Bitcoin creator Satoshi Nakamoto set out in 2008 to design a currency that would free populations from the tyranny of trusted third parties, like banks and national governments.1 The idea was to take the trust held by banks and governments - already steadily being eroded in the eyes of the public - and transfer it back to the people by way of code.
Ultimately, Nakamoto envisioned, individuals should be able to move money between one another without involving a bank at all. This created several important knock-on effects. Banks could no longer restrict access to money or gamble it away on speculative investments. Moreover, it would be exceedingly difficult for a national government to freeze an individual's assets because there was no central point of attack, no bank accounts to close.
These effects ingratiated bitcoin to its first big user base, the unsavory Silk Road black market. But the very properties of bitcoin that attracted criminal elements from the internet might soon be turned on its head to provide disadvantaged people the world over with a solution to the so-called "unbanked" crisis.2 The world's unbanked do not have access to traditional banking resources, due to poor infrastructure or political instability. Cryptocurrencies offer an alternative with the potential to largely replace the traditional functions of banks; that is, storing value and providing access to loans or credit.
We're going to do a quick survey of who the unbanked are, where they're located, and what cryptocurrencies can do to alleviate their situation.
What Creates the Unbanked?
A bank account is both a luxury and a necessity in the developed world. Luckily, the developed world already has a full toolkit for the creation and proliferation of traditional banks. Developed economies sport easy access to basic utilities, like electricity and internet. They generally have stable political platforms and a thriving business community that can support a bank's ongoing concerns. And, more often than not, their populations are wealthy enough to satisfy a bank's business end with fees and other profit-generating structures.
In the developing world, however, most of those toolkit elements are not a given. Some populations are unbanked simply because a bank cannot set up shop in an area with no reliable power or water. Some banks actively shun politically unstable regions, where their assets are in danger of being seized or frozen by the hostile whims of a local dictator. Some banks are just plain unwilling to do business in an area they view as unprofitable.
Apart from these general concerns, pockets of unbanked folks can spring up even in developed economies. For instance, identification standards are required to open most bank accounts. Undocumented immigrants in first-world countries may not be able to open bank accounts even if banks are relatively plentiful and safe.3
Where Do They Live?
There are more than 2 billion unbanked persons in the world, according to Business Insider.4 That means that slightly less than a third of the global population cannot open a bank account, due to either environmental or personal issues. Of that 2 billion figure, 20 percent is located in India and 12 percent in China. That's despite the fact that both India and China are far from the abject poverty of the so-called Third World. In fact, both India and China are generally recognized as "emerging economies" with strong year-on-year GDP growth. Another substantial portion of the unbanked is located in the Middle East and sub-Saharan Africa. These populations often suffer the double-whammy of crushing poverty and violent political instability, as evidenced by the African civil wars of the 1990s and the recent Arab Spring political uprisings. Perhaps the most telling figure Business Insider shares is the fact that just 4 percent of the unbanked is unbanked by choice. In other words, the vast majority of the world's unbanked is looking for a solid alternative.
What Can Blockchain Technology Do for the Unbanked?
At first glance, blockchain technology would appear to suffer from some of the same problems that prevent traditional banks from operating in disadvantaged areas. Electricity and internet access are required, and the population must have a certain level of education and technological capital.
However, these problems disappear when nonprofits take center stage. Just as nonprofits and charities can enter disadvantaged areas to distribute food and water in the absence of grocery stores or medical care in the absence of hospitals, they now can offer banking services without traditional banks.5
In a setting like a refugee camp, a mobile technology center can help the unbanked set up personal wallets, which can then be used as a mobile store of value. Moreover, blockchain facilitates so-called microloans, enabling communities to benefit from one of the more complicated aspects of traditional banking without the top-heavy infrastructure that normally comes along with it.
To better illustrate how this might work, consider a newly minted political refugee in a country - any country - that endured the disruption of the Arab Spring. This refugee may not have entered the Arab Spring abjectly poor. In fact, he or she might very well have had substantial sums of the local currency stashed away in a local bank.
However, when the uprising took place, the refugee found him or herself on the wrong side of the new political regime. The banks were quickly nationalized, and the refugee found their assets irretrievable. Perhaps more importantly, it became imperative for the refugee's safety to flee the country - quickly.
Perhaps under fire, the refugee took flight with little more than the clothes on his or her back. No money, no identification papers, and no certainty about what the future might hold. Upon arriving in a refugee camp in a neutral country, the refugee found him or herself totally cut off from their old life, without the possibility of even proving his or her own name.
A blockchain account, set up before trouble began, could have relieved some of this burden. A blockchain wallet could hold not only the refugee's stored monetary value but also critical information - passport numbers, basic identification information, and so on. Armed only with a scrap of paper containing a seed phrase - or, failing that, a memorized seed phrase - the refugee could theoretically walk across a national border, sit down at a terminal in the camp, and instantly recall his or her net value and critical personal information.
This has an advantage for the camp, as well. The ability to keep track of exactly who is in the camp and where they are from has immense importance for placing and tracking refugee populations when the political situation calms down. The concerns currently brewing in Europe over the age and legal status of refugees would vanish in the light of identifying blockchain information.
While there is probably no catch-all solution for the unbanked due to the size and diversity of the problem, blockchain offers a ray of hope in an otherwise hopeless situation. The blockchain's security and resilience could soon simplify the unbanked problem at all levels, from the personal to the professional.
1) Bitcoin: A Peer-to-Peer Electronic Cash System, bitcoin.org. https://bitcoin.org/bitcoin.pdf
2) Cryptocurrencies: The Perfect Solution for the Unbanked, Medium. https://medium.com/@Bank4youGroup/cryptocurrencies-the-perfect-solution-for-unbanked-people-55a4baab9bd
3) How Blockchain is Kickstarting the Financial Lives of Refugees, Technology Review. https://www.technologyreview.com/s/608764/how-blockchain-is-kickstarting-the-financial-lives-of-refugees/
4) The World's Unbanked Population in 6 Charts, Business Insider. http://www.businessinsider.com/the-worlds-unbanked-population-in-6-charts-2017-8
5) How Refugees Are Helping Create Blockchain's Brand New World, Wired. https://www.wired.com/story/refugees-but-on-the-blockchain/