Banking and financial inclusion help drive the world’s economic development. With the introduction of blockchain technology, blockchain-based applications can play a significant role in driving financial inclusion.
By providing a distributed, decentralized ledger, blockchain applications can reduce many challenges faced by central authorities or banks, creating new opportunities to provide financial access to underserved markets. Decentralized digital transactions powered by blockchain help drive trust and transparency, and due to the blockchain’s encryption algorithm, all transactions are secure.
Typically, bringing banking services to underdeveloped countries is difficult, but with the innovation of blockchain and open banking technologies, all that is needed is an internet connection and a computing device like a mobile phone. This specifically helps drive financial services to people in countries with limited access to banking offerings, such as Morocco, Vietnam, Egypt, and Mexico. Or in countries like Venezuela, Zimbabwe, Sudan, or Argentina, where inflation ranges from 40% to 10,000% annually, these services provide access to global assets that have changed lives for many people facing hyperinflation.
Before blockchain, access to inflation hedging assets was tightly controlled by the governments in these countries. There is now hope for anyone with access to the internet and a mobile phone to build a financial shelter for themselves and their families and friends.
Two groups will widely benefit from blockchain technology. The first is those living in countries experiencing hyperinflation, where you are forced to spend your earnings as quickly as they come in and have few ways to save for the future. The second is those living in countries where banking is difficult to access or where the banks have a trust deficit.
“Be your own bank” is a frequently heard phrase in blockchain circles as blockchain opens up access to banking-like services on a global scale using only an internet-accessible device. Many countries like Venezuela, Zimbabwe, Sudan, and Argentina can significantly benefit from blockchain integration – precisely where inflation is high or where reliable and trustworthy banking is not easily accessible.
Though many countries would greatly benefit, several countries have already announced they are open for business to blockchain solutions yet have been slow to implement their regulatory frameworks. Others have been quietly plugging away at opening doors and removing roadblocks, including Switzerland, The Netherlands, Denmark, The United States, Canada, South Korea, Singapore, and Japan.
It should be noted that the government being friendly to blockchain and the local banks being friendly to blockchain do not always go hand in hand. Banks continue to close accounts in many of those countries solely because a customer is involved in blockchain-related activities, creating a self-fulfilling prophecy in many respects.
It’s important to highlight blockchain projects that are also driving financial inclusion, like Ethereum. At the moment, fees are high, so Ethereum has been receiving some criticism. However, there is a long-term strategy to address costs. Having a Turing-complete global smart contract and computing platform is going to close the inclusion gap significantly. This is because a Turing-complete system can be used to provide a wide range of financial services.
Looking into the future of blockchain technology, it will be interesting to see who can safely access the blockchain over the next ten years. Today’s early adopters use what should be considered as ”early-stage” interfaces in their blockchain transactions. Many users do transactions using command-line tools. Others are using risky browser plugins.
In 10 years, the regulatory and software kinks will be worked out where everyone can feel safe storing, buying, selling, and transacting with their choice of blockchain assets and smart contracts. The network effect will be massive and financial services as we know them today will be vastly different. When looking at the financial services industry, blockchain will do to it what the internet did to written communication, document storage, and print media. We will see a mass transformation in banking and financial assets.
Blockchain’s role in financial inclusion is a game-changer. Blockchain technology opens up massive untapped markets for financial products and services. It’s more important than ever for companies to leverage blockchain to push financial inclusion in underserved communities as there is a network effect on many of these services. Word of mouth is powerful, and people trust what their friends and family trust, so the more lives you can positively impact, the more likely you are to secure a long-term relationship with customers.