The Role of Cryptocurrencies in Financial Inclusion

Cryptocurrencies are rapidly gaining popularity in the world. Since October 2010, the most prominent cryptocurrency Bitcoin’s price started increasing. Gradually, the cryptocurrency market started expanding. It attracted traders who began betting against price changes. Today, many investors are using cryptocurrencies to store value, hedge against inflation, and generate wealth. Furthermore, many institutions such as Goldman Sachs are lawfully using cryptos. These factors can play a huge role in the financial inclusion of those who did not get enough benefits from the traditional banking system.

Statistical acts on Financial Inclusion

Financial inclusion still has a long way to go for many people in the world. This is the real reason why cryptocurrencies can play an important role in including many people in the financial sector. Around 1.7 billion people currently are unbanked. Many regions in the world suffer from uneven distribution of banking facilities. This is also one of the several reasons responsible for poverty in the world. The gap between developed and developing countries is still very wide. For instance, in developed countries, 94% of the adult population has a bank account. However, in developing countries, only 63% of the adult population has a functioning bank account.

Financial inclusion is lacking in many specific regions of the world such as Asia Pacific, where only 24 percent of the population have financial access. The figures are somewhat higher in Central and South America at 38 percent and East Europe at 33 percent. Gender differences are also glaring as far as financial inclusion is concerned. 72 percent of men in the world have bank accounts compared to only 65 percent of women. 

Ways in Which Cryptos Can Drive Inclusion

Cryptocurrencies are driving financial inclusion in several ways. Financial inclusion can resolve many challenges that low-income individuals and business entities face. 

Offers Credit Access

Cryptocurrencies offer credit access that operates on blockchain networks. These can be bought or sold online by using a valid crypto exchange platform. Therefore, these cryptos are highly beneficial for people living in those parts of the world where banking systems are inadequate. In some countries, there are millions of people without a bank account or lack access to insurance, loans, and savings accounts. In such places, cryptos can offer services through decentralized applications. For example, Maker DAO, Compound, and AAVE, permit users to earn interest for their crypto holdings. Credit access can indirectly reduce poverty levels and enable people to earn more than before. It is also true that many people are now borrowing money by using their cryptos as collateral.

Easier International Transactions

Blockchain technology is currently the main technology used in dealing with cryptocurrencies. This technology makes international transactions easier and faster than ever before. It can help people to send money to families living abroad. It can also minimize the cost of financial transactions by eliminating the middleman. Therefore, this can be a big advantage for low-income individuals and businesses. This particular feature can indirectly lead to many new opportunities for smaller businesses.

Reserve Store of Value

Many countries in the world suffer from recurring high levels of inflation. This phenomenon regularly debases the value of fiat currency. This automatically reduces the savings of people and makes it less worthy. High inflation is often a consequence of faulty economic policies of the government. Thus, there is very little ordinary people can do about high inflation. In such a scenario, people can guard their savings from inflation because cryptos are not linked with governments or central banks. Cryptos do offer a reserve store of value.

Reduced Barriers to Entry

In the context of users, cryptocurrencies have lower barriers to entry. Traditional banking services often require a lot of details for entry. Smartphones and internet access nevertheless have reduced barriers. However, in comparison to traditional banking services, geographical and financial constraints play almost no role in opening a crypto account. 

Rise of Crypto-friendly banks

Most banks in the world still hesitate to accept cryptocurrencies. Sometimes, government policies may actively discourage people from using cryptos. However, this trend is gradually changing as some banks are now adopting a crypto-friendly approach. The major examples are JP Morgan Chase, Revolut, HSBC, Juno, and BankProv. Many of these banks offer customized crypto services to fulfill their demands. These banks offer custody solutions, digital wallets, and support cryptocurrency exchanges. Easier credit access, financial literacy, borderless transfers, and international accessibility are some of the benefits that crypto banks are offering. Thus, all these factors can bring a positive financial inclusion change. 

Bottom Line

Cryptocurrencies in the world can indeed improve the prospects of financial inclusion. Without financial inclusion, economic progress will always remain uneven and will continue to exclude many regions of the world. Poverty alleviation programs can become fruitful only when underprivileged people get access to financial services. Both these goals can be achieved with the help of cryptocurrencies. Their role in financial inclusion however is also subject to many external circumstances in the economic world.