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In 2024, will crypto deliver on its promise of financial inclusion?
Crypto had a bumpy, and sometimes savage2023.
But industry observers and participants continue to believe that blockchain technology and cryptocurrencies have the potential to revolutionize financial inclusion for marginalized and unbanked communities around the world.
There are many ways that blockchain technology and cryptocurrencies can eliminate barriers, such as lack of digital identity, for underserved individuals and communities.
“Identity is required to participate in virtually any system or network, but particularly for high-stakes and highly regulated financial networks. » Ajay Rajanivice president of expansion and crypto at Talatold PYMNTS, adding that blockchain technology lowers this barrier to participation by allowing anyone to transact on its decentralized network.
Compared to traditional banking systems, which often require specific criteria such as minimum deposit amounts, credit history and proof of address that many people cannot meet, blockchain-based assets enable marginalized populations to bridging the deep-rooted identity gap that hinders their financial options.
“This creates a big conceptual unlock,” Rajani said, adding that lower transaction costs not only allow blockchains to be sufficient, or a superior replacement, for transactions that already take place on fiat rails, but also allow “entirely new classes of transactions” to develop. occur in more secure, non-monetary digital formats.
These low transaction costs also increasingly align with the everyday payment needs of marginalized communities, allowing them to engage in microtransactions and access previously unaffordable financial services.
Removing old barriers to global financial inclusion
By allowing anyone to create a wallet and transact on a decentralized network, blockchain allows individuals regardless of their financial status, such as refugees, to receive aid and remittances, said Rajani.
In areas where there is mutual distrust between financial institutions and underserved individuals, self-custody wallets are a solution, he added.
These wallets require less trust in third-party institutions and reduce the need for financial institutions to control access to their networks. By allowing individuals to manage their own funds and identities on the blockchain, self-custody wallets promote financial inclusion and address historical biases in the financial system.
Nonetheless, Rajani noted that “for the most part, crypto has yet to deliver on many of its promises around financial inclusion and global connectivity… but we are starting to see significant progress.”
Companies operating in the digital asset space have introduced innovative banking solutions to meet the needs of the financially underserved. Decentralized lending models and platforms for global payments have emerged, providing small businesses and digital entrepreneurs access to credit and the ability to serve customers globally.
Additionally, Rajani said, the accessibility of stablecoins like USDC has enabled dollarized savings, serving as a wealth preservation tool in high-inflation markets.
Nonetheless, he noted that when it comes to the benefits of crypto, “a lack of familiarity can lead to a lack of comfort, which will often lead to a lack of adoption.”
The Future of On-Chain Money Movement
Cryptocurrencies and blockchain-based assets offer transactional innovations, including programmable currency and microfinance solutions, that benefit entrepreneurs and individuals with limited access to resources.
Microenterprises can access liquidity, borrow and raise capital through blockchain-based capital issuance platforms, Rajani said, adding that digital wallets offer secure savings options, especially in markets with unstable banking systems and volatile fiat currencies.
Additionally, the global nature of crypto’s distributed ledger allows for instant trustless settlement and reduces the need for multiple intermediaries, thereby reducing fees.
While more innovation is needed to simplify the sender experience and make crypto solutions more accessible, Rajani said cryptocurrencies have the potential to transform the remittance process, making it faster and cheaper for individuals in developing countries.
For broader adoption of crypto around the world, the elephant in the room must be addressed: government regulation.
Government policies and regulations will play a crucial role in harnessing the positive aspects of cryptocurrencies while addressing concerns about security and stability.
Rajani said a clear demarcation between different types of cryptocurrencies and custody models is necessary. Central bank digital currencies (CBDCs) are expected to emerge, and regulation of self-custody wallets and collection services will likely evolve. Regulation of custodial exchanges and wallets may resemble that of traditional trust institutions and bank accounts.
Looking ahead, he said innovative banking solutions, programmable currency and improved fund transfer processes pave the way for a more inclusive financial system.
As technology continues to evolve and government regulations adapt, blockchain and cryptocurrencies have the potential to drive change in the global quest for financial inclusion.
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