The Impact of Crypto on Unbanked Populations

Financial inclusion is a critical aspect of most healthy economies - it allows individuals to participate fully in necessary activities.

Cryptocurrencies, with their decentralized nature and global accessibility, can play a significant role in enhancing financial inclusion. They offer an alternative means of storing and transferring value, bypassing traditional banking systems, and potentially empowering unbanked populations. This potential is particularly significant given the large number of unbanked individuals worldwide, who often face barriers to accessing traditional financial services. This article explores the ways to alternative means of storing and transferring value, banking the unbanked crypto, bypassing the need for a bank account and offering more financial inclusion and empowerment.

Unbanked vs. Underbanked 

Many people around the world lack access to adequate financial services, either because they are completely excluded from the banking system or because they have limited options. These people are referred to as unbanked and underbanked, respectively.

• Unbanked people do not have any bank accounts and rely solely on cash and physical assets to store and transact their money. In most cases, an unbanked person does not hold a checking or savings account with an FDIC-insured institution.
• Underbanked population refers to individuals who have some bank accounts but also use alternative financial services that are often costly and inconvenient, such as payday loans, money orders, and check-cashing. The FDIC defines an underbanked person as someone who has a bank account but also used an alternative service in the past 12 months. 

Digital assets offer a potential solution to the challenges faced by both of these categories, as they can provide fast, secure, and low-cost access to financial services without the need for intermediaries or physical locations. Many experts believe that using crypto currencies to help the unbanked is a way to address the issues.

What percentage of U.S. households have no access to banking services?

Globally, there are approximately 1.7 billion adults who remain unbanked, according to the World Bank. At the same time, 37% of underbanked people and 12% of unbanked people in the US reported owning cryptocurrency. A study by Tradingbrowser indicates that cryptocurrency and Bitcoin adoption is highest in countries that lack a developed financial infrastructure, partially due to high cash payments and Bitcoin ATMs Out of the countries surveyed, Mexico had the largest percentage of its population unbanked at 60%, and it also ranks third in terms of the number of Bitcoin ATMs installed.

This represents a significant portion of the world’s population that could benefit from the financial inclusion that cryptocurrencies provide. The potential impact of cryptocurrencies is vast, and understanding this impact requires a deep dive into the current state of cryptocurrencies and financial inclusion.

The Current State of Cryptocurrencies and Financial Inclusion

Cryptocurrencies are indeed being recognized for their potential to enhance financial inclusion. They offer a decentralized and globally accessible platform that can serve as an alternative to traditional banking systems. However, the current state of cryptocurrencies and their potential for financial inclusion is a complex issue.

While crypto can provide services such as cross-border transactions and micro-financing, which are often inaccessible or costly through traditional banks, there is a mismatch between what they can provide and the needs of the unbanked populations they aim to serve. For instance, with lower transaction fees comes the issue of volatility of in values - this poses significant financial risks to users.

Moreover, the narratives surrounding cryptocurrencies and financial inclusion often lump together diverse groups such as the unbanked, underbanked, and various ethnic communities without acknowledging their distinct financial needs and objectives. A recent Federal Reserve report noted that a small but growing number of underbanked individuals were trying their hand at crypto.

Therefore, it’s crucial to analyze these narratives to understand what Bitcoin means for unbanked economies. This can help identify the gaps in current cryptocurrency services and the opportunities for leveraging digital assets for financial inclusion. For instance, understanding the distinct needs of different communities can help tailor cryptocurrency solutions to enhance their effectiveness.

Cryptocurrencies and Diverse Communities

Cryptocurrency communities are diverse, encompassing a wide range of individuals with distinct financial needs and objectives. They are usually formed around shared interests and provide a platform for members to exchange ideas, discuss strategies, and understand the intricacies that influence significant trade decisions. Most will include investors, traders, tech and crypto enthusiasts, and developers, among others.

These communities play a vital role in the Crypto World, helping newcomers learn and providing a transparent space to evaluate new projects. They offer benefits such as learning from experienced traders, staying updated on news and trends, and even receiving valuable investment advice. Understanding these communities is crucial for assessing the impact of cryptocurrencies on financial inclusion.

Cryptocurrencies as Change Agents

Cryptocurrencies, with their decentralized nature and global accessibility, can act as change agents for the unbanked, providing them with control over their financial assets without the need for traditional banks. This is a significant shift from the traditional financial system, where banks act as intermediaries and gatekeepers.

Private entities, including trustworthy cryptocurrency exchanges like SimpleSwap or Binance, and wallet services, play a significant role in promoting financial inclusion. They do this by developing user-friendly platforms that make it easy for individuals to buy, sell, store, and transfer cryptocurrencies. These platforms often have attractive features, educational resources, and customer support, which can help lower the barriers to entry for individuals who are new to the domain.

Moreover, these entities often foster education about digital currencies, helping individuals understand how to use them safely and effectively. These will usually cover a range of topics, from the basics of blockchain technology to more advanced topics like trading strategies and risk management.

The role of cryptocurrencies as change agents can have far-reaching implications for financial inclusion. By providing an alternative to traditional banking systems, they can potentially help in banking the unbanked with crypto. With these new assets, people can gain greater control over their financial assets and participate more fully in the global economy.

However, it’s also important to note that while cryptocurrencies hold significant potential, they also come with their own set of challenges, such as price volatility and regulatory uncertainty. In the next section, we will touch more on the benefits and drawbacks.

Advantages

Cryptocurrencies offer several advantages that can contribute to financial inclusion and empowerment, particularly for unbanked and underbanked populations:

• Accessibility: cryptocurrencies can be accessed and managed using a simple smartphone, making them accessible to populations who may not have easy access to physical banking locations.
• Lower Costs: they potentially offer lower transaction fees than traditional banking systems, especially for cross-border transactions.
• Financial Empowerment: digital assets can provide unbanked populations with control over their financial assets without the need for a traditional bank.
• Innovation in Financial Services: the rise of DeFi (Decentralized Finance) in the crypto space provides innovative financial services like lending, borrowing, and earning interest.

Disadvantages

Despite the potential benefits, there are also several challenges and risks associated with using cryptocurrencies:

• Volatility: on the other hand, crypto is known for their price volatility, which can pose significant financial risks and bring doubts to users.
• Regulatory Uncertainty: the regulatory environment for cryptocurrencies is still evolving and varies widely by country, creating uncertainty for users.
• Technical Complexity: the use of cryptocurrencies requires some degree of technical knowledge, which can be a barrier for many people.
• Security Risks: while cryptocurrencies can offer robust security features, they are also susceptible to hacking and fraud. Users are responsible for the security of their own digital wallets, which can be a significant challenge for some.

Risks and Challenges 

While there exist a lot of benefits for those engaging with digital assets, in order to provide a comprehensive unbanked crypto review we should also mention the challenges associated with it. These include the volatility of cryptocurrency values, the risk of hacking, and the lack of consumer protections in many jurisdictions. Additionally, the regulatory landscape for cryptocurrencies varies widely globally, with some countries embracing them and others banning them outright - to learn more about the rules of each country, one will usually need to conduct a thorough research. Understanding these risks and challenges is crucial for assessing the viability of cryptocurrencies as a solution for financial inclusion.

Conclusion 

In conclusion, cryptocurrencies have the potential to significantly impact unbanked populations by providing an alternative to traditional banking systems. However, more evidence is needed to assess their effectiveness fully, and adequate consumer protections must be put in place. As we look to the future, the role of cryptocurrencies in financial inclusion will likely continue to evolve, warranting ongoing exploration and discussion.

SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility.