Unlocking Access: Cryptocurrencies and the Future of Financial Inclusion
In Brief
Financial inclusion is a global goal, but traditional finance struggles to reach many, leading some to explore alternative solutions like cryptocurrency to address this issue.
For as long as we can remember, financial inclusion has been the grand vision for many to boost development and reduce poverty around the world. But still, many people worldwide, especially in neglected and faraway places, are unable to use standard financial services.
So, while many are still waiting for traditional finance to deliver on its promise, some are already looking at alternative solutions, particularly cryptocurrency, to make this dream a reality for all of us. But how can crypto do what traditional finance hasn’t?
The Barriers to Financial Inclusion
The term “financial inclusion” means that everyone has the same chances to use financial amenities. Services like savings accounts, loans, and insurance are part of this. Even though the international banking system has come a long way, many people still don’t have bank accounts or simply lack the credit or means to fully benefit from them.
This lack of access is often because of:
- Geographical & Credit Limitations. People living in remote or undeveloped areas who don’t have access to proper infrastructure or lack basic credit requirements.
- High Fees. Traditional banks are known to be rather expensive and slow, especially when it comes to international remittance.
- Currency Devaluation. Political and economic crises can heavily impact a country’s currency value, leaving people’s capital vulnerable.
- Security. Too many people don’t use standard banking services because they don’t trust them, usually because of past financial problems or corruption.
Beyond Geography
Crypto, at its heart, had the potential to level the playing field by making traditional banking services available to everybody with an internet connection, regardless of their status.
This issue was particularly noted by Sahar Salama, CEO and Founder of TPAY MOBILE, who stated that as we move toward a “cashless society”, digital currencies and services must be “accessible and appealing to everyone”.
This has happened in many ways, including:
International Remittance
People in places like Nigeria, where many people can’t access regular banks, have seen this promise come true. If you live in Nigeria and want to send money back to your family, friends, or other family members, you can use Bitcoin instead of conventional financial institutions. This is because Bitcoin makes transfers easier and cheaper for Nigerians who live outside of the country.
Microfinance institutions (MFIs)
MFIs are vital in meeting the financial needs of underprivileged communities, especially in rural regions where conventional banks do not operate. These institutions use crypto and blockchain to make peer-to-peer loans possible. This means that people can borrow and give money directly to each other without going through middlemen. These platforms make it easier for everyone to get credit, so people can borrow money for ventures or unexpected costs. This helps people become more financially independent and resilient.
Cheaper & Faster
Most of the time, traditional transfer services have long working times and high fees. People can send and receive money quickly and with little to no fees using crypto, which is a cheaper, quicker, and more effective way to send money across borders. For families who rely on remittances to cover their basic necessities, this may greatly change their fortunes.
Numerous crypto projects, including these two, address this problem:
Stellar (XLM) & Ripple (XRP)
Stellar aims to provide affordable international money transfers and other financial services to those who do not have access to traditional banking systems. By linking different payment systems and financial organizations, its network facilitates cheap and fast international money transfers.
It is also easy and cheap to send money internationally with XRP. Ripple is working with institutions all across the globe to give the unbanked a way to make cheap and fast payments.
Store of Value
People in nations with shaky economies can potentially use crypto to save their money’s worth. There is no government or bank that controls crypto assets, and their value is set by how much people want to buy and sell them.
While some argue that crypto’s foundations are merely speculative, Phillip Shoemaker, CEO of Identity, points out that cryptocurrency is here to stay and that Congress’s latest market-structure bill is “huge progress for the space.”
Plus, according to Shoemaker, the favorable policies of two presidential candidates, Donald Trump and RFK Jr., towards crypto and their firm support for the industry’s potential are “totally novel” in US history.
Reserve (RSV)
To protect its value, the Reserve stablecoin (RSV) is tied to a diversified portfolio of assets, making it a reliable investment option for those living in economically volatile regions. Venezuela and Argentina are two countries that have embraced Reserve, with people using RSV to protect their funds from devaluation and economic fragility while trading with a stable currency.
On top of that, many cryptocurrencies, like Bitcoin, have a capped supply. Bitcoin, for instance, has a maximum supply of 21 million coins, ensuring scarcity. This limited supply creates an inflation-resistant asset, as no additional coins can be created beyond the predefined cap, unlike fiat currencies that central banks can print at will.
In Zimbabwe, where the local currency has experienced hyperinflation, individuals have turned to Bitcoin to protect their savings. Bitcoin’s relatively stable value compared to the local currency provides a safer alternative for storing wealth.
Financial Security
Crypto transactions using the likes of BTC and ETH are encrypted through complex algorithms like SHA-256. Every single transaction is uniquely identified by its hash. This makes it difficult, if not impossible, to tamper with transaction details seamlessly.
Decentralized Identity & Self-Custody Wallets
Unlike other sites, decentralized authentication systems let users choose what specific data they share and can also remove access at any time. This helps prevent the usual breaches and identity thefts we see on centralized protocols.
In the same way, a self-custody wallet gives users independence by giving them custody of their personal keys. The keys allow users to handle assets that are stored as coins or tokens on a chain.
With a blend of self-sovereignty and self-custody capabilities, these encrypted wallets allow users to safeguard their digital keys that unlock the gate to their sensitive documents, statements, and transactions.
The Challenges on the Way to Complete Financial Inclusion
While advanced cryptocurrencies hold great promise for financial inclusion, several challenges remain:
- Changing Regulations. Authorities and governments are still working on ways to control and handle the use of crypto. For adoption to grow, regulations must be clear and helpful.
- Public Education. Many people don’t understand how digital currencies work. There needs to be education about these new financial tools so that people can understand and accept them.
- Lack of Infrastructure. Cryptocurrencies cannot function without internet connectivity, which is not yet accessible to everyone. People who don’t have good internet connections can’t use or gain from tokens very much. Building the necessary infrastructure is crucial for crypto to be widely adopted.
- Environmental Impact. Crypto mining’s negative environmental effects are still a major concern. Environmentalists are calling for more environmentally friendly ways because mining uses much energy.
- Interoperability. Different blockchain networks still can’t work together, even though there have been improvements. The key to widespread usage and acceptance is the ability to transfer and use assets without any hitches across different platforms.
Edu Patel, CEO and co-founder of Murdex, perfectly sums up the current climate by pointing out that cryptocurrencies certainly “have the potential” to create global financial inclusion, but achieving this vision requires support from governments and financial institutions to fool-proof the regulatory framework against any misdeeds while “promoting consumer protection” and innovation.
Disclaimer
In line with the Trust Project guidelines, please note that the information provided on this page is not intended to be and should not be interpreted as legal, tax, investment, financial, or any other form of advice. It is important to only invest what you can afford to lose and to seek independent financial advice if you have any doubts. For further information, we suggest referring to the terms and conditions as well as the help and support pages provided by the issuer or advertiser. MetaversePost is committed to accurate, unbiased reporting, but market conditions are subject to change without notice.
About The Author
Victoria is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.
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Victoria is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.
