Since its creation in 2009, Bitcoin has had one major function: investment. However, with its development over the years, many more purposes have risen—providing plenty of real-use opportunities for crypto enthusiasts all over the world.
One purpose that has helped many people, especially those in struggling economies, is the use of cryptocurrency as a means of financial inclusion for the unbanked and underbanked.
The importance of financial inclusion
Some of us are lucky enough to live in places where bank accounts are easily accessible—which we often take for granted. In countries with a high unbanked demographic, people are missing out on financial inclusion—a chance to be part of a financial ecosystem that could improve their quality of life. Without bank accounts, people are forced to rely on their physical fiat currency: bills and coins. The problem is, physical fiat currency can become difficult to manage and store.
However, it’s not always a matter of choice. It can be as simple as not having a bank nearby, or as complicated as not having the required documentation to open a bank account. In some cases, banks will refuse to believe that a potential customer can make enough income to sustain their accounts.
As a result of financial exclusion, access to loans and insurance is limited. Additionally, the unbanked are unable to securely store their money, transact online, or even invest. In turn, these individuals will have a difficult time starting their own businesses or buying a home.
In most cases, large banks do not want to overextend their credit to the underbanked—and even when they do, they offset the risks by charging high-interest rates.
Cryptocurrencies as a means for financial inclusion
In a recent report, the World Bank estimated that there are 1.7 billion people around the world that lack access to formal financial services—effectively barring them from managing their finances.
However, although people are suffering from a lack of access, there is an alleyway for them to explore—cryptocurrencies.
Let’s look at it this way: the primary function of a bank account is to store and transfer value. Despite the volatility of most cryptocurrency markets, cryptocurrencies can fulfill those same purposes. If you’ve got a smartphone, you’ll be able to store your value and process borderless transactions around the world. In their simplest form, cryptocurrencies can give people the opportunity to essentially function as their own bank.
In past years, cryptocurrencies were seen as merely another way to transact on the Internet. However, as they mature over time, cryptocurrencies are seeing the creation of more decentralized financial products—cryptocurrency loans, the ability to pay bills with crypto, and more. Not only do these products allow people to participate in the transactions happening on the net, but they also make everything more efficient by bypassing systems and tedious processes imposed by traditional banking systems. Costs are significantly lower for holding or managing crypto (if there are any at all). In addition, transactions have the potential to be much quicker (no need for a lengthy approval process)—opening up new opportunities and access to more financial services.
Anyone with a stable Internet connection (maybe also a smartphone or laptop) has the ability to create a digital wallet and process international transactions, all with much lower transaction fees compared to international transactions processed by traditional banking systems.
Because of the development cryptocurrencies have seen over the years, traditional financial systems no longer hold all the power. Bitcoin and other cryptocurrencies have provided a new way of exchange.
Due to the ingenuity of blockchain technology and the underlying technology behind some of the biggest cryptocurrencies, people now have a way to create their own financial alternatives. The best part is, because of characteristics specific to blockchain technology, these alternatives are not only efficient and scalable, they’re also incredibly transparent. And as cryptocurrencies and blockchain technology continue to mature, transaction costs will get cheaper, and they will see steady growth in adoption (especially in countries with struggling economies).
Addressing the volatility issue
At this point, you might be asking: “If cryptocurrencies are such a good means of financial inclusion, how do we address the issue of their extreme volatility?” That’s a great question and we’ll tell you why there’s no need to worry.
Over the years, cryptocurrencies (especially bitcoin) have held the reputation of being excessively volatile—which is why they’re particularly enticing to investors. The question is valid—how do these digital currencies help people if, much like traditional fiat currencies, they can potentially devalue at an alarming rate? There are two main rebuttals to the volatility issue.
First, not all cryptocurrencies experience extreme volatility. The existence of stablecoins (cryptocurrencies tethered to real assets such as oils, metals, or fiat currencies) eliminates the threat of devaluation, yet still provide the benefits of owning digital assets.
And second, some fiat currencies have been proven to be more volatile than cryptocurrencies. Take the Venezuelan Bolivar as an example. The Bolivar is currently experiencing extreme inflation percentages—making cryptocurrencies more appealing to Venezuelans.
Within the cryptocurrency ecosystem, there are solutions that will help preserve a user’s purchasing power. As a result of that preserved purchasing power, the potential issue for cryptocurrency price volatility is nullified.
Crypto could be the answer
With the unbanked problem the world is facing, it can be concluded that cryptocurrencies have the power to fight financial inequality and potentially bring (the once denied) financial services to the people that need them. They can provide a paradigm shift for the unbanked population and bring a lot of political, financial, technological, and economical change—and countries like Venezuela are proving to be great examples of that. Through crypto, people can send remittances using crypto without having to use banks and countries with struggling economies can gain access to the goods that they otherwise wouldn’t be able to.
Providing financial inclusion to all is an important goal to aspire to—and cryptocurrencies could play a crucial part in achieving that. More and more, we’re seeing countries turn towards cryptocurrencies as an answer and a way out. Eventually, that interest may be able to raise awareness on the benefits of these digital assets. The issue of being unbanked and underbanked is one that plagues one in four people on the planet and if cryptocurrencies can provide a solution, we could potentially be looking at one of the biggest and fastest adoption events in history.