Bitcoin and financial inclusion: a potential solution to global poverty?

As the digital era continues to evolve, Bitcoin, the pioneer of cryptocurrencies, presents itself as a potentially transformative solution to a pervasive problem: global poverty.

With its decentralized nature, Bitcoin opens up opportunities for financial inclusion, remittance efficiency and accessibility to international markets, all of which could potentially serve as powerful tools to fight poverty worldwide.

In many developing countries, financial inclusion remains a significant challenge. According to the World Bank, lack of access to traditional banking services leaves approximately 1.4 billion adults globally unbanked. This reality inhibits economic growth and exacerbates poverty. Free from conventional banking constraints, Bitcoin offers a promising solution. Anyone with a smartphone and internet access can set up a Bitcoin wallet, making it an accessible technology even to those previously excluded from the financial system. This feature of Bitcoin promises to bring a large portion of the population into the fold of economic activity, potentially lifting many out of poverty.

Remittances represent a lifeline for many individuals in low-income and developing countries. Per World Bank data, remittances to these countries will reach an impressive $626 billion in 2022. Yet traditional remittance methods are fraught with high fees and inefficiencies.

Modern payment solutions such as Wise (formerly TransferWise) have largely tackled these challenges. While they can be faster and cheaper than traditional wire transfers (sometimes making cross-border transfers in seconds), they usually require the recipient to have a bank account to receive the money. This can be a significant barrier for unbanked or underbanked individuals, especially in developing countries with limited access to banking services.

With its ability to facilitate peer-to-peer transactions without intermediaries, Bitcoin can significantly reduce costs and increase the speed of transfers. This means more money ends up in the pockets of the intended beneficiaries, potentially alleviating poverty on a significant scale.

Moreover, Bitcoin can democratize access to global markets. Many small businesses in economically disadvantaged countries are shut out from participating in international trade due to restrictions and high fees associated with cross-border transactions. Since Bitcoin transactions are global and not subject to the regulations of any specific country, they can potentially open up international trade routes for these businesses. This in turn can drive economic growth and poverty reduction.

However, the potential benefits of Bitcoin to address global poverty are accompanied by significant challenges and risks that need to be carefully managed. A significant concern is the possible misuse of Bitcoin for illegal activities, given the pseudonymity it offers users. While it is crucial to remember that the vast majority of Bitcoin transactions – 99.76% of all crypto transaction volume in 2022, according to Chainalysis – are for legitimate purposes, the potential for abuse is a reality that cannot be ignored. This necessitates the implementation of robust regulatory frameworks that can deter illegal activities without stifling the innovation that Bitcoin represents.

In addition, consumer protection is another critical issue that requires attention. The complexity of Bitcoin can make uninformed users, especially those from disadvantaged communities, vulnerable to fraud. To address this, education initiatives are essential to ensure these communities understand the intricacies of Bitcoin and can use the technology safely.

Bitcoin’s value volatility is another challenge. While some see it as an investment opportunity, the risks associated with such volatility can prove detrimental to those struggling with poverty. Accordingly, while Bitcoin’s potential to help alleviate global poverty is significant, these associated risks must be carefully managed.

Finally, while Bitcoin offers enormous potential, it is important not to see it as a stand-alone solution to global poverty. It is one of many tools that can contribute significantly to poverty reduction, but it should be complemented by broader socio-economic policies and initiatives aimed at improving education, healthcare and infrastructure.