💸3 reasons why cryptocurrency is socially inclusive
8 min read
📗 History of money
Money has long been our main medium of exchange, replacing earlier trading ways such as bartering (e.g rice for eggs) or using standardized commodities (e.g seashells, silver, or gold). Then our ancestors learned to use a more effective way to trade such as the Chinese coins and later fiat money (government-issued currency that is not backed by a physical commodity) such as the US Dollar.
It sounds like a great idea to have a standard currency that allows strangers to trade with each other in a trustful way. However, in the history of money, the distribution tends to favor the one with power and influence, which is also known as the Cantilon effect. Named after the French banker Richard Cantillon, it opened the fact that money printed by the government will be first distributed to institutions and will benefit those who are closer to power.
In simple words, money will first flow to the top of the social/ economical hierarchy or the "too big to fail guys" (e.g 2008 financial crisis bailout), while the "too small to succeed" will be the last in the queue. Imagine that when we feed a school of fish in an aquarium, the big and powerful will be at the front of the line enjoying the first bite, while the weakling will be at the end of the packing order, scrapping the leftover.
As equality is becoming more important in our generation, maybe we need to start looking at other alternatives. If fiat money does not provide us with equal opportunities, are there other solutions that are more socially inclusive regardless of the status, origin, or wealth of a person? Thanks to one of the greatest tech inventions in the 21st century, cryptocurrency might be the answer. Here are 3 reasons that I have found so far 🧐.
🌯 1. Remittance: Lower fees, more Doner
Most migrant workers in the western world are the backbone of their families in their home country. They regularly sent their salaries across borders, which is also known as a remittance. According to the world bank, the global remittance transaction in 2020 is around 500 billion, which equals the GDP of Portugal and New Zealand combined.
Remittance is a steady source of income for banks and other international money transfer companies (remember the black and yellow sign at a train station). On average, institutions will charge around 6% per transaction, which is a similar cost of 1 Doner kebap every time someone sent 100 euros to feed their family back home.
Not only that, there are also hidden fees in converting foreign currency to a local currency. Long story short, a huge part of the hard-earned money of migrant workers are lost to feed the middlemen.
With crypto, money could be sent faster with much lower fees and less bureaucracy than the traditional method. This is why the adoption of crypto is higher in countries with a high diaspora of migrant labor such as Nigeria or the Philipines.
According to Balaji Srinivasan's blog (Ex Coinbase CTO), in 2020 alone, Africa has seen more than $560 million worth of cryptocurrency transferred from overseas, while in Latin America bitcoin transactions to the region are valued at over $3 Billion.
While most governments are debating if crypto should be a legal tender or not, the use cases are real, and now the hard-working people of our generation can enjoy one additional doner kebap per transaction 😄.
Source: Balaji Srinivasan 1729 blog
👁️ 2. The unbanked: an eye for a coin
I still remember the first bank account that my mom made for me when I was still at school. I am lucky enough to know about the importance of a savings account from a young age (though most of it has been spent on fast food and comic books unfortunately 🍔).
Tragically, after more than 600 years of the invention of modern bank in Reinassance Italy, there are still around 1.7 billion adults around the world that do not have access to the banking system, or commonly known as the unbanked.
Most of them are living in rural areas of developing countries and do not have access to banks due to reasons such as geographic barriers, no formal identification, no permanent address, or illiteracy. In the last decades, there are a huge push to use digital banking and the internet to solve this issue.
However, in most cases, to open a bank account or get a loan, proof of income or credit rating is still required. This is unthinkable if you are working hard on the farm to meet ends meet. With the adoption of crypto, the unfortunate population of this world could skip the line to join the legacy banking system and enter the new financial frontier directly.
A couple of weeks ago, a disruptive breakthrough was introduced by a project called Worldcoin, a Berlin-based enterprise founded by Sam Altman from Y combinator. The main objective of Worldocin is to introduce a collectively owned global currency that will be distributed fairly to as many people as possible.
How do they plan to do it? through a new type of KYC (Know your customer) system, using a helmet-looking device that scans the iris membrane of a human eye. By capturing the eye image of a person, it can verify if the user is not a robot and has not received their share of the Worldcoin yet.
Though some are skeptical due to the unconventional screening process, I'd say this is easier than looking at an unfriendly bank clerk in the eye. After the launch in mid-2021, Worldcoin does provide a new opportunity for the unbanked population around the world, which can be seen in the high adoption rate in countries such as Indonesia, India, and Kenya.
It seems that an eye for a coin does not make the whole world blind.
Source: Sam altman Tweet
⛈️ 3. Inflation: Less bang for the buck
No matter where you grew up, we all have memories of things that used to be cheaper in our childhood, from a chocolate bar to a big mac. In college, I learned about getting the most bang for the buck on every night out in town or also known as "happy hour 🍺" (but not happy morning after).
In real life (I mean after college), I learned that with time, the value of our money is getting less and less, or what the economist called inflation. We live in an inflationary world. The US has seen more than a 5% inflation rate as of September 2021 (13 years high since the last 2008 financial crisis).
It means that a lot of things are getting more expensive, from energy, food, and other consumer goods (Clothes, phones, etc. you name it). So how can we hedge against inflationary currency?
Gold used to be the weapon of choice. But now there are other solutions such as digital gold aka bitcoin which has a precautionary nature. As a strong proponent of cryptocurrency, Jack Dorsey of Twitter has recently said "Hyperinflation is going to change everything. It’s happening", while JP morgan confirms that investors are purchasing Bitcoin instead of gold to hedge against inflation.
It's also not surprising to see that crypto is already widely used in countries where inflation has skyrocketed, such as Venezuela. Another good news is that crypto can also be used in a new financial innovation known as decentralized finance (DEFI).
DEFI, or yield farming, simply means providing loans from crypto assets. DEFI allows anyone to earn interest from their cryptocurrencies, either from stable coins such as USDC (US dollar backed cryptocurrencies) or altcoins such as DAI which is pegged to the value of US dollar.
These can be done in a trading platform such as Coinbase or a specialized app such as Blockfi. But what about the risk? yes these are new financial instruments that are highly fluctuating, but as some suggest that bitcoin is a way to exit the control of the Central Bank, DEFI is a way to exit the control of wall street.
Find out more about DEFI in the explanatory video below or If you love the TV show shark tank, learn more in this podcast why Kevin O leary is so bullish on DEFI.
🪂 Bonus: Exit plan
In human history, we have seen waves of chaotic times repeating itself, from wars, economic crises, to pandemics. Now we might want to think about how to protect our hard-earned wealth and hopefully inherit it to our future grandchildren.
Just like the ctrl + alt + del key in a keyboard, cryptocurrency could also be the last option to store value if the world is going to an end. It's like becoming a doomsday prepper without stocking extra toiler paper.
This idea has been adopted in places with high instability such as Afghanistan, where it's now ranked as the 7th country in the world with the highest transaction volume (in 2020 Afghanistan is not even in the ranking).
Okay but what if the internet is down? solution such as hardware wallets enables us to store crypto locally and securely, in a portable USB sized device that is only accessible through private keys.
If all fails, crypto is like a decentralized golden parachute that anyone can hold on to. This is similar to what gold rings or paper money stored under the bed used to be for our grandparents.
If the wise old man used to say money is the root of all problems, the brave young men (and women) could say that cryptocurrency is the square of all solutions. To the moon 🌑!
💡Conclusion
We are currently living on a cross path of a new era. Though no one can predict the future, we can still be optimistic and find new innovations to create an inclusive and sustainable community.
According to the book "The Ascent of Money" by the historian Niall Ferguson, Empires rise and fall in the search of spices, gold, or oil, but financial revolution can turn poverty into prosperity.
Thanks for reading this article. I am not a financial expert and am eager to learn more, If you have comments or inputs, let me know. I wish you a happy, healthy, and wealthy life 🙂.
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