Is cryptocurrency the solution to financial inequality?
Cryptocurrency came to fruition in 2009 and is now becoming more mainstream. It's quickly transforming into a viable currency that can be used by anyone with an internet connection regardless of their location or financial standing.
Experts predict that cryptocurrency will soon overtake FIAT money as the preferred medium of exchange, possibly as early as 2030. What does this mean for those who are experiencing financial difficulties right now? Do cryptocurrencies have the potential to solve these types of problems?
In order to understand how cryptocurrencies like bitcoin might impact people in poverty, it’s important to first explore some of the causes behind our nation’s current income inequality crisis.
Income Inequality in America
Income inequality in America means that 33.98 million people, or just a little over 10%, live below the poverty line. And because of the ongoing COVID-19 pandemic around the world, this number is likely to grow until we’re completely out of the woods.
The reasons for these inequalities can be linked to a plethora of factors, but the most common are:
- Education: The variable ability of someone to get an education. While it may be easy to get an education in one area or country, it may be much more difficult in another, and factors like race and class can also impact access to education.
- Wealth condensation: Where the majority of wealth is kept and spent amongst already wealthy people. Essentially, only the rich get richer.
- Technological growth: Advancements in technology can render certain jobs obsolete; for example, an order picker in a warehouse.
- Gender: The gender wage gap is one of the most famous examples of economic inequality, especially among single women trying to make a living independently.
Of course, there are more factors behind financial inequality, but compiling a list of them and why they would contribute would take far too long. Suffice it to say, these four are the top contributors.
How Cryptocurrency Can Help
So, with all the rampant financial inequality going on, how is cryptocurrency the answer? We’ve all heard the saying that the rich get richer and the poor get poorer, right? Well, let’s amend that to say the rich get richer, and the poor get cryptocurrency.
The main reason cryptocurrencies are the solution to financial inequality is they can help strengthen the middle class in two ways: by stabilizing it and by helping those below to reach it. It does this by helping people hold on to their hard-earned wealth.
The United States is succumbing to a lack of people banking. Believe it or not, over seven million people in the United States are considered unbanked (which means they have no bank accounts, either for personal reasons or because banks deny them one).
These people are forced to cash their paychecks, which costs money; use money orders to pay their bills, which costs money; and have to get prepaid debit cards, which — you guessed it — costs money. All in all, a family or individual who has been denied the use of a bank account is forced to pay about $2,400 per year just to be able to use their own money. Doing some quick calculations, this results in about $16.8 billion of unbanked transaction fees throughout the year.
Cryptocurrencies are much better than banks in this regard. While you may be rejected for a checking or savings account, cryptocurrencies are actually very inclusive. All you need is a phone and an internet connection. Alternatively, you can buy some at a Bitcoin ATM, which some convenience stores or grocery stores have.
Furthermore, FIAT money risks being devalued thanks to centralized banks. Governments are allowed to print currency at will — as much or as little as they see fit. Print too much money (and with the COVID-19 pandemic, this has happened), and governments run the risk of having their money lose value.
However, this cannot happen with, for example, bitcoin. Rules in the bitcoin software cap the number to aid the economically disadvantaged.
How? Well, with more and more people around the world having access to a smartphone nowadays (close to 50% now have one), cryptocurrencies can reach new customers much more easily. Remember, all you need to get to buying and trading bitcoin is a smartphone and an internet connection.
Expanding into LICs was first attempted back in 2017 with a company called MicroMoney, which developed a money-lending app. It primarily reached out to LICs, such as Myanmar, Thailand, and the Philippines. Its goal was to help people in these countries build a credit score using blockchain, so they could more easily be ushered into the world economy. Much of the impoverished population in these countries — as you may have guessed — is unbanked.
Cryptocurrency is also making fantastic strides in Latin America. You’ve doubtless heard about El Salvador adopting bitcoin as legal tender and a national currency. But its success doesn’t end there. The country has partnered with Strike, a digital wallet firm, to help it secure the financial infrastructure to meet its September deadline to officially have bitcoin as a national currency. And considering a whopping 70% of El Salvador’s population is unbanked, the financially insecure now have the opportunity to save and spend money freely.
Finally, an anonymous bitcoin millionaire, back in 2017, gave $5 million to GiveDirectly, which runs a basic income experiment in Kenya. The money helped people gain access to fresh water and helped the financially insecure with food and sending their kids to school.
Ultimately, what cryptocurrency does is give people hope: hope that they don’t have to live in poverty all their lives just because they were born in the wrong socio-economic class and that they can still integrate themselves into the world economy.
It’s never easy to predict the future, but we at Unbanked believe that everyone deserves to be pulled out of poverty. We believe that wealth shouldn’t just be for the financially privileged, and cryptocurrency is the vehicle to move us toward a fair, equitable world.