How Will Crypto and DeFi Help the Unbanked in the Developed World?
Bank, DeFi - September 24, 2020
In the developed world, banks are seen as a novelty. Unlike the developing world, having a bank account is not as luxurious. In fact, most people prefer to hold on to cash. Why? Because, with banks comes a few problems.
Don’t get us wrong, the banking system is essential to the financial world. Banks allow us to take loans, keep our money safe, and make investments. But all this comes at a cost. A cost that hurts the ones most in need of the services offered by banks.
To someone who earns $1,000, an overdraft fee of $50 is going to hurt way more than to someone who earns $100,000.
Banks charge a range of fees on deposits, withdrawals, transfers. Some banks even require account holders to maintain a minimum balance. Those who barely have enough to pay for groceries cannot worry about having something locked up in the bank. Much less paying for it. Throw the time delay, of having to wait for a Monday to withdraw the check you deposited on a Friday, and you have a problem.
Think about how different this would be in two steps. Think about how these two steps would affect the people who could slip out of the ‘banking system.’
First, how would this system work if instead of cash, these people were paid in Bitcoin? Three things would change instantly, immediate transfers, minimum fees, and actual assets. Bitcoin transactions are quick, fees paid are based on the network with no maintenance charges, and transferring Bitcoin is based on ownership (you can’t send it if you don’t own it).
Now that you’re onboard with the crypto bit, let’s dive a bit deeper.
Second, how would this system work if instead of just Bitcoin, there was an entire financial system built on top of this? A system where the people on the fringes of the banking system, could save, invest, keep their funds safe, earn an interest. What’s more, they can do this instantly, with less fees than the banking system would offer.
Once this initial feedback loop of saving, investing, and growing is created, the unbanked won’t need to exist.
This is the system being built by blockchain and decentralized finance. A system where there is no unbanked. A system where there is no ‘secret club,’ where banks are not a luxury or a novelty. They are a given.
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