Bridging the Gap: How Crypto is Unlocking Financial Access in Unbanked Nations

By Nastasha Firdaus Khan

For billions of people around the world, traditional financial institutions remain out of reach. The World Bank estimates that over 1.7 billion adults globally are "unbanked," lacking access to basic financial services like savings accounts, credit cards, or loans. This lack of access creates a significant barrier to economic participation and social mobility. However, the rise of cryptocurrencies is offering a glimmer of hope for the unbanked. These digital assets, built on decentralized blockchain technology, offer a new paradigm for financial inclusion.  

Let’s take a look at how crypto is impacting financial accessibility in unbanked nations…

Revolutionizing Remittances: Sending money home is a lifeline for many migrant workers in developing countries. Traditional remittance services often come with high fees and slow processing times. Cryptocurrencies offer a faster, cheaper, and more transparent alternative. Platforms like Stellar and Ripple allow for near-instantaneous cross-border transactions with minimal fees, directly empowering families and boosting local economies. 

Financial Inclusion for the Underserved: Opening a traditional bank account often comes with stringent requirements – minimum deposits, physical branch access, and documentation – that many in unbanked populations struggle to meet. Crypto wallets, on the other hand, require minimal setup and can be accessed on a smartphone, making them readily available even in remote areas with limited internet access. 

A Hedge Against Inflation: Many unbanked nations grapple with high inflation, eroding the value of traditional currencies. Cryptocurrencies, especially Bitcoin with its limited supply, can act as a hedge against inflation. This allows people to store value in a more stable asset, protecting their hard-earned savings. 

Case Studies in Action

Venezuela: Hyperinflation has ravaged Venezuela's economy, rendering the local currency, the Bolivar, practically worthless. Bitcoin adoption has surged as citizens seek a way to preserve their savings and conduct everyday transactions. 

Kenya: M-Pesa, a mobile phone-based money transfer service, has revolutionized financial access in Kenya. Now, platforms like BitPesa are integrating crypto with existing mobile money infrastructure, further expanding financial inclusion. 

Current Challenges and Bitcoin's Role

Despite the potential benefits, crypto adoption in unbanked nations faces challenges. Internet access remains limited in some areas, and the volatility of certain cryptocurrencies can be a concern. Additionally, regulatory frameworks surrounding crypto are still evolving in many countries. 

Bitcoin, the most established cryptocurrency, plays a significant role. Its brand recognition, decentralized nature, and limited supply make it a compelling alternative currency for unbanked populations. However, Bitcoin's scalability limitations and high transaction fees currently hinder its widespread adoption for microtransactions. 

Bitcoin has been repeatedly praised for being a viable and often realistic solution to alleviate unbanked issues but there remain urgent and obvious scalability limitations, despite developer progress to enhance the Bitcoin blockchain.  

Firstly, there is the issue of limited transaction processing speed. The Bitcoin network can only handle a limited number of transactions per second (TPS) – currently around 7 transactions per second. This low capacity creates a bottleneck, resulting in slow transaction processing times, which becomes a major issue for microtransactions that require fast confirmation. 

Other than that, Bitcoin struggles with a high block size. This means that each Bitcoin block can only hold a limited amount of data, translating to a limited number of transactions within a single block. This restriction further contributes to the network's inability to handle high transaction volumes. 

Supply and demand related issues are also one to take note of. As demand for using the Bitcoin network increases, transaction fees rise due to limited space within blocks. This can make microtransactions, often involving smaller amounts of money, financially impractical due to the cost of processing them. Another often prevailing issue falls under the umbrella of miner incentives: Miners, who verify and secure the Bitcoin network, receive transaction fees as a reward. With limited block space, miners prioritize transactions with higher fees, further pushing up the cost for smaller transactions. 

These limitations have a significant impact on microtransactions in unbanked nations. Such impacts include: 

Inhibits Everyday Use: Sending small amounts of money, like paying for groceries or transportation, becomes expensive and inefficient due to high transaction fees. 

Limits Merchant Adoption: Merchants might be hesitant to accept Bitcoin due to slow transaction times and potential for losing money on fees for small transactions. 

Hinders Financial Inclusion: The high cost of using Bitcoin can effectively exclude individuals from the very benefits it aims to provide, widening the financial gap. 

The impact of crypto on financial inclusion in unbanked nations is undeniable. While challenges remain, advancements in technology, increasing internet penetration, and evolving regulations are paving the way for mainstream adoption.

While Bitcoin may not be a perfect solution for all situations, cryptocurrencies offer a powerful tool to empower the unbanked, fostering financial independence and economic opportunity, nevertheless. As the technology and infrastructure continue to develop, crypto has the potential to bridge the financial divide and truly democratize access to financial services globally. After all, democratizing finance is the main reason why crypto is here in the first place. 

March 20, 2024