Numerous narratives exist regarding crypto and financial inclusion, each addressing different areas. This article explains how cryptocurrency is breaching the gap between the banked and the unbanked.
What is Financial Inclusion?
Financial inclusion refers to a situation where Individuals and businesses, especially the unbanked and underbanked, can benefit from financial inclusion when they have access to and make use of financial services.
This encompasses not just the availability but also the efficient utilization of fundamental monetary services and products such as checking and savings accounts, credit, insurance, and payment systems.
By allowing individuals and enterprises to take part in the formal financial system, financial inclusion aims to promote economic development and reduce poverty by facilitating savings, investment, and the management of financial risks.
What is referred to as “the banked”?
“The banked” are people or families who have access to banking services and have opened and keep up a bank account.
Being “banked” means that a person or family has set up a formal relationship with a financial institution and can use banking services like putting money in and taking it out, making payments, and getting credit or loans.
What is referred to as “the unbanked”?
The “unbanked” are people and families who do not use traditional financial institutions or have access to traditional bank accounts.
To get by financially, these people may use underground systems like savings organizations or conduct all of their business in cash because they lack the resources or social capital to build a conventional connection with a financial institution.
The unbanked are a vulnerable population that is often excluded from the mainstream economy because of their lack of access to banking services.
How cryptocurrency is bridging the gap between the banked and the unbanked
With the rise of Bitcoin and other cryptocurrencies, many people are predicting the start of a new era of digital money that will go beyond the physical limits of its predecessor.
But before we talk about how cryptocurrency is used as a new form of money today, we need to ask, “What is money?” Money means different things to different people, so this is a very open-ended question.
At its core, money is a way for people to work together on a large scale, which was hard to do with barter because people’s needs didn’t always match up.
In 350 BCE, Aristotle said that “sound money” is durable, portable, divisible, and has its own value. A few years later, the U.S. Federal Reserve added the idea of “functional value” to this definition.
This practical value is reflected in the way money acts as a medium of exchange, a place to store value, and a unit of account. This definition is still changing today, with the rise of cryptocurrency, which makes it easy to move money around the digital world without any problems.
Cryptocurrency is a digital currency that works without central banks or other financial institutions. It has the potential to close the gap between people who have bank accounts and people who don’t.
Here are some ways that cryptocurrency can help bridge this gap:
- Accessibility
- Lower transaction fees
- Security
- Financial inclusion
- Decentralization
Accessibility
Accessibility is one way that cryptocurrency is helping to close the gap between people who have bank accounts and people who don’t.
Traditional banking services can be hard or impossible for people who don’t have bank accounts to use because of things like location, lack of identification or paperwork, or not having enough money to keep a bank account open.
Cryptocurrency, on the other hand, can be used by anyone with an internet connection and a mobile phone. This makes it easier for people who don’t have bank accounts to take part in financial transactions.
People can download cryptocurrency wallets for free to send and receive payments, store digital assets, and trade on financial markets. Transactions with cryptocurrencies can be made from anywhere in the world, and you don’t have to be at a bank or other financial institution in person.
This access can help break down barriers to financial inclusion and give people who don’t have bank accounts a way to use financial services and take part in the formal economy. By letting people do financial transactions on their phones, cryptocurrency is making money more accessible and mobile for people who may not have been able to use the traditional banking system.
Lower transaction fees
One way that cryptocurrency is leveling the playing field between the banked and the unbanked is through its lower transaction costs.
Wire transfers, foreign exchanges, and ATM withdrawals are just a few examples of traditional banking services that come with hefty fees. Unbanked people may not have the resources to overcome this obstacle if they have to pay for these services out of pocket.
In contrast to the high fees associated with typical banking transactions, cryptocurrency transactions can be performed at a cheaper cost. Fees for sending cryptocurrency are often calculated as a flat rate rather than a percentage of the quantity transferred.
So, unbanked people who need to send modest sums of money may find bitcoin transactions more cost-effective. The elimination of middlemen, such as banks or payment processors, in bitcoin transactions, can further lower fees.
This can lower the cost of sending and receiving payments and using other financial services for the unbanked. Cryptocurrency is helping to bring the unbanked into the formal economy by lowering the cost of financial transactions, making them more accessible and inexpensive.
Security
Security is another way that cryptocurrency helps bridge the gap between people who have bank accounts and people who don’t have bank accounts.
Fraud and other types of financial crime can happen with traditional banking transactions, which can make things worse for people who are already in a bad financial situation.
On the other hand, cryptocurrency uses blockchain technology, which makes transactions safe and clear without the need for a central authority. The blockchain is a public and unchangeable ledger that keeps track of all cryptocurrency transactions.
Each transaction is checked and confirmed by a network of users. This helps stop transactions that aren’t legitimate or are done without permission.
Also, because the blockchain is not centralized, it can’t be attacked in the same ways that centralized financial systems can be.
Wallets for cryptocurrencies can also add an extra layer of security because they can be locked with passwords or other forms of authentication. This can help protect digital assets from theft and other types of financial crime.
Financial inclusion
One way that cryptocurrency is helping to close the gap between people who have bank accounts and people who don’t is through financial inclusion.
Financial inclusion is the process of giving people and communities who aren’t served by or left out of the traditional banking system access to financial services and products.
This can include things like savings accounts, credit, insurance, and opportunities to make investments. Cryptocurrency can help people who don’t have bank accounts get access to financial services and join the formal economy.
People can, for example, use cryptocurrencies to get paid for goods and services, send money abroad, and get loans and credit.
Cryptocurrency transactions can be made without a bank account, which can make financial services more available to people who don’t have the paperwork or ID needed to open a bank account.
Also, cryptocurrency can give people access to financial services in places where traditional banking may not be available or is too expensive.
This can happen in places without many banks or where political or economic instability makes it hard for traditional financial institutions to work.
By making financial inclusion possible, cryptocurrency is helping to give people and communities that haven’t been able to use the traditional banking system access to more economic opportunities and mobility.
This can help to get people out of poverty, grow the economy, and give those who need it the most financial security.
Decentralization
Decentralization is another way that cryptocurrency helps bridge the gap between people who have bank accounts and people who don’t. Traditional banking systems are centralized, which means that they are run by a single organization or government.
This can make it hard for people and places not served by or without access to the traditional banking system.
On the other hand, cryptocurrency is decentralized, which means that it is not run by a central authority. A network of users keeps the blockchain, which is a distributed ledger where transactions are processed and recorded.
This means that there is no one in charge of the system who can control or change it, and transactions can be made without the help of traditional financial institutions.
Decentralization can give people and communities that are underserved or left out of the traditional banking system more financial freedom and control.
It can also make things more open and accountable because all transactions are written down on a public ledger that everyone can access.
Decentralization can also make it harder for people to cheat or take advantage of the system because it isn’t run by a single group that might have its own interests.
This can give people and communities who are vulnerable to financial abuse or exploitation more financial security and stability.
By making decentralization easier, cryptocurrency helps make the financial system more fair and inclusive. It also gives people and communities a way to join the global economy on their own terms.
Final Thoughts
Cryptocurrency is simplifying the banking system so much that both the banked and the unbanked can enjoy limitless financial possibilities. Digital banking is a concept that will keep evolving into unfathomable user experiences.
