(First published April 2023)
Type “financial system challenges” into Google and over one billion, four hundred and fifty million results will pop up in milliseconds — a number so large I had to pause and count the zeros. Could cryptocurrency (crypto) offer pathways to achieving innovative, real-world solutions to some of these?
All over the globe, communities are affected by ‘wicked’ problems — those issues that are either difficult or almost impossible to solve because of incomplete, contradictory or changing variables. Many of these relate to our current financial systems and they have no single solution. That was, until the advent of crypto and the blockchain.
Keep reading to discover five wicked financial problems that crypto could help us solve:
Financial exclusion
Crypto enables anyone with internet access to participate in the global economy without a bank account — including those living in countries with limited banking infrastructure or refugees with no way to verify their identity after being displaced. Armed with their own crypto wallet, crypto provides an alternative to traditional banking, giving millions of people around the world who don’t have access to banking services (the ‘unbanked’), the opportunity to save, invest and access credit. Importantly, sending and receiving money across borders can occur instantly and with minimal transaction fees. This aspect of crypto is particularly powerful for people living in countries with restrictive financial systems, as it allows them to conduct business and receive payments from international clients.
Hyperinflation
In many countries, the value of national currency is virtually worthless due to hyperinflation. Crypto such as Bitcoin is immune to hyperinflation because there is a ‘fixed supply’ of tokens (think of these as digital ‘coins’) which means that there will only ever be a limited amount of them in circulation. In some countries, receiving payment in crypto is a far more stable way to transact than fiat (conventional currency).
Corruption
Traditional financial systems are often susceptible to corruption (including fraud, money laundering and bribery), with powerful individuals and institutions using their influence to control the flow of money. Cryptois decentralised, which means that no single person or institution controls the flow of money. All cryptocurrency transactions are recorded on the blockchain (a public, digital ledger that is duplicated and distributed across the entire network of computer systems on the blockchain) and are much more public in nature than traditional banking. What’s more, the blockchain is an immutable database, meaning you cannot manipulate the data, making it much harder for corrupt individuals to manipulate the system in order to steal from the people.
Financial censorship
Financial censorship — in which governments or financial institutions prevent certain individuals or groups from accessing financial services — has gained prevalence in recent months due to the ongoing war in Ukraine. A recent campaign to blacklist Russian news agency Meduza is the latest reminder that the world needs permissionless, neutral financial systems (Source: Coindesk). Cryptocurrency is censorship-resistant, meaning that no one can prevent individuals from using it to transact or gain access to financial services. This is critically important for people living in countries with oppressive governments.
Financial privacy:
Traditional financial systems require users to disclose their identity and personal information, which can pose significant risk to those who value their privacy (such as victims of domestic abuse or those seeking asylum). Cryptocurrency, done right, can offer a higher level of privacy, as transactions are pseudonymous and don’t require users to disclose any of their personal information. Use of zero knowledge proofs can help us maintain privacy, while also curtailing identity theft or other forms of financial fraud.
It’s my hope that the whole financial world — and every piece of financial data ever created — could become shared as we move away from the constraints of traditional financial systems. The promise of a better financial system is within our reach and using the blockchain, a myriad of financial challenges could very well one day become a thing of the past. Is it a brave new way of doing things? Yes! But does it offer a wickedly simple solution to some wicked problems? Also yes! To me, that really is a no-brainer.
Disclaimer: Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
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- Source: https://www.finextra.com/blogposting/24163/crypto-a-wicked-solution-to-wicked-money-problems?utm_medium=rssfinextra&utm_source=finextrablogs
