Splitting Bitcoin Into Two Camps — Those That Want It and Those That Need It
Cryptocurrency and Blockchain Technology— Helping the Unbanked and Underbanked
In the developed world we have a financial system that works, for the most part (with the exception that occurred in 2007–2008 with the financial collapse that Satoshi Nakamoto addressed with Bitcoin). We may curse at the fees, especially in cross border or foreign exchange transactions, some transactions can’t be done outside banking hours, etc. but for the most part if it’s not broke why fix it system. We have governments that oversee the banking system, it’s worked for years so we really don’t put much thought into seeking banking alternatives like Bitcoin. Many would say we don’t need digital currencies like Bitcoin – we want Bitcoin.
A recent survey by research service YouGov Omnibus shows that half of American millennials are interested in using cryptocurrency as a payment option but ultimately they don’t need it – they want it. Companies like Facebook are also vying to become the payment platform for these millennials. Considering the security and privacy breeches (often by design) of these companies, don’t we want a better choice?
What if you live in Venezuela? Venezuela is in the midst of a massive financial crisis with a rapidly depreciating national currency where bearing the volatility in the cryptocurrency market is preferable to holding the local currency.
Localbitcoins, a marketplace where users can buy and sell Bitcoins to and from each other, has reported volume increases exponentially in Columbia, Venezuela and Peru. This past week saw the Venezuelan Localbitcoins markets post record volume for the eighth time in the last 10 weeks.
No Third-party Interruptions
One of the most important benefits of Bitcoin and other cryptocurrencies built on Blockchain technology is that governments and banks can’t interrupt transactions, confiscate or freeze accounts – a feature of cryptocurrencies attractive to those in volatile regions. In countries experiencing hyperinflation such as Venezuela, cryptocurrencies are making huge strides. Hyperinflation happens when the general population prefers to keep its wealth in non-monetary assets or in a stable foreign currency like the US dollar. However, as in the situation in Venezuela, due to government controls the ability to obtain foreign currency is heavily restricted which has made Bitcoin and other cryptocurrencies a popular alternative. One could argue these regions need a banking alternative like Bitcoin.
Blockchain, Cryptocurrencies & Bitcoin – Financial Alternatives for the Unbanked and Underbanked
Have you ever thought what life would be like if we did not have access to basic banking?
While many take the convenience of modern electronic banking for granted, a significant portion of the population actually lacks access to banking services. According to a 2017 report by the FDIC, over 25 percent of Americans either do not have a bank account at all or are not able to use their account to cover all of their financial needs. This problem only becomes more pressing when you look at countries that aren’t as affluent as the United States. Around 1.7 billion adults worldwide are without access to banking, according to the latest data from the World Bank’s Global Findex database.
Improving Access to Financial Tools for Everyone
Not having access to a bank account is a major problem, so much so that the United Nations has included it as a significant part of seven of its 17 Sustainable Development Goals to encourage sustainable development of poverty-stricken nations around the world. But sustainable development becomes more difficult as large banks continue to dominate the financial landscape and many banks have either reduced their presence in poverty-heavy areas or have pulled out completely due to the high costs and risk. The people living in these underserved areas still need the safety of a bank, but lack even basic access to basic banking services online. Adding to the difficulties of accessing, what we deem as essential financial services like check cashing, many people lack basic forms of identification that grants access to those basic banking services.
If you’ve ever lost or had any ID stolen, you know how much of a pain it is to replace it. For those living in poverty there are a number of other obstacles in getting or replacing identification including never having proper documents in the first place, high fees, language barriers, lack of family or social connections to verify identification, etc.
Unable to verify who they are forces the homeless and those living in poverty to live in a state of systemic invisibility which can result in being denied basic services like healthcare and housing.
Blockchain Technology Helping the Unbanked and Underbanked
Blockchain, the technology that Bitcoin is built on, according to Wikipedia is a growing list of records, called blocks, which are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data (generally represented as a merkle tree root hash). By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”
The transparency and efficiencies of blockchain technology make it an attractive option to helping solve some of the biggest challenges facing the unbanked and underbanked.
Canadian software solutions company Smart Sapien has been working on a blockchain based digital identity and marketplace solution to address identification and other challenges facing homeless youth. The initiative is called Silver Linings and works by creating a ubiquitous source of identification, digital cash with spending controls.
“We are going through one of the largest transformations in human history by embracing technology at the speed in which we are. Communication is now free and border-less, our day to day lives of shopping, watching movies and socializing is built from technology, we are now using technology for education and to improve our health, however there is no national identity solution that provides the basic proof of who an individual is – we have created a digital world where everyone is anonymous. Blockchain is a revolutionary piece of technology that has the ability to create this unique identification in a digital world and also create a ubiquitous source of value from the data we offset from the list of services I listed above. I am confident that Blockchain will play a large part in reducing the amount of poverty in this world, whilst helping the less fortunate become more educated and communicated to others for a faster rehabilitation process.” – Matt Hinkley, CEO Smart Sapien & Co-founder and CEO Liquidus
Banking on Blockchain Benefits:
— No physical branch is required
— No complex or expensive infrastructure is needed to run the network ultimately resulting in lower fees
— Increased transparency
— Speed of transactions
— Proof of property, land titles, identification, transaction records and other important documents can be stored on a blockchain, reducing the opportunity for corruption of paper documents
— Decentralized – not controlled by any government or other entity. Transactions including cross-border payments can be made directly to those that need it
— Blockchain-enabled lending offers a more secure way of granting personal loans to a larger pool of users which would make the loan process cheaper, more efficient, and more secure
Bitcoin, the first popular cryptocurrency or digital cash, requires no central bank or single administrator and can be sent from user-to-user, peer-to-peer without the need for a third-party facilitator. Cryptocurrencies like Bitcoin offer a viable solution to unbanked/underbanked issues. It requires little in regards to setup – requiring at minimum a mobile phone and internet connection. Bitcoin offers efficiency, cost, speed, security, minimizes corruption opportunity by third-parties and is borderless.
Whether it’s Bitcoin, Ethereum, Ripple or another one or two cryptocurrencies’ that ultimately becomes the main digital currency used in value transfer or Facebook or none at all that is for another discussion.
“The underlying issue of bankability and socio-political issues influencing currencies and how it affects those most in need is a pressing challenge to solve to many of us in the Blockchain Technology space. It all comes down to one thing – our primal instinct searching for safety and stability (shelter and food). Currently, blockchain and cryptocurrencies represent an accessible solution to the unbanked. We don’t know if it is THE sustainable problem-solver, yet, we do know that at this time, at this moment, there are no better ones.” – Anna Niemira, Director of Business Development at CryptoChicks
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Splitting Bitcoin Into Two Camps — Those That Want It and Those That Need It was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.