Why Crypto Cannot Bank on Unbanked

Since Bitcoin’s launch a decade ago, cryptocurrencies have become increasingly popular with each passing year. In the beginning of August this year, the market cap of cryptocurrencies grew from $90 billion to an astonishing $161 billion by the end of August. This significant 800% market growth clearly indicates the growing popularity which is expected to increase in time. As we saw similar popularity surges during the internet craze of the early 2000s and Smartphones, cryptocurrencies are touted to become the currency of the unbanked and the de facto way for financial inclusion of lower income segments around the world.

Without the restrictions of inter-country exchange rates or liquidity from central banks, cryptocurrencies are preferred for convenient fast borderless commerce & confidential investment. Being a better choice for the low income migrant workers, cryptocurrencies also seem to be a perfect fit for the proposed Universal Basic Income or the UBI that several governments around the world are contemplating to implement. Despite the shared benefits and flexibility of cryptocurrencies, they are still far from being implemented in the mainstream. There are several challenges that need to be looked into and addressed before they become mainstream.

The technology is not sufficiently popular, yet

Technology is typically adopted by the elite at the top pyramid before they gain more popularity and appeal the masses, just like television and personal computers. The lower income groups in some countries may not have access to the traditional financial institutions like banks or may not have access to a computer or smart device. According to a World Bank article, there is a 14% lesser possibility of women owning a mobile phone than men. This difference is 38% in case of South Asia and 50% in Africa. This disproportionate access to digital technologies means women would also not have access to cryptocurrencies. Furthermore, stable internet connection may be a challenge in countries with poor infrastructure.

While the absence of regulations on cryptocurrencies seem to be convenient, they also seem to be a drawback, as many countries have mandatory rules and regulations for trades & businesses. Also, it is difficult for governments and regulatory bodies to authorize cryptocurrencies because they may challenge the hegemony of the existing national currencies as well as threaten a disruption of the exchange rate among various currencies. This also influences the confidence of lay men on the workability of the financial model.

Does it mean cryptocurrencies would continue to remain elitist?

The above analysis paints a grim picture of the use of cryptocurrencies by the unbanked in the near future. However, just like other technologies that preceded it, cryptocurrencies too will be adopted by most of the people around the world and the unbanked communities will benefit the most from a digital financial inclusion. The late surge in cryptocurrency development, and promotion via ICO's will only have a tipping-point effect in mass awareness, and somewhat adoption in the short-term. But, as Millennials and Gen Z catch-on to cryptocurrencies, that certainly would tip the balance in the long run.