Three ways cryptocurrency can end poverty
Crypto sometimes gets a bad rap, between its use for illicit internet purchases, its ‘bros in Lambos’ reputation, and its volatility. A few days ago, however, Coinbase’s co-founder and CEO, Brian Armstrong, announced a call to action for the crypto community to use its resources to do good: he launched a new charity, GiveCrypto.org, with the goal of sending crypto to people in need.
- Help people in need by sending money to them directly
- Advance real-world usage and benefits of cryptocurrency
- Provide universal access to an open financial system
I’ve spent about a decade of my career working on social problems like global poverty, and my first reaction was skepticism.
Crypto for good? Crypto was invented to allow peer-to-peer online payments without use of a financial institution (and much of its use, still, is to facilitate illegal activity). I’ve worked with aid organizations in Africa, SE Asia, and India, and have seen the limitations of illiteracy, lack of electricity, and lack of connectivity that would make a digital currency nearly unusable. In Africa, for example, 65% of people don’t even have internet access.
Upon further reflection, however, I realized that crypto may be uniquely positioned to change the way we address global poverty. Here are three ways GiveCrypto could work:
1. Send aid without corruption
Coins could be sent to, and immediately used by, people in crisis situations. Corruption (by governments, on-the-ground providers, and even nonprofits) prevents large amounts of aid from reaching end recipients. GiveCrypto could ensure those in the most volatile situations get resources directly, by circumventing the need to send aid dollars to intermediaries and tracking receipt.
Additional infrastructure (a way to send coins to the right people, and a place to cash out coins in exchange for goods) would need to be developed by on the ground organizations, but such programs have already been launched by some aid organizations. For example, in 2017 the World Food Program supported more than 10,000 Syrian refugees with digital currency vouchers to trade at selected markets in Jordan, successfully transferring $1.4M and eliminating corruption.
2. Economic identity and banking
Crypto could be used to provide a financial identity to the 40% of adults who are unbanked, most of whom live in developing economies. These 2 billion adults cite barriers such as fees, distance to banks, lack of unnecessary documentation, and (most commonly) not having enough assets to warrant an account.
Financial inclusion is important for reducing poverty, by allowing people to manage savings, receive loans, and build credit. Companies like Philippines-based Coins and US-based BanQu are using blockchain technology to help the unbanked by creating financial alternatives in an efficient, transparent and scalable manner. GiveCrypto could accelerate these efforts, and create a flow of capital to kickstart accounts.
Still, additional innovation would be needed to (at some point) allow these individuals to transact (most likely, by interacting with a financial institution). Today, the cost of service to bank the world’s poorest is extremely high — so helping these individuals turn crypto into purchases in an affordable way would require further innovation.
3. Saving money (in unstable environments)
For many people in emerging economies, long term savings are challenging due to high inflation, government corruption, and the risks of assets being seized if money is stored in local financial institutions. Cryptocurrency provides a way to avoid local institutions. In addition, while cryptocurrency may remain volatile, it can offer people in countries with hyperinflation like Venezuela (5000% in 2017) and South Sudan (600% in 2016) an alternative, particularly as more stable currencies like USD are challenging to obtain.
Projects like stablecoins are trying to create a more stable cryptocurrency to actually give people the opportunity to increase savings through crypto without huge risks. Today, however, not many people want to use crypto as money, so we have to wonder if (in its present form) we should offer such a volatile asset to those in need as a means of wealth creation.
What would need to happen for crypto to end poverty?
The crypto-philanthropic world has been evolving rapidly, but there are a number of missing pieces that would need to be addressed for recipients before Armstrong’s plan can be put into place, including:
- Training: Explain crypto and educate users on its practical uses and benefits; for example, through online videos in local languages.
- Tools to receive crypto and transact in emerging markets: Ways to ensure people in emerging countries with limited internet / computing power can access crypto. For example, companies like CoinText.io are developing technology which allows users to send BCH (and soon other tokens like DASH) through a text message, since the majority of the world does not own smartphones or computers.
- Security: A hot wallet or cold wallet to safely store assets; for example through Coinbase.
An optimistic view
Crypto has already begun unlocking new opportunities in philanthropy. Charity Coins (Clean Water Coin, CareBit) have launched to drive donations, and CryptoKitties just this week launched a charity kitty, Honu, whose auction helps endangered turtles. Blockchain more broadly has tremendous potential to increase transparency in the nonprofit sector.
The idea of direct, unconditional cash transfers is good — they have been proven in a number of studies to be one of the best ways to alleviate poverty. I’m personally a huge supporter of unconditional cash transfers, given its ability to cut out the inefficiencies in traditional philanthropy (which was the topic of my TEDx Talk). I have witnessed first hand how important a small amount of assets can be to lifting families out of poverty. Will GiveCrypto have true impact on such complex social problems? With the right leadership, continued innovation, and iteration, perhaps it can find a path forward.
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