Is bitcoin a currency, or an investment? A speculative bubble, or here for the long run? As the debate continues, one thing is certain. Bitcoin is filling the holes of the legacy financial system and providing real solutions for pressing problems, like the banking of the unbanked.
Leaders everywhere call for the same goal of sustainable growth, and financial inclusion is critical to any effort raise people out of poverty.
The poorest places in world are severely underbanked, none more so than Sub-Saharan Africa where a staggering 66 percent lack access to basic financial institutions. But, we are now now seeing 90 percent digital mobile penetration in these unbanked places. While these areas may not be able to access traditional banks, they can access the blockchain from their phones. We are seeing the dawn of a new financial system.
We don’t need to look halfway around the world to see the effects of under-inclusion. The FDIC recently found that 27 percent of US households were unbanked or underbanked. This problem became more acute in the wake of the 2008 recession when banks shuttered less profitable branches across the country. Bank of America alone closed 1,600 locations, primarily in rural areas. Online banking was supposed to fill some of these gaps, but the high number of unbanked families persists.
The unbanked both at home and abroad face excessive fees that destroy the ability to save and face often insurmountable obstacles to the credit that is need to buy a home or start a business.
Bitcoin and other cryptocurrencies just might be the solution. Based on a distributed ledger technology known as the blockchain, digital currencies are revolutionary because they require no trust between parties, they cannot be counterfeited, and the entire transaction history is completely transparent and mathematically proven.
Bitcoin and other cryptocurrencies present a way for people and business alike to bypass the traditional financial and monetary system and engage in direct exchange. This means that any unbanked person with a computer or a smartphone now has the opportunity for greater financial inclusion.
Compared with the legacy financial system, there are a number of advantages in cost and security. There are no fees on wealth stored via bitcoin, and it takes relatively little time for funds to clear via network confirmations. The already rock-bottom transfer fees for crypto continue to drop as the network protocols become more efficient, and the flat fees are the same regardless of the amount transacted or location of the recipient.
Instead of taking days to transfer money or exorbitant fees to cash checks, blockchain allow for seamless flow payments and secure store of value, as well as tremendous opportunities to access microlending.
If the $4.2 trillion internet economy were a country, it would be one of the five largest economies in the world. It only makes sense that the digital economy would have its own currency, not beholden to physical barriers to exchange. With companies from Kodak to Starbucks set to trial blockchain payment systems, it seems that no company in the physical world could or would want to become an island in this sea of change.
In fact, the biggest banks are beginning to cite cryptocurrency as “risk factors” to their profit-driven business model, with JPMorgan Chase stating that, “…financial institutions and their non-banking competitors face the risk that payment processing and other services could be disrupted by technologies, such as cryptocurrencies, that require no intermediation.”
As a result, private and central banks worldwide are racing to implement blockchain in attempts to stay competitive, with JPMorgan Chase also noting, “Opportunities for banks to utilize blockchain technologies for conducting business could have far-reaching implications for the sector in our view.” Bitcoin’s technology is even impacting those that are already banked.
American are at a crossroads, and the world stands with us. Some feel that we must over-regulate crytocurrency, hampering innovation and slowing down growth. Many of these regulatory advocates are creatures of the legacy system and fear they will be displaced by current innovations. And, in a world where the U.S. still rules financial markets and regulatory harmonization is a huge goal, the rest of the world follow us. American must lead.
The legacy financial system has served us for a long time, but it fails to include far too many, even here at home. Let’s be on this side of innovation and freedom, and let bitcoin and the cryptocurrency revolution work without excessive government meddling. We owe it to the unbanked poor, both at home and cross the world, to allow the tremendous inclusive benefits to develop and help lift millions, if not billions, out of poverty.