There is this phrase that crypto could "bank the unbanked". But what did and can crypto really do?
TLDR; The text shows that we need to look at why people are unbanked to include them in the world economy. The reasons are not mainly missing technological infrastructures but the lack of financial opportunities caused by a perpetual circle of inequalities. But crypto is also not only a technical solution. It is also a movement and a community. Crypto can give opportunities because it's more accessible. But its primary users still live in wealthy countries, foremost in the US. The most important to make crypto more inclusive is to spread knowledge of how to use it safely. The "Crypto community project" is one example where young people can learn this. Furthermore, we need more learn-and-earn projects like 1729 to earn crypto while creating knowledge and skills.
Bitcoin Beach [1] is the name under which the village of 3,000 inhabitants in El Salvador became famous when it introduced Bitcoin as a means of payment. The small town, actually called El Zonte, is a surfer's paradise with hostels on beaches darkened by the ash of the nearby volcano. The village is popular with surf tourists, and yet it is characterized by poverty. There has never been a bank there. But since 2019, you suddenly see the famous orange B all over town because merchants accept payments in Bitcoin. Since then, the financial life in El Zonte has changed. Residents used to make a three-hour bus trip to the nearest bank to make a transfer, and now it's just a few clicks away. [2] Many can save or even invest money for the first time. [3]
El Salvador's President Nayib Bukele has chalked up the developments in El Zonte as a success and has expanded the strategy to the entire country. El Salvador is the first country to make Bitcoin its official currency alongside the US dollar. As a result, Western Union is expected to incur significant losses because residents usually have to pay high fees to cash their salaries. Instead, that money now stays with the people and flows into El Salvador's economy.
Nevertheless, some citizens are protesting against Bukele's decision. [4] Maybe they don't want to be the guinea pigs of this “Bitcoin experiment.” We don't know if Bitcoin can really solve any of El Salvador's severe economic issues. The high volatility is an extreme risk factor. But it might be precisely this volatility that Bukele is counting on in hopes of an upward trend that would consequently boost his population’s prosperity.
In 2017 about 1.7 billion adults didn’t own a bank account. China has the world's largest unbanked population. Together with India, Pakistan, Indonesia, Nigeria, Mexico, and Bangladesh, they make about half the world's unbanked population. Women are overrepresented among the unbanked, and unbanked adults mainly live in the poorest households. [5]
Being unbanked or underbanked* means that you rely on non-bank financial services. [6] These services are not supervised or controlled by the government's banking regulations and often contain unfair and abusive lending practices. Often people who are vulnerable to those “predatory lending” [7] practices live in so-called banking deserts. [8] It is not lucrative enough for large institutions to offer their services at these locations. That often applies to rural areas where mainly elderly live, low-income communities, and places consisting of minority groups and native communities. [9]
It becomes clear that being unbanked or underbanked includes historical dimensions of class, race, and gender. Usually, it means being born into a perpetual cycle of economic inequality. When you grow up in an environment where everyone is limited to checks and cash and is vulnerable to financial abuse, it is hard to increase your chances of financial literacy.
The reasons for not having a bank account are deeply interwoven. No physical access, language barriers, unstable income, and lack of identification documents often go together. It all accumulates in the main reason for being unbanked: not having enough money. [10] In sum, it’s the lack of financial opportunities that leaves people unbanked.
Crypto doesn't care who you are and where you live. Anyone can start with crypto. The only thing you need is a mobile phone and an internet connection that doesn't even have to be especially good. Most people today have both. Even though centralized exchanges such as Binance or Coinbase require you to provide identification documents, crypto wallets require no such thing. Crypto is a solution for anyone who needs to receive or send money anonymously.
But the lack of regulation also opens up opportunities for fraud and criminal activity. In a debate about the question "Can crypto bank the unbanked or is it a dangerous idea that could do more harm than good?" [11] Peter McCormick and Yaya Fanusie are discussing the pros and cons. McCormick, a Bitcoin enthusiast and the host of the "What Bitcoin Did" podcast, obviously believes that the advantages of Bitcoin exceed the downsides. He demonstrates that for everyone using Bitcoin for illicit purposes, someone is using it for economic freedom. For everyone getting money out of fraud, there is a protester in an authoritarian regime receiving donations in crypto.
Yaya Fanusie, Senior Fellow at the Center for a New American Security, criticizes this statement. He says the use cases of crypto in authoritarian regimes show what exactly the problem is. Namely, an issue of freedom, which crypto as a technology cannot solve. For demonstration, he points to China and its handling of the crypto space. [12] What we should rather do, he suggests, is to help people to become free. Unfortunately, Fanusie doesn't consider that financial autonomy could be a first step into that freedom.
However, the freedom and autonomy provided by crypto also bring difficulties. If your key gets lost or stolen, your money is gone. Being banked with crypto means using financial services without a bank. There is no third party to turn to in case of problems or uncertainties. Consequently, knowledge is the most vital asset to be able to use the financial opportunities that crypto offers. Knowledge about how to use the technology and, more importantly, about cyber security. How can I keep my money safe? Which dapps are good to exchange, loan, and lend money, and how do I recognize scams?