Blockchain for Financial Inclusion: Can Blockchain End Poverty?
Blockchain for Financial Inclusion Explained
The last couple of years have seen Blockchain technology gain more widespread attention and even use across a variety of sectors, from the more obvious finance to even healthcare. However, while people are seeing it as a source of livelihood and a store of value, its ability to address deep-rooted socio-economic issues, like poverty and financial exclusion, is still being mostly glossed over.
Which is why, in this video, we’ll be exploring this one area, seeing how blockchain could play a role in creating a more inclusive global economy.
Introduction to Blockchain and Financial Inclusion
Now, unless you’re living under a rock, you have probably already heard about blockchain. But do you know exactly what it is?
Well, it is a decentralized digital ledger technology that allows for secure, transparent, and tamper-proof transactions without intermediaries. It allows people to carry out all kinds of transactions both locally and internationally, bypassing traditional financial systems, which is why it appeals to a wide range of people and businesses.
The other part of this discussion is economic inequality. And according to the World Bank’s latest report, about 1.7 billion of the world’s adult population remains unbanked with absolutely no access to traditional financial services.
This lack of financial inclusion is, in basically every case, tied to poverty, in a version of the chicken and egg situation. People are unbanked because they don’t think they have enough money to need one, but then being banked tends to give you room to accept better opportunities in the first place.
Marrying these two aspects, you can start to see how blockchain could be a tool in breaking the cycle of poverty. By providing an accessible financial system that is not bound by local laws or financial institutions, it’s safe to say that we should be able to see more people break free of the shackles of poverty if blockchain becomes more widespread.
However, is this just a pipe dream? Could blockchain actually be the hero we’ve been waiting for? You might be able to form an opinion by the end of this video.
Understanding Global Poverty
To understand whether blockchain would be a veritable tool for ending poverty, we first need to understand what the root cause of poverty is.
There’s no denying that poverty is a complex issue that is rooted in a number of factors, some of them historical, some social, and many economic.
The historical context of poverty includes legacies of colonialism, exploitation, and systemic disenfranchisement that affect people in developing countries and members of marginalized groups in developed ones.
Social factors include discrimination, a lack of access to education, and marginalized identities, all of which contribute to widespread economic disparity.
Economically, which is the focus of this video, poverty is caused and exacerbated by the inequitable distribution of wealth, barriers to credit or investment opportunities, and exclusion from financial systems. Traditional banking systems often charge too high fees and require extensive documentation, making them inaccessible to many groups of people, even if they tried.
From the foregone explanations, you would have to agree that poverty is a complex issue and it would take a lot for just one system, regardless of how brilliant, to turn the situation around.
So, to be honest, it might not be possible for blockchain to completely eradicate poverty as we know it, but a deep dive into the decentralized system might lend credence to its ability to, at the very least, do something.
Blockchain as a Solution for Poverty?
As was mentioned earlier, blockchain’s biggest contribution to the eradication of poverty is the offering of a promising solution to the unbanked and underbanked populations.
For one, thanks to blockchain-based banking platforms, more people can own a kind of bank account without needing to go through extensive documentation or to have a significant chunk of money deducted from their accounts regularly. You get to open an account quickly and keep all your money, and all you need is a smartphone and an internet connection.
Speaking of extensive documentation, there are billions of people worldwide that lack a formal identity, many of whom are citizens of developing countries that were not registered at birth. This lack of formal identity limits access to many opportunities both locally and globally, including education, voting, and financial services. And these financial services include something as simple as owning a bank account and slightly more complex like securing a loan.
However, blockchain technology presents a probable solution as it provides a decentralized and secure way to create and store digital identities.
Where traditional systems rely on central authorities, a decentralized system allows the individual complete control over their own personal data, making it a great idea for people on the fringes who are not completely covered by a central authority, including refugees, the stateless, and rural populations.
What’s more, because cryptocurrencies are not tied to any currency or financial system, they kind of serve as a preservation of value, allowing people to bypass the ongoing financial or economic situation of their country.
This works great for people in developing countries or in countries where a crisis is affecting the economy. Even countries with a great economy can benefit from this as blockchain-based platforms help reduce transaction fees and speed up cross-border payments.
Another group of people that can greatly benefit from a more prevalent use of blockchain is small business owners.
Small business owners, especially those in developing countries, tend to struggle under the weight of high transaction fees imposed on them by traditional financial institutions. And this is on top of the other struggles that small business owners face, especially those whose businesses are still in their infancy.
However, with blockchain-based payment systems, these business owners can bypass all of those high transaction fees, getting to keep every single dime that they earn every single time.
Starting out gets to be that bit easier, as well, because they don’t have to pay lots of money that they haven’t earned yet to set up payment plans and systems. They can set up instant, low-cost microtransaction systems on a number of blockchain platforms, allowing them to focus on growing their business out of the precarious infancy stage.
Other Uses for Blockchain
Now, it has to be mentioned that blockchain is good for more than just receiving and storing money. Thanks to DeFi, people can carry out even more complex financial transactions like lending, borrowing, investing, and trading on blockchain. And you have to keep in mind that all this is being done without the middleman that we have all come to think of as indispensable. We’re talking about banks. So, for people in poverty, this opens up new avenues for securing credit or earning interest on their savings.
Ownership of assets is another area that blockchain could help to close the gap between the rich and the poor.
There’s a concept in blockchain called tokenization of assets, which involves turning the rights to real-world assets (like property or artwork) into digital tokens on the blockchain. These tokens represent ownership of the asset and can be bought, sold, or traded.
There are two main types of tokens:
- Fungible tokens are interchangeable and can be traded for other tokens or assets of equal value. For example, cryptocurrencies like Bitcoin or Ethereum are fungible, meaning one Bitcoin is always worth the same as another Bitcoin.
- Non-fungible tokens (NFTs), on the other hand, represent unique assets that are one-of-a-kind. Each NFT is different, meaning they can’t be exchanged one-for-one like fungible tokens. Instead, NFTs can only be sold for money, typically reflecting the unique value of the asset they represent—such as digital art or collectibles.
This makes things easier in a number of ways. First off, tokenization makes it easier to split the ownership of an asset among a number of people that might not even know one another personally.
It also makes it possible for people to own assets, knowing fully well that their ownership rights remain intact whether or not their legal systems are weak or corrupt. This could give people the security and ability that they need to build an investment portfolio.
Interestingly, Blockchain can also play a critical role in improving something as grassroot as agricultural systems, which are the main source of funds in many developing communities.
Sure, blockchain will not exactly help farmers to till the ground, plant seeds, and reap their harvests, at least not yet. But they can certainly leverage this decentralized system to track the supply chain of food, process transactions for their produce, and significantly cut down on fraud. This might give them the room to scale up their operation.
Another critical way blockchain can contribute to addressing poverty is by revolutionizing education and skill development. One of the most significant issues people face in breaking free from poverty is a lack of access to quality education and skill-building resources. Blockchain offers a decentralized solution to this problem by creating platforms where people can gain new skills and certifications without relying on traditional institutions.
By using blockchain, decentralized platforms for learning and certification can be developed, making educational resources more accessible, particularly for those in underserved or remote areas. For example, students can earn verifiable credentials on the blockchain that are universally recognized, removing barriers related to transferring records or proving qualifications.
Moreover, blockchain can democratize access to education. With decentralized platforms, anyone, regardless of their geographical location, can access quality education. This is particularly valuable in areas with limited access to traditional education systems, where children and adults alike are left behind. The transparency and accessibility of blockchain technology open up possibilities for more inclusive learning systems.
Furthermore, blockchain can be leveraged for peer-to-peer learning and job matching. Individuals can not only gain new skills but also connect directly with employers through blockchain-based platforms, bridging the gap between education and employment. This innovation can significantly benefit marginalized communities by providing them with the tools they need to compete in a global job market.
Blockchain for Humanitarian Aid and Universal Basic Income
Now, there’s no talking about blockchain ending poverty without mentioning its usefulness in humanitarian aid and universal basic income (UBI).
In a time of crisis, getting funds across to the people who actually need them can be quite challenging. Issues like government interference, corruption, and even exploitation by intermediaries, such as certain NGOs, make it hard for aid to reach the intended beneficiaries. Blockchain, however, offers a solution by ensuring transparency in aid distribution. Every transaction on a blockchain is visible and immutable, meaning funds can be tracked from the donor all the way to the recipient, leaving no room for mismanagement or diversion.
There have been several case studies where blockchain has been successfully used in disaster relief and development projects. For example, during the Syrian refugee crisis, the United Nations World Food Programme used blockchain to provide food aid through a project called “Building Blocks.” This system allowed refugees to receive food vouchers using biometric identification, bypassing corrupt intermediaries and ensuring that every dollar went directly to helping the people in need. Similarly, during the recent Russia-Ukraine conflict, blockchain-based donations allowed funds to be transferred directly to citizens and aid organizations, avoiding bureaucratic delays and misappropriation.
In addition to providing transparency, blockchain can facilitate decentralized charity platforms, where individuals can directly contribute to causes, they believe in without having to go through traditional, centralized organizations. These decentralized platforms offer donors the peace of mind that their contributions are being used for the intended purpose, as every transaction is recorded and publicly available on the blockchain.
Beyond humanitarian aid, blockchain could also be the key to universal basic income (UBI) systems. A blockchain-based UBI would be more transparent and efficient than current models. Blockchain’s inherent decentralization would ensure that funds are distributed equitably and without delay. With smart contracts, payments can be automated and guaranteed to arrive on time, preventing the administrative bottlenecks that often plague traditional welfare systems. For instance, digital wallets tied to a person’s identity on the blockchain could receive automatic monthly UBI payments, making the process seamless and secure.
Moreover, blockchain-based UBI systems could be more accessible, especially in regions where banking infrastructure is lacking. All an individual would need is a smartphone and internet connection to receive their UBI payments, bypassing traditional financial institutions. This could provide a much-needed lifeline to underserved populations, helping to lift them out of poverty by providing a steady, reliable income.
Challenges of Blockchain Adoption
In spite of blockchain’s obvious potential, there’s no denying that there are several barriers to its widespread adoption and resulting poverty alleviation.
For instance, we’ve been talking about how easy and cost effective it is to adopt a blockchain-based financial system. However, many people lack the very basic infrastructure for this, including reliable internet access and electricity. Many of the communities that would most benefit from blockchain-based systems are also the ones who lack these basic infrastructure.
There’s also the issue of low levels of technological literacy among communities that would most benefit from a system like this. Many people are not familiar with basic digital tools, talk more of the slightly more complex landscape that is blockchain.
As a result, integrating a blockchain system would take a lot of doing, and considering that it bypasses central authority, we can’t depend on most governments to make efforts in this direction.
Probably the biggest problem, especially among the digitally literate and financially stable, is the skepticism and mistrust that many people still have with blockchain. The fact that there are no regulatory frameworks make blockchain a scary concept for many, which is understandable. Who are they supposed to report to if anything goes wrong with their funds?
For blockchain to stand a chance of tackling poverty, governments, NGOs, and private companies have to collaborate to tackle all of these barriers. It would be difficult, if not completely impossible, for private individuals to break down the barriers on their own.
At the end of the day, poverty is way too complex to be completely taken down by blockchain, no matter how effectively it is implemented. Without the right policies to address the historical and social roots of poverty, implementing blockchain solutions would only be scratching the surface. Still, it might be a good place to start.
The Future of Blockchain: A Global Catalyst for Economic Inclusion
As we look to the future, blockchain technology holds the potential to revolutionize financial inclusion on a global scale. Predictions suggest it will continue to evolve, creating pathways for the unbanked and underbanked to participate fully in the economy. However, there are concerns that need to be addressed. As governments explore Central Bank Digital Currencies (CBDCs) and exert more control, data privacy and individual freedom might come under threat, casting a shadow on the decentralized ethos of blockchain.
To fully unlock the benefits of blockchain, collaboration between individuals, governments, and organizations is crucial. There must be a concerted effort to bridge the technological divide, educate communities, and create supportive regulatory frameworks that empower rather than stifle innovation. Global cooperation will also be essential in deploying blockchain solutions to alleviate poverty, ensuring that its transformative potential reaches those most in need.
As the world continues to grapple with economic inequality, blockchain could be the key to creating a more equitable future. But it requires intentional action, collaboration, and the right vision to make this a reality.
What do you think—can blockchain truly transform global economic inclusion, or are the challenges too great? Let us know your thoughts in the comments!
If you found this video insightful, don’t forget to hit that like button, subscribe to the Sucryptoz Channel, and click the notification bell so you never miss our deep dives into the future of blockchain technology. And remember, this is not financial advice—always do your own research before making any investment decisions!
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Disclaimer: This video is not financial advice. I am not a financial advisor and cannot give you financial advice. This is only my opinion based on my research, and you should do your own research before making any investment decisions.
The views expressed in this video and article are those of the author and do not necessarily reflect any organization’s official policy or position. Assumptions made within the analysis are not reflective of the position of any entity other than the author.
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