According to the World Bank, over 1.7 billion adults around the world do not have access to traditional banking services, effectively leaving them out of the financial system.

However, cryptocurrency and blockchain technology have the potential to solve this problem by allowing the unbanked to access financial services without the need for a traditional banking infrastructure.

In this article, we'll look at the risks and benefits of using cryptocurrency to bank the unbanked. Cryptocurrency is a type of digital or virtual currency that employs cryptography to secure and verify transactions as well as to control the creation of new units.

Cryptocurrency operates independently of central banks and is based on blockchain technology, which is a decentralized ledger that securely and transparently records all transactions.

The Cryptocurrency Advantages for the Unbanked

For the unbanked, cryptocurrency has several advantages, including:

Accessibility

As long as there is an internet connection, cryptocurrency can be accessed from anywhere in the world. As a result, it is an ideal solution for people who live in remote areas or who do not have access to traditional banking services.

Lower Transaction Costs

Because there are no intermediaries involved in the transaction process, cryptocurrency transactions are typically less expensive than traditional banking transactions.

Security

Cryptocurrency transactions are encrypted and thus difficult to hack or manipulate. This adds an extra layer of security for users who may be vulnerable to fraud or theft.

Financial Independence

Cryptocurrency gives users complete control over their funds, eliminating the need for intermediaries or central authorities. This provides users with more financial freedom and control over their money.

Cryptocurrency Risks for the Unbanked

While cryptocurrency has several advantages for the unbanked, there are some risks to consider, including:

Volatility: Cryptocurrency prices can be extremely volatile, posing a risk to users unfamiliar with the market. Users who are not cautious with their investments may suffer significant losses as a result.
Cryptocurrency is vulnerable to security threats, such as hacking and theft. Users must take the necessary precautions to secure their wallets and ensure the safety of their funds.
Lack of Regulation: Because cryptocurrency is a new technology, there is little regulation in place to govern the sector. This can make identifying the risks and benefits of various cryptocurrencies difficult for users.
Adoption Obstacles: Cryptocurrency adoption remains low, particularly in developing countries. Users may find it difficult to locate merchants and other users who accept cryptocurrency as a result of this.

The Benefits of Using Cryptocurrency to Bank the Unbanked

For banking the unbanked, cryptocurrency offers several incentives, including:

Financial Inclusion: Cryptocurrency has the potential to provide financial services to people who are currently unable to access them. This can aid in the reduction of poverty and the promotion of economic growth in developing countries.
Lower Costs: Cryptocurrency transactions are typically less expensive than traditional banking transactions, which can assist in lowering the cost of financial services for the unbanked.
Decentralization: Because cryptocurrency operates on a decentralized network, users have more control over their funds and can avoid traditional intermediaries. This provides users with more financial freedom and control over their money.
Cryptocurrency is a new and innovative technology that has the potential to completely transform the financial industry. We can drive innovation and promote new forms of financial inclusion by banking the unbanked with cryptocurrency.

Risks of Using Cryptocurrency to Bank the Unbanked

While there are several advantages to using cryptocurrency to bank the unbanked, there are some risks to consider, including:

Cryptocurrency is vulnerable to security threats, such as hacking and theft. Users must take the necessary precautions to secure their wallets and ensure the safety of their funds.

Volatility: Cryptocurrency prices can be extremely volatile, posing a risk to users unfamiliar with the market. Users who are not cautious with their investments may suffer significant losses as a result.
Adoption Obstacles: Cryptocurrency adoption remains low, particularly in developing countries. This makes it difficult for users to locate merchants and other users who accept cryptocurrency.
Lack of Regulation: Because cryptocurrency is a new technology, there is little regulation in place to govern the sector. This can make assessing the risks and benefits of various cryptocurrencies difficult for users.

Can banking the unbanked with cryptocurrency lead to predatory inclusion?

Cryptocurrency, while an incredible decentralized asset that it is, still has a massive limitation to overcome in what concerns financial inclusion: the potential for exacerbation of inequality in financial services for the historically excluded.

The concept of predatory inclusion has been the subject of many studies before, and the phenomenon can be generally referred to as marginalized communities having access to goods, services, and even to opportunities which they were historically proven to be excluded from. However, said access has certain underlying conditions which are bound to undermine their long-term benefits. These caveats often come at a high cost and high risk, with little consumer protection, and happen in everyday finance (payday loans, subprime mortgages, and so forth).

So, while payday loans were once seen as a clever way of providing individuals with access to credit (the democratization of credit), and subprime mortgages were seen as a fast-track to homeownership, their risks were incredibly high and following the 2008 financial crisis, the results were clear: the wealth of many struggling or impoverished communities had been totally and utterly decimated.

With that in mind, when crypto proponents adamantly defend that crypto products are 100% ready to fill the gaps that our traditional financial system and institutions have, it is important to understand if those very same gaps are exclusionary practices or strictly risk management measures.

Before committing to having crypto attempt to tackle the unbanked issue, it would be unwise for policymakers not to draw parallels between the intended benefits crypto might have and their current alternatives.

Conclusion

Cryptocurrency has the potential to bring financial services to people who are currently unable to access them. We can promote financial inclusion, reduce poverty, and drive economic growth by using cryptocurrency to bank the unbanked.

However, there are risks to using cryptocurrencies, such as security risks, volatility, adoption difficulties, and a lack of regulation. Before investing in cryptocurrency, users should carefully consider these risks and take appropriate precautions to protect their funds.

As technology and regulations advance, we can anticipate more widespread adoption of cryptocurrency as a tool for banking the unbanked.