Unbanked to big banks: How crypto facilitates financial inclusion

Share this post:

With the advent of Bitcoin and other cryptocurrencies, many are heralding a new age of digital native money that is meant to transcend the physical boundaries of its predecessor. But before we dive into how cryptocurrency is being used today as a new form of money, we must ask the question, “What is money?” This is a very subjective question as money can be different things to different people.

At its foundation, money is a tool used by humans to collaborate at scale which solved the problem of coincidence of wants in barter. Aristotle circa 350 BCE defined “sound money” as durable, portable, divisible and intrinsically valuable. More than a few years later, the U.S. Federal Reserve added to this definition the idea of functional value. This functional value is translated into the currency properties of medium of exchange, store of value and unit of account. That definition continues to evolve to this day with the advent of cryptocurrency which allows for the frictionless transfer of money across the digital realm. For a fun and full history of money, I recommend checking out the pitch deck on cryptocurrencies made by the fictional character Gilfoyle in the HBO show Silicon Valley.

Bring new transparency, simplicity and efficiency to every financial transaction

To add on to the evolving discussion of the evolution of money, the IBM Blockchain team took a trip down to Austin for the SXSW conference where two of our thought leaders contributed to the ongoing conversation on blockchain and cryptocurrency. Marie Wieck, GM of IBM Blockchain, and Jesse Lund, VP of Digital Currencies, discussed their vision for digital assets as cryptocurrency use cases transition from fringe to mainstream.

Given that the definition of money is subjective and continues to evolve, let’s play a game. I like to call it: Is it money? If you’d like to play, I will share the results of this anonymous survey in my next post.

Solving humanitarian issues through blockchain

One of the key areas IBM is looking to evolve the use of money through cryptocurrency is in humanitarian use cases. Marie Wieck, shared her vision for IBM harnessing the power of blockchain for good. There are several use cases for blockchain helping to solve humanitarian issues such as microfinance loans in developing nations and tracking aquifers to improve the global water supply. Marie shared one of the most impactful blockchain for good projects IBM is working on, Plastic Bank. To discuss this initiative, she invited Shaun Frankson, Co-Founder and Chief Strategist on stage to share the vision for making plastic waste a currency while helping to reduce poverty. Together, they are aiming to “turn off the tap” on ocean plastic in developing countries where there is no waste management system.

In Haiti they have launched a successful pilot where people are able to turn in plastic waste to a local recycling co-op in exchange for a stable digital asset exchangeable for real goods in the local economy. Pound for pound, when sorted and weighed, this plastic is worth more than steel. After successful execution in Haiti, they have expanded operations to the Philippines and Indonesia, are now exploring expanding into other developing countries. You can watch the entire session below.

The token economy: Digitizing real-world assets

IBM is also helping large entities and enterprises like private and central banks to use blockchain for cross-border payments as a use case for cryptocurrency. Jesse Lund, head of Digital Currencies at IBM, shared his vision for the future of money. From barter societies exchanging shells for brides to world economies exchanging digital currencies like Bitcoin and stablecoins, money is a technology that has been in constant flux and is currently in a position to be disrupted. To illustrate this point, Jesse discussed how it is faster, cheaper, and most likely safer to send $10K USD to India in a Fedex envelope than using traditional financial rails.

With the advent of digital currencies, we have reached a tipping point in the banking industry where our relationships with banks and how they extract value from us is going to be transformed. Similar to other tech revolutions such as taxis and music streaming, technologists in the payments industry will have to think about the customer experience and new ways to extract value that is not fees since transactions will soon be commoditized and sending a payment will be no different than sending an email.

Bitcoin is “not the spaceship that will get us to Mars, but it has gotten us into orbit and allowed us to see how far this space could be disrupted,” according to Jesse. Bitcoin from a banker’s perspective is a, “publicly accessible autonomous real time settlement system spanning all major currencies.” In other words, it is programmable cash money. Bitcoin taught us that money can exist in places where there are no banks, that electricity can be reliably converted into a store of value, and that it can be stored without the help of any third parties. And that store of value can be moved anywhere else in the world and can be easily converted into different fiat currencies around the world. It showed us what’s possible.

There are two key areas of focus for central banks when discussing digital currencies.

• Wholesale central bank digital currency which is only issued to banks between banks and has an opportunity for improved efficiencies within institutional transactions (B2B).
• The ability to create a retail central bank-issued digital currency that a regular person can hang on to. Essentially individuals would be able to hold accounts with the central banks. This would address the breach of trust with private banks in many countries since many would now have the opportunity to bank directly with central banks instead of commercial banks.

The Central Bank of Sweden along with Canada and other countries who are pioneers in this space, are exploring use cases for cryptocurrencies globally. Sweden is aiming to become a cashless society and have a complete digital ecosystem, but this doesn’t come without challenges. To tackle some of these challenges, IBM has built out IBM Blockchain World Wire for connecting financial institutions across the globe for programmable and instantly settled cross border payments. You can watch more of Jesse’s presentation below.

[embedded content]

Moving ahead with blockchain

We also attended sessions hosted by other blockchain titans in the space such as Consensys’ Joe Lubin’s keynote on the state of the blockchain space, and Ripple CTO David Schwartz’s session on dissecting the hype around blockchain. It is great to see firsthand cryptocurrency and blockchain projects progressing in the wake of the crypto bear market that looms over the “trough of disillusionment” many of us in the space are feeling. The main takeaway from all the track sessions we attended is that HODLers will keep on HODLing and BUIDLers will keep on BUIDLing.

In an effort to make the contributions of our thought leaders consumable, stay tuned for another post we compiled for our SXSW experience. We recorded all the sessions we took part in for you to check out. We will be making the presentations available to you along with the replays and other resources soon.

Let’s clear and settle cross-border payments in seconds — not days