There are also large numbers of people who lack an established identity in the form of bank records or credit history, and it is especially difficult for these people to access financial services. Technology can help to both provide services to these people and to enable them to build up an established identity for the future.
What Is Special About Blockchain?
Blockchain technology, and cryptocurrencies, in particular, can provide access to financial services to unbanked or underbanked people. Although it was once difficult to understand and use blockchain technologies, a recent wave of apps and services have made the technology simpler and easier to use than ever before. The big advantage of blockchain over other financial structures is that it is truly international—unlike other centralized payment methods, cryptocurrencies can be traded across borders by anyone around the world.
A further advantage of cryptocurrencies for bringing financial services to the underbanked are the low transaction costs. Because these services have no physical branches to maintain and minimal staffing costs thanks to the blockchain’s distributed network, these savings can be passed onto users in the form of reduced transaction fees. This allows the easy passing of small amounts of money between individuals or businesses, removing a barrier for entry into financial transactions.
Finally, blockchain technology can increase transparency and limit corruption through systems of automation and digitization. Blockchain systems maintain a record of financial transactions across a distributed ledger which cannot be manipulated by individuals or companies, thus preventing fraud or theft. For this reason, blockchain is already being tested for oversight of land registration and government contracts in Sweden and Japan, and these benefits could be spread to developing countries as well.
The Role of Small Businesses in Alleviating Poverty
One way to help increase the wealth of developing countries is by facilitating small business growth. When people have access to small loans to start up a business, they can develop an ongoing income stream for themselves, whilst also providing a service for those in their community. The money spent by these small business patrons stays within the community rather than being exported to large international corporations.
In order to promote small business growth, systems need to make available opportunities for entrepreneurship and allow the borrowing of money through micro-credit transactions such as small loans to cover starting business costs. This is the kind of practical support that can be facilitated by blockchain technologies.
Blockchain is making big waves among wealthy investors, but it has the potential to benefit many more people around the world who are living in poverty and are in desperate need of secure, reliable, and affordable financial services.