What are person to person loans (P2P)?

Written by Davies on loans / Reading time: 4 minutes.

What are person to person loans (P2P)?

Let’s imagine that you’ve found out a great business idea that would potentially change your life for good and, who knows, transform the whole society. Or that you need to do any important purchase: a house, a car, paying your wedding, whatever you can figure out. Or simply something pops up, maybe an accident, and makes you spend much more than what you had calculated on the short term.


Normally you would pay whatever amount you had to with your own savings: it’s always a good idea to keep a financial cushion for this kind of issues. But maybe the expenses are higher than expected and you simply can’t afford it with what you have. In these cases, the usual solution is going to a bank, or any other institution, and ask them for a credit.


However, we all know the many problems this option has. You would become completely dependent on the terms these entities would like to impose regarding amounts, payment periods and interest rates. Which possibly wouldn’t be the most appropriate for you.


Luckily, new technologies such as cryptocurrencies allow alternative means of funding. Today we’re introducing person to person loans, also known as P2P. Have you ever heard about them? Do you know what’s all this about? Keep reading, we’re explaining in the next lines!


Introducing “peer to peer” (P2P) networks


The concept of P2P, which means “peer to peer”, is one of the basic ideas in order to understand how the Internet has been working in the last few decades. It is about an ensemble of computers interconnected among themselves in such a way that there’s no established hierarchy. There are neither servers not clients: all them work as nodes sharing information directly, at the same level.


In fact, a P2P network is remarkably effective to transmit data. Since there is no large centralized server supplying the rest of the computers as they connect, there’s also no risk of overload and collapse, what would mean a service disruption for all the others. In the same way, the bandwidth of all connected devices is used in a more efficient way and there are no funnels when going through the server.


A P2P network also ensures freedom in the net, because, becoming decentralized and removing the position of the server, there’s no hazard of it controlling what can be shared and what can’t. Censorship disappears simply because nobody has the actual capacity to censor. Very well-known P2P networks (although a specific software is required for the users to meet) are Napster, eDonkey/eMule or BitTorrent, which back at their time were quite popular to download music and films avoiding copyright.


But beyond the illegitimate usage some people make of them, there’s no doubt that the technology on which P2P networks function has become an enormous progress. It lets people from any part of the world to contact without intermediaries, anonymously, always offering an alternative in case of connection failure, and promoting solidarity, because its premise is that all users share the resources they own to keep the global environment working.


Applying P2P into economy: person to person loans


The same working principle of P2P networks for computer uses can be copied in the financial system, more precisely in person to person loans. If a channel is established between, on one side, people who need to borrow a certain amount of money and, on the other, people willing to lend it, a whole credit structure can be effectively created without the need of banks.


The advantages of person to person loans are quite straightforward. First of all, the capital sources can be multiplied so that one doesn’t have to rely exclusively in one of them, which is a potentially hazardous thing should any problem come up (and problems do come up often in traditional banks). These sources, besides, do not need to be physically close to the borrower of the money; that means the system is especially useful for developing countries.


Similarly, the money sender can choose which kind of receiver will get the money (depending, for example, on what need has moved him to request a loan), selecting the one that best suits, and therefore increasing trust. Because, additionally, in person to person loans the terms can be arranged up to the detail in a custom way, adapting exactly to what is required in every moment.


Cryptocoins such as Davies are an ideal tool to boost person to person loan systems. Their decentralized structure, not depending on any external entity that sets its value apart from the transfers the users perform themselves, make them optimal to work in a P2P network. Apart from that, for procedures as delicate as a credit, their safety is very valuable. Thanks to the blockchain system, it’s virtually impossible to crack or fake any operation completed with them.


Person to person loans, therefore, add one more to the already long list of services cryptocurrencies can offer to improve global economic conditions, next to others such as instant international transfers. Would you like to learn more benefits they can provide to your own economy and the most efficient ways to use them? Pay attention to our blog, where we will carry on explaining them, and ask us any doubt you may have!