Why Cryptocurrencies Will Democratize Finance

Internet-enabled technology has disrupted virtually all aspects of daily life. Today, vast stores of knowledge are a single click away, and you can communicate cheaply and instantly with anyone, anytime, and from anywhere in the world. Despite these advancements, however, many aspects of finance are still mired in the 20th century. Most processes are verified and executed by the same large, bureaucratic financial institutions and intermediaries, which subject transacting parties to steep transaction fees, delays, and a massive room for human error.

Thankfully, a solution seems to be at hand. Cryptocurrencies and the underlying blockchain technology that runs them are poised to disrupt the way the entire finance industry thinks about money. Experts are adamant that crypto will have a tremendous impact across the sector, changing everything from funds transfers to the very concept of currency.

Blockchain, as a whole, has numerous use cases across a vast range of industries. The concept of a distributed ledger that can execute transactions automatically, and also store data immutably and transparently has placed the technology at the forefront of technical discussions worldwide. For finance, blockchain and crypto promote inclusion, ensuring that the tools and opportunities that have long been controlled by a few giant corporations are available to the general public.

So, if you have been curious about the role of cryptocurrencies in finance, mainly how they are set to transform wealth distribution, read on for some key insights.

Democracy Deficiency in Finance

The United States is an excellent example of the increasing gap between the wealthy elite and the rest of the population. Thanks to a combination of inheritance and the phenomenon that money makes more money, the odds lean heavily against the average player. Legislation, like the JOBS Act of 2012, has softened the stiff regulations that had surrounded securities, and the SEC is increasingly allowing more mainstream investors to invest in private deals. Nonetheless, the financial sector is still miles away from achieving acceptable inclusivity.

Perhaps a more significant impact of the democracy problem in finance can be seen from the so-called “unbanked” who astonishingly make up more than a third of the global population. Many of these people live in developing countries within Africa, Asia, and Latin America, that lack adequate traditional banking infrastructure. The unbanked population presents an extraordinary opportunity for the world to unite against humanity’s long-standing war with poverty through financial cooperation.

The finance sector is looking at emerging technologies as solutions for these issues. By offering transparent, efficient, and secure transactions, cyptocurrencies have positioned themselves as the enabler for a more inclusive global financial sector that decentralizes money and integrates traditionally isolated unbanked communities.

The Importance of Financial Democratization

In this day and age, having access to financial services is as much a necessity as food and water. If you do not have a bank account, you are not only forced to store cash physically but are also excluded from the financial system where your money could earn interest and facilitate economic growth.

Financial inclusion promises enormous benefits for individuals, economies, and societies at large. For instance, the mobilization of funds that are not part of a structured financial system can bolster common reserves and enable more efficient capital allocation. This aspect could translate to more loans for small businesses and fruitful entrepreneurial pursuits. With renewed entrepreneurship, employment will increase, simultaneously reducing income inequality, particularly in countries with minimal financial inclusion.

Ironically, those that have the most difficulty in acquiring financial services are the ones that are likely to benefit from them the most. You, therefore, won’t find it surprising that the United Nations is looking at financial inclusion as a key proponent for the fulfillment of its 2030 Agenda for Sustainable Development Goals (SDGs).

How cryptocurrencies can facilitate financial democracy

Decentralized digital currencies built on ground-breaking blockchain technology could be the key to reaching the unbanked population while providing the basis for a more vibrant and more diverse array of financial services. Thanks to established solutions like Bitcoin and Ether, crypto has already proven its effectiveness in promoting low-cost, frictionless, and borderless value exchange. By replacing centralized institutions with peer-to-peer networks, crypto eliminates the numerous issues that stem from the overreliance of “big finance.”

Combining the accessibility of the internet with cryptography gives cryptocurrencies the potential to redefine archaic aspects of finance and offer more transparent, efficient, and secure operations.

Below are three major ways that crypto could contribute to more financial inclusion.

Lower Transaction Costs

Currently, cross-border payments are characterized by exorbitant fees, long-waiting times, and complicated verification and documentation processes. If you send money to an account overseas, both your bank and the receiving bank will maintain its record of the transaction. Large teams of accountants, bookkeepers, and auditors will be engaged to ensure the transfer takes place as expected. This model is expensive and inefficient, yet it is how transactions have worked since the advent of modern finance.

When a cryptocurrency transaction is initiated, the verification that banks do manually happens instantaneously and accurately within the blockchain network by triggering the execution of pre-formulated cryptographic calculations. Moreover, since all participants of a crypto network are custodians of the transaction data, payments are entirely transparent.

By removing intermediaries, cryptocurrency networks offer their members remarkably quick and affordable transactions. They also allow everyone with internet connectivity to send payments globally and are consequently regarded as universal currencies

Cryptos present the financial sector with a future where overseas money remittances no longer require centralized facilitators to execute.

Decentralized Bank Account Administration

Today, opening a bank account requires an applicant to create and maintain a verified digital identity, which is unfortunate because many people in the unbanked category do not have any. For the developed world, creating these identities typically means entrusting a significant amount of personal information to third-party financial institutions.

In contrast, crypto offers a decentralized approach to identity management, which enables users to create digital identities that are separate from their private lives but are still verifiable by the network. Decentralized identities can streamline the account opening process, allowing even the unbanked to access vital financial services.

Reinforcing Trust

The disintermediation that crypto technology provides eliminates the dependency of a single authority to validate and execute transactions. Thanks to the blockchain, transacting parties do not need anyone to complete value transfers but the underlying system itself. Participants in the network are engaged and often incentivized to work towards achieving the main objective, which is to collectively secure transactions.

Unsurprisingly, this value proposition is a perfect fit within the social and cultural fabric of unbanked societies, which is heavily insistent on forging trust and banding together to achieve a common goal.

Conclusion

Technology has done a lot for finance, but as you have learned, financial inequality is still prevalent in the sector. The merits of cryptocurrencies warrant serious consideration as solutions for boosting even distribution of wealth and inclusion of the unbanked population. Fueled by crypto, the global financial system has the potential to create an all-inclusive, democratic economy, where the wants and needs of the common many finally outweigh those of the elite few.