The Next Blockchain Killer App - Credit and Credit Ratings
Hani H. & K.Richter
This is the first article in a series on breakout applications of blockchain technology. Cryptocurrencies were the first major application of cryptography enabled value storage and transfer, of which blockchains are at the core. There will be other breakout applications following this. Decentralized credit management and credit scoring will be a major disruptive one. And the seeds are already being sown.
The Importance of Credit
There is truly one most valuable resource that belongs to every person. That resource is time. The time resource is what every person converts into every other thing of value. This we do in the form of labor, where we give our time to do some work in exchange for payment. Or we put time into our relationships to obtain a better quality of life. Credit represents an exchange of our future time for value and is a very important factor in personal, corporate, and organizational resource management.
Societies that have seen the greatest economic development have also coincided with those that have done the best at developing structures for managing credit. Specifically, many of the developed countries developed a system of recording and assessing reputation of individuals and institutions based on their credit history, in addition to their wealth. This spawned growth in the form of individuals that were able to gain home ownership earlier than without a credit system, and businesses that are able to access credit to develop products and provide services and thus create jobs.
Problems with the Current Credit System
However, even for the developed countries, the current credit system, which has been put together nearly a century ago is showing its limits. The credit rating agencies that we have provided authority to maintain credit records have formula and procedures that are no longer optimal in determining credit worthiness. In a world that’s becoming more global, the lack of mobility of credit ratings is a huge drawback. An individual or business with a good rating essentially can not carry that rating along when they move to a different country. Even though their ability to manage credit did not change with the move, their access to credit essentially will. That state of things can not be acceptable in a world where we have so much technological abilities and tools. The recent hacking of credit agencies such Equifax also demonstrates that the old system, and the system keeper are due for innovation.
Enter Blockchain Solutions
While blockchains are not a cure all for every challenge, they are particularly well suited to recording and securing data in a manner that makes them transparent and immutable. They also know no boundary, are impartial, and are color blind. A trustless implementation of our credit rating system in a deterministic manner is one that would be well suited to the blockchain. I was pleased to note that an new blockchain company already came up with this idea and has implemented a credit scoring system on the blockchain. The company is Bloom (https://hellobloom.io/?mwr=6025-b6d6e553) and they have signed up several credit issuing organizations and in the process of implementing credit scoring on the blockchain.