Cryptocurrency and Financial Inclusion
Many proponents of cryptocurrency cite its potential for financial inclusion, meaning improved access to financial services for those who lack traditional bank accounts.[1] This is difficult to imagine in the context of headlines pointing out that only 0.01% of bitcoin holders control 27% of the bitcoin in circulation and that Justin Bieber paid 500 ETH for a Bored Ape Yacht Club NFT—or $1.29 million.[2] There are arguments for and against the benefits of cryptocurrencies for the underbanked, and much will depend on how blockchain technologies continue to develop. This blog post briefly explores some common themes in discussions of cryptocurrency and financial inclusion.
First, a digital wallet can be accessed using a computer or cell phone.[3] This is helpful in areas where traditional banks do not have a physical presence, although many banks offer mobile access anyway.[4] While this increased access is a step in the right direction, this technology is less helpful to the 3.7 billion people without access to the internet—which includes more than half of all women and girls.[5] Fortunately, although often overlooked in conversations about cryptocurrency, there are organizations committed to using blockchain technology to eliminate the internet access barrier: Leaf and Kotani Pay allow users to send and receive money on even the most basic mobile phone without an internet connection.[6]
Cryptocurrency also promises reduced transaction fees compared to traditional financial services.[7] In 2022, many of us take the ease of Venmo for granted, but in underbanked communities, transfer services such as Western Union can charge fees of up to 35%.[8] It’s worth noting that cryptocurrency—for now—involves lower fees, not no fees. For example, there is a fee associated with every Bitcoin transaction; you can even proffer a higher fee in order to prioritize the validation of your transaction.[9] Cryptocurrency service fees are responsive to network traffic, and such network fees are separate from the fees charged by exchanges like Coinbase.[10] That is to say, there’s no guarantee that cryptocurrency transaction fees will remain competitive with traditional banks, although there are emerging technologies such as the Lightning Network that will hopefully keep costs down (and speed up).[11]
Cryptocurrency has also been in the news recently as a method of countering the devaluation of sovereign currencies as a result of inflation.[12] There is some truth to this utility. For example, Nakamoto specifically touted bitcoin as an inflation-free currency in their white paper.[13] Cryptocurrencies do function as a store of value; however, huge price fluctuations make them a highly risky investment for the time being.[14] As Paul Krugman writes, such an asset class is likely better suited for investors who can comfortably bear unpredictable losses.[15]
It is also worth considering who is involved in cryptocurrency. Although the “global, open source, and accessible” infrastructure is theoretically available “regardless of nationality, ethnicity, race, gender, and socioeconomic class,” it’s important that inclusivity is manifested in both users and managers of the technology.[16] As of 2021, cryptocurrency investors are about 60% male and 60% white.[17] Only 4% of investors are Black women, and the overall gender gap in cryptocurrency investments is wider than that of financial investments such as stocks, bonds or mutual funds.[18] As a counter-example, Cecilia Chapiro writes that apps like Kotani Pay, designed for users in rural Kenya, succeeded because local community members were part of the development team.[19] The greater cryptocurrency community should prioritize participation from historically marginalized groups in order to avoid replicating the barriers that lead to un- and under-banked populations.
Footnotes
