Maindivider Newsdivider What is cryptocurrency loan?

What is cryptocurrency loan?

calendar 18-09-2023

A cryptocurrency loan, or crypto credit, is a modern type of financial online service that provides customers with the opportunity to quickly get the loan in cryptocurrency. Such services are mostly provided by platforms that specialize in cryptocurrency financial operations and use the technology of blockchain for a process of automatization.

The first platforms that accommodated people with loans were found in 2012. In fact, such platforms were only intermediaries and offered loans from other cryptocurrency owners. In order to minimize risks, intermediaries redistributed the funds among several customers and also used other tools to insure against cryptocurrency loan default and fraud. Now the system functions more globally, effectively and comfortably.

The main advantage of cryptocurrency loans is that operation is carried out online, so you almost instantly receive the money. When you need money urgently but don't want to contact banks, the best option is to take a cryptocurrency credit. So if you decide to take a credit in bitcoins or another cryptocurrency, read this article first. 

Features of a cryptocurrency loan 

Cryptocurrency loans have several features that differ from traditional financial credit tools. The main features of crypto credits are:

  • Cryptocurrency base

Such a loan involves carrying out all the transactions in cryptocurrency - Bitcoin, Ethereum or other altcoins (unlike traditional loans that are usually issued in national currency - dollar or euro). If your microloan is in bitcoin, you will pay the loan with bitcoin as well. 

  • Process automatization

For process automatization and to ensure the transparency of financial operation crypto stocks use the technology of blockchain and smart-contracts. Smart-contracts define the terms of crypto credit and automatically execute it when the terms are met. 

  • Absence of intermediaries

While issuing a crypto credit, traditional financial intermediaries, such as banks or credit institutions, don't take part. It significantly saves time, reduces costs and bureaucratic procedures. 

  • Issued quickly  

A cryptocurrency loan is a quick and simple process, especially compared with traditional credit. So it is definitely useful when you need urgent financial funding.

  • Bail

On the centralized platforms, you can take a credit on cryptocurrency bail. A bail is a guarantee of the return of funds and will be confiscated in the event of not-fulfillment the terms. Decentralized stocks give credit without a bail.  

  • Global accessibility. 

Crypto credit is available to customers all over the world and does not depend on geographic location. They are almost indispensable for international transactions and transfers.

  • Transparency 

Transactions and terms for crypto credit are transparent and available for check-up on a blockchain. It enforces the trust of customers in such loan systems. 

  • A certain degree of risk

Crypto credit operations are followed by certain risks, such as cryptocurrency price volatility (fluctuation), loss of access to a wallet, and a lack of regulation by legislation. It is important to take the risks into account and take precautions before taking a bitcoin microloan. 

  • Innovativeness 

Being a part of the innovative cryptocurrency and blockchain ecosystem, cryptocurrency loans USDT provide new ways of accessing financial resources and investments. 

Cryptocurrency loan is a modern and innovative way of receiving financial funds that has lots of unique features and benefits. But they also have some risks that require special caution and understanding of blockchain and cryptocurrency technology. 

When do you need a cryptocurrency loan

A cryptocurrency loan could be taken in various situations, and its feasibility depends on the individual conditions and needs of the borrower. There are several situations, when a cryptocurrency loan will be feasible and profitable:

  1. To invest in cryptocurrency and other digital assets, for instance, real estate, NFT or shares. If a borrower is sure that the price of such assets will be higher in the future, the credit could be used for an investment portfolio increase. 

  2. To cover unexpected urgent costs, such as medical bills or car repairs. Cryptocurrency loans help you receive needed funds quickly, especially when you don't have time or access to traditional bank services.  

  3. To cover other loans with higher interest rates, in some situations a cryptocurrency loan could help you reduce your overall financial costs and improve your overall financial situation. To diversify the investment portfolio and reduce the dependency on one asset or market. 

  4. For those regions where there is no access to bank services. In such situations, online cryptocurrency loans could be the only opportunity. 

Benefits and drawbacks of cryptocurrency loans

Benefits of cryptocurrency loans involve: 

  • Open access to credit funds independently based on geographic location. All the operations are done online, so you don't need to visit a bank or other financial institution. 

  • Cryptocurrency is almost never a subject of inflation, that reduces the purchasing power of national currencies. Cryptocurrency loans have become more preferable than traditional credit. 

  • Functioning is based on blockchain technology and doesn't include traditional financial intermediaries. It shortens bureaucratic procedures and simplifies receiving the funds. 

  • You can take a crypto credit much easier and faster compared with traditional bank credits due to process automatization with smart-contracts and the absence of the need for credit check-ups. 

  • Cryptocurrency loans could be used in international financial operations. 

  • Transactions on a blockchain could be checked, such operations are transparent and inaccessible for manipulation.

  • You can operate with different cryptocurrencies on a single platform. 

  • Functioning of crypto stocks is not regulated by the legislation. Cryptocurrency loans bypass state regulation and restrictions that exist for traditional financial services. 

  • You can receive a credit and pay for it using different cryptocurrencies, which gives you more opportunities for diversification of investments and financial control. 

When talking about cryptocurrency loans drawbacks, they are connected with risks, including the volatility of cryptocurrency rates, loss of access to a wallet, and insufficient regulation and security. Before taking a cryptocurrency credit, you should properly evaluate its feasibility and your financial situation. 

How to receive a cryptocurrency loan 

In the process of cryptocurrency loaning, the following stages can be highlighted:  

  1. Platform choice. 

A borrower chooses a platform or service that offers a cryptocurrency loan. They can be decentralized (DeFi) or centralized (CeFi) and give information about loans available, terms and details of an agreement. 

  1. Registration and identification. 

A borrower registers on the platform and goes through an identification procedure if one is needed. The identification procedure involves providing personal data and documents for identity verification. 

  1. Determinations of terms. 

A borrower chooses the terms for receiving a cryptocurrency loan: the sum, interest rate and term. 

  1. Creation of a smart-contract 

When the terms of a loan are chosen, DeFi-platform generates a smart-contract on the blockchain. Such a digital document has detailed information about a loan, including the sum, term and terms of repayment. 

  1. Smart-contract signing. 

A borrower and a lender sign the smart-contract using their cryptocurrency wallets. It is a guarantee that they will fulfill the terms of the loan. 

  1. Paying of credit funds. 

When the smart-contract is signed, a lender transfers the agreed sum to a borrower on his cryptocurrency wallet. 

  1. Loan repayment. 

Due to the terms of an agreement, a borrower pays the sum (including a rate) during the agreed term. Smart-contract automatically registers transfers and determines when a cryptocurrency loan is fully repaid (or not repaid). 

  1. Completion of an agreement. 

After the cryptocurrency loan repayment smart-contract ends an agreement, and cryptocurrency returns to a lender. 

Please pay attention to the fact that the procedure for receiving a microloan in bitcoin or another cryptocurrency could differ insignificantly on various platforms. The main advantage of cryptocurrency loans is an automated process due to the smart-contracts that reduce the necessity of an intermediary and simplify cooperation between creditor and borrower. 

Cryptocurrency loan with a bail 

To receive a bitcoin credit with a bail, you can use CeFi - centralized cryptocurrency loan platform (stocks BlockFi, Nexo or Binance). You need to register and verify your identity. (KYS). Such platforms mostly have protocols for bail security guarantees (by insuring or keeping assets in a cold-storage vault). 

Centralized platforms register deposits, offering investors an opportunity to earn interest. In order to take a really profitable offer, you need to check all the offers on the market first. Receiving a cryptocurrency loan using the CeFi platform involves some more paperwork. But the existence of regulation and support makes these platforms more preferable for investors. 

For instance, cryptocurrency stock Binance offers cryptocurrency loans in stablecoins Tether (USDT), BUSD (Binance), cryptocurrencies ETH and BTC etc. Ethereum or bitcoin can be a bail. Starting LTV - 65%, marginal call - 65%. Cryptocurrency loans are issued for 7, 14, 30, 90, or 180 days, and the rate increases every hour. Even if the loan is repaid earlier, the rate will be rounded in favor of the borrower. Besides that, requirements on Binance are better than on BlockFi, where LTV - 50%, and margin call - 70%.   

Cryptocurrency loan without a bail 

Loans without a bail could be received on decentralized stocks (DeFi). Unsecured cryptocurrency loans are called flash-credits, they are taken directly from creditors and could be received in fiat or cryptocurrency.  

Decentralized platforms work using blockchain technology and smart-contracts for loan giving and control. 

On DeFi platforms, all the operations are processed automatically, and smart-contracts functioning is based on algorithms and protocols for cryptocurrency loan automatic receiving. In blockchain, you can't hide anything, there are no intermediaries or regulation, you don't need to pass an identification, and credit or a microloan could be received in cryptocurrency, stablecoins or fiat currency. But compared to centralized platforms, the rate is much higher. But all the borrower needs to do is to apply for a loan and send the cryptocurrency that will be used as a bail to the specified cryptocurrency wallet. It is the fastest way to take a cryptocurrency loan. 

P. S. Cryptocurrency has long been an important element in a modern financial system. For those who are searching for rational, secure, and innovative business decisions, cryptocurrency loans are at least a comfortable and interesting tool. Platforms for cryptocurrency loans have fully reformed the credit service approach. They are convenient, secure, confidential, and available to everyone. 

If you are searching for a company that specializes in cryptocurrency loans  with flexible terms, pay attention to our platform. BitCapital is an innovative service that gives cryptocurrency loans in USDT quickly, conveniently, profitably, and securely. Cryptocurrency loans from our platforms help to save digital assets, quickly and confidentially receive the funds required without excessive bureaucracy, and increase your capital.  

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