Why Bank Credit System is Just a Joke? Why Blockchain will Build a Better Credit System?

I hate banks. I think banks are the most disrespectful Financial Institutions I’ve ever seen.

You may doubt that but once you are applying for a loan or credit card, you will agree with what I am saying: bank is just a joke because of their credit system is so bad!

I remember the first time I am applying for a credit card: the applying process is easy, but the result is frustrating: I’ve got a very low credit limit and I feel disrespect. I complained to the bank and they just gave me an official answer. What makes me unhappy most is not because of the limit, however, just because of dignity.

Same thing happened to the famous economist Zhu Wu Xiang in China, who is a professor in Tsinghua University. “I have applied a credit card years ago from ICBC bank, it makes me feel shame that they only give me 20,000 RMB(about 3,000 USD) limit, what kind of big data is this? They increased the limit up to 30,000 RMB(about 4,500 USD) after a year. They explained that I don’t use the credit card often so they can’t approve a higher limit. Yes, I don’t use the credit card very often, but that does not mean I have a low credit level. So there are problems with existing bank credit assessment methods.” he said.

“So the current bank credit assessment methods are often based on scattered, limited, biased and incorrent information that will cause problems. Bank loan, so called no mistakes, however, there are a lot of bad debts in reality.” Professor Zhu Wu Xiang said.

I have also given an example from the famous movie “Fantastic Beasts & Where To Find Them’(2016)” in my previous article: “Why Blockchain is an Antidote to Great Human Problems such as Human Value Problem”. Jacob Kowalski, in the film is working in a canning factory and goes to a bank to get a loan for bakery. He shows the design of the bakery he is going to run and his paczki(a kind of doughnut by his grandmather’s special recipe) to the banker. The banker has no interest to it at all, he just asked “Mr. Kowalski, what do you propose to offer the bank as collateral?”. So, as we all know, unfortunately, Kowalski’s application is refused by the banker. The banker does not care about the talent what Kowalski have to make fantastic doughnuts, he only cares for collateral.

I think many people don’t like banks just like me, but we all have no better choices. However, when blockchain technology appears, things will change.

Why blockchain will build a better credit system? In 2008, a man named Satoshi Nakamoto published a white paper “Bitcoin: A Peer-to-Peer Electronic Cash System”. After then, bitcoin and many other cryptocurrencies are introduced. Bitcoin is an open, decentralized, distributed ledger crypto currency and the backend technology is called blockchain.

The best part of blockchain is: it can bring decentralization. Decentralization is so important to credit ratings because no one can control the credit rating result thus it brings objectivity. Another feature of blockchain is immutability. Immutability makes the data stored cannot be changed in certain circumstances.

Decentralization brings objectivity to credit ratings, immutability makes credit ratings cannot be changed or controlled by a third-party. Is that enough? Not yet, the key to a reliable credit rating is the credit assessment method.

Fortunately, Digital Credit has finally find the solution. With years of experiences of working in Topcoder, a competition based crowdsourcing website, Bruce Zhang, founder of Digital Credit has found that in an open, widely involved, competition-based, result and performance based environment, talented people will emerge. “What surprises me most, is that in Topcoder, there are so many talented people in less developed countries.” Bruce said.

In 1977, China has resumed the colledge entrance examination. Though colledge entrance examination is often criticized in China now, it has truly done great contributions to the success of Chinese Reform and Opening. Every student can have the oppotunity to go to the best universities in China such as Tsinghua University, Beijing University and more, only by their scores in the exam. It brings true talents to China and is relatively fair. In 2005, China has started Civil Service Exam, which will select the Civil servants and government officials openly and fairly. The colledge entrance examination and Civil Service Exam, in result, greatly promoted developments of China.

In an open, widely involved, competition-based, result and performance based environment, why talented people will emerge? Because in such environment, talent is the only factor what you can prove yourself, so it’s fair. Fair brings oppotunity.

Think about it, if your fate is determined by other people’s decision, not by your own talents and ability, you will not have a chance to change your fate, especially people from social bottoms.

Bruce Zhang realized if talent can be identified in an open, widely involved, competition-based, result and performance based environment, it will be a good idea to make talent the only factor to evaluate one’s credit.

This is the basic concept of Digital Credit , a decentralized digital credit community and platform. Digital Credit will not evaluate your credit by other factors except your talent. To evaluate your talent, you have to take part in POA(Proof-of-Ability) actions such as competition, challenge, testing, review and contribution. By doing this, in an open, widely involved, competition-based, result and performance based environment, your talent assessed will be objective and fair. So, credit assessed from your talent will be objective and fair as well.

Bruce has given an example of one of the use case: In modern investment area, most investors are unprofessional, but it is very difficult for them to identify those professional investors and conduct “follow-up” because they have no way to effectively verify investment levels of other investors.

By using Digital Credit, Investor’s investment ability can be verified in Digital Credit . Therefore, investment is no longer a difficult task, thus ordinary investors only need to follow up the “guru” for investment.

For example, holding a long-term, regular investment competition to evaluate performance of investors (assuming the use of simulation investing environment to assess the returns of participants), and regularly rank the participants’ investment performance (eg, weekly, monthly, quarterly etc.) Because the investing performance is automatically verified by the system, its investment performance and stability can be effectively verified by the system. In such investment system, it is easy for ordinary investors to find those who are professional at investment by their investment performance in competitions. Those professional investors can obtain greater returns by launching crowdfunding, lending, and selling tickets (sharing their own investment decisions).

Sounds unbelievable? By using blockchain technology and POA actions, Digital Credit has a chance to build a fair an objective credit rating system only by your talents. You can’t fake your talent, and your talent is not decided by others but the decentralized system.

To have a quick launch, Digital Credit will use EOS.io to build token and smart contracts, and will use Tendermint and BigchainDB to build a decentralized blockchain database. There will also be compatible version using other blockchain such as Ethereum and Bitcoin.

Digital Credit will be launched in August, 2019, with multiple clients(web, desktop, cell phone and more) and multiple blockchain(EOS.io, Ethereum, Bitcoin and more), and will support multiple programming languages such as javascript, Golang, Java, Python and more. Developers can develop dapps based on Digital Credit API and upload and deploy the codes to the cloud to register their application in Digital Credit app market.

Token sale of Digital Credit will begin from June 2 to July 2 2018. Most of the token of Digital Credit will be distributed to community.

In July, an MVP version of Digital Credit will be released. This MVP version will show how it will be looked like and will record the early talents and credits from early community members.

Imagine that, if Jacob Kowalski joined the Digital Credit community and has proved his fantastic doughnut making skills to Digital Credit, will his loan application be refused? Will he have to go to the bank to get ridiculed?