Posted May 2022 - Spark Network
Over the years, peer to peer lending and fundraising has become more and more popular. Online platforms allow groups of people to pool small amounts of money together to raise funds for a specific cause. There is no limit with the peer to peer market and there are mutual benefits for all those involved. Peer to peer services take place between two individuals directly without a third party intermediating. They occur on platforms that are decentralized and provide a vast number of services themselves such as: rating, screening, and payment processing. Peer to peer services can be as simple as buying and selling products. It’s also called the sharing economy. Without a third party moderator, transactions may become unfair and services the provider is offering may be delivered at a lower quality than expected. This is why peer to peer platforms are necessary to facilitate these transactions and reduce the risk for both the seller and the buyer. Platforms make revenue by making the buyer and seller both pay a small fee. They can also make revenue by selling space on their platforms. Types of peer to peer services: Open source software With this type of service anyone can open, use, or edit code for software. This eliminates a centralized publisher or software editor by crowdsourcing the code. File sharing This is when users meet to upload and download media and software files. This service can also provide scanning and security for shared files. Online marketplaces This is for private sellers to find interested buyers online. These services can provide ratings of buyers and sellers based on historic relations, promotion of sellers products, and process payments. Blockchain and cryptocurrency A network where users can make, process, and verify payments without the use of a central bank. Blockchain enables individuals to transact with businesses using cryptocurrency. The advantages of peer to peer business Reduced costs is one of the big selling points of peer to peer businesses. This is because there isn’t a third party that will take a large percentage of the transaction as a fee. Due to the buyers and sellers interacting directly, the total amount of the transaction decreases in price. There are also other costs that are cut out because of peer to peer businesses such as: marketing, negotiation, advertising, and insurance costs, amongst many others. There is a reduction of risk in peer to peer networks for users. Peer to peer platforms screen their buyers and sellers to make it safer for both parties. Specialization of labor: since service providers won’t need to focus on how to commercialize their businesses, they can focus all their efforts on improving their expertise in their business. Disadvantages of peer to peer There are also disadvantages in peer to peer networks. The biggest disadvantage is that files and folders cannot be centrally backed up. This is because they are stored on individual computers and may be difficult to locate on a huge network. Besides permissions, there can be little security for users. Although there are disadvantages to the sharing economy, it is still developing and the problems faced today on platforms can be solved in the future as more money gets invested in the network. Peer to peer vs banks P2P lending platforms can be more advantageous to borrowers in comparison to bank loans. With bank loans, the security is limited to the bank and not the people involved. With P2P lending, borrowers can pay back the full amount early without having to pay fees for lost interests gains.

Blockchain: what is it and what does it really mean for Micro business?

Blockchain is a public electric ledger that is built around a peer to peer network that can be openly shared between users to create an unchangeable record of transactions. Each transaction is time stamped and linked to the previous transaction. Each transaction that is added becomes another block in the chain. Once a new block is entered, it can never be erased, which makes all the transitions verifiable and auditable. The security and chronological order of the blockchain are enforced with technology called cryptography. How does blockchain work? With transactions of bitcoin on the blockchain network, the bitcoin wallet keeps a piece of data unknown, which is called a private key or seed. This key is used to sign off transactions and provide proof that the transaction came from the owner’s wallet. The key also prevents anyone from altering the transaction once it has been issued. The transactions are broadcast to the network and are confirmed through a process called mining. Mining is the process used to confirm pending transactions. Mining adds transactions to the blockchain in chronological order, protects the neutrality of the system, and allows other computers to confirm the state of the system. When adding more blocks to the chain, strict rules ensure that the block fits, and this will be verified by the network. These rules prevent the previous blockchain from being modified. By mining a blockchain using a network of computers, no group or individual can control what is included in the blockchain or replace any part of the blockchain. Advantages Disadvantages Transparency High cost for small business Faster transaction with lower costs Large energy consumption New business model and value chain Cultural adoption Blockchain uses The uses for blockchain seem almost unlimited. Although this technology is still relatively new, there are already areas that it is being used in. The most common use right now is payment systems. Blockchain provides a secure way to transfer money, even internationally. Automating the processes of transferring money internationally will reduce the number of 3rd parties involved, which will make the transactions more efficient and could result in a decreased cost of transaction. Blockchain’s real time tracking capabilities have also helped the supply chain management sector. Blockchain provides a new way to organize, track, and put data to use. This has opened up new options for companies transporting goods. Blockchain entries can be used to allocate new goods to shipping containers, as well as mark events for a supply chain. Being so secure, blockchain can be used for record management because it reduces duplicates and fraudulent entries. It also removes the risk of single point failure and provides end to end encryption and privacy. What does it mean for micro business? Smart contracts are an economical option to help micro businesses.

The uses of Smart Contracts for Micro Businesses

Small and micro businesses are the backbone of economies. Most businesses in economies start as SMEs. In Africa, it is estimated that SMEs employ 47% of the workforce, and their output is 20% of the country’s gross domestic product. Although SMEs are an essential part of the economy, they still face many challenges. SMEs struggle with bank loans: almost 30% of these businesses shut down due to lack of funding. Blockchain opens new opportunities to SMEs to solve existing problems and enable them to optimize their businesses to operate more efficiently. One method of optimizing business using blockchain is the use of smart contracts. What are smart contracts? Smart contracts are automated programs that can carry out the terms of any contract. Parties involved make a deal, put the details of the agreement into code and create a blockchain. When the deadline is reached, the blockchain will notify the supplier to send the product from the agreement. The blockchain will also release the payment for the supplier. This is all done automatically without the use of a third party. They can be used to lower costs of most financial transactions because the third party that would charge fees is removed from the transaction. How do smart contracts work? Smart contracts are automated programs that run specific code that is programmed according to the specific terms of a contract. They use IF/THEN conditions to execute their tasks. The best way to explain how smart contracts work is with an example. An example of an IF/THEN condition is: IF a client sends a referral customer, THEN a code can be released for them to receive a discount on their next purchase. Another example is: IF a supplier delivers goods by a specified date, THEN release the supplier’s payment. How are smart contracts used? Blockchain has many uses. Its most common use is to transfer money and make payments. Transferring money through blockchain is the easiest and most cost effective solution, even more so when it comes to international payments. Blockchain and smart contracts, however, are not limited to money transactions. They can be used to automate tasks to make business easier. Let’s take a look at Airbnb as an example of this. Smart contracts are an easy way to handle rentals. A blockchain connected lock can be used: once renters reach their destination and have met their contractual terms, the lock can unlock and allow the renters into the property. Another example of the use of smart contracts can be in manufacturing. Managers at manufacturing plants can make a code to automate how much material they order, when it is ordered, and when it will arrive. Are there any limitations? Are there any bad sides to using smart contracts? Blockchain and smart contracts also have some disadvantages. One disadvantage is that there is no way to adjust a smart contract after it’s been programmed into the blockchain. Although this is a safety feature to avoid fraudulent activity, it is also a disadvantage as there could have been an error with the contract terms that needs to be fixed. Another disadvantage is the high dependence on programmers and exposure to bugs. There are also weak legal regulations of smart contracts. How will it benefit my business? There are many advantages to using smart contracts. They include being safe and secure, as blockchain uses enhanced security when it comes to the storage of personal information and data. Information is encrypted, anonymous, and resistant to hacking. They are cost effective, as cutting out middlemen in contracts saves small businesses time and money. Smart contracts can cut out expensive transactional fees and legal payments, which can hinder small businesses. Smart contracts are also time saving. By nature, automation of tasks results in time and energy being saved. Businesses also won’t need to wait for weeks for the creation and exchange of documents, goods, and services. To check out an example of a Smart Contract Check out the Spark Network!