Meanwhile, we have trillions of dollars sitting in peoples’ savings and checking accounts earning an insulting 0–0.5%. I’m certain that many savers would be open to earning interest on these accounts if the risk levels are low enough and their funds are liquid. We have banks and processors earning exorbitant fees and interest and we have those savers supplying the funds earning as close to nothing as possible. This doesn’t even include those poor souls who messed up their credit and get stuck with high interest rates and a debt treadmill that they can easily fall further and further behind on.
How a Decentralized Finance credit network would be created
Currently, there are few options for consumers to get access to additional funds aside from credit cards. Payday loans are even more expensive than credit cards, home equity lines have fees and require collateral, and other no credit loans also have high interest rates.
To create a truly decentralized credit network, we would first need cryptocurrency payment rails that can be used for commerce. I am referring to using crypto at coffee shops, online, movie theatres or anywhere else that credit cards are accepted. I am confident that this is coming sooner rather than later. Having Paypal, Square, Venmo and now the country of El…