Will Blockcha’nge The World?
By Aly Madhavji on ALTCOIN MAGAZINE
One of the most asked questions remains, if blockchain will actually change the world and how? Facebook recently launched the Libra project with their proposal to reinvent the financial system emphasizing solutions to access challenges that unbanked people around the globe face. However, the project falls short in addressing some of the underlying issues that need to be addressed as a foundation to serve those underserved by the financial system.
This column is focused on some of the biggest challenges our world is facing currently that blockchain is said to help overcome:
1) Banking the unbanked
2) The Identity Crisis
3) Remittance Challenges
Let’s examine all 3 in greater detail to evaluate the value of blockchain in these areas.
1) Banking the Unbanked
Globally 1.7 Billion people are left unserved by the banking system. Access to the financial system would enable them to save, spend, borrow, and insure themselves which could significantly improve their lives (their families lives). One of the main reasons they are left behind by the banking system is it is not profitable to banks to serve them since they are not ‘rich enough’ for banks to make a determined effort to serve them. Banks need to follow stringent Know Your Customer (KYC) and Anti-Money Laundering (AML), Counter Finance Terrorism (CFT) regulations which will require checks of government-issued identifications from any financial system participants — which many of the worlds unbanked lack.
This is where the use of blockchain seems very promising since one of the main features of blockchain is the ability to transfer value without any intermediary like a bank.
Furthermore, with the use of blockchain KYC/AML value can be tracked across asset classes, across borders and across time — allowing for more sophisticated analysis than what the current system allows for. Pushing bad actors out of the financial system forces them to find alternative means of transacting that makes it impossible to monitor the flow of illicit funds.
Blockchain analysis tools could be used to review financial flows to keep bad actors at bay while fostering innovation to serve the unbanked population and an overall social benefit.
Today, everyone in the world can start with a digital wallet version of a savings and checking account using blockchain technology. This is without any costly infrastructure investments. Blockchain and digital assets can transform the world by enabling a third of the adult population to gain easy access to the financial system.
Yet, challenges remain since borrowing and insuring are further components of solving the underbanked and unbanked issues. Without credit and identity systems this problem will remain unsolved.
Cryptocurrency’s underlying technology — Blockchain carries promises toward solving Identity creation and management problems.
2) The Identity Crisis
1.1 billion people worldwide don’t have an identity. You could argue that without an identity, you can’t travel, you can’t open a bank account, and you can’t access credit. But this is not where it ends. They are disadvantaged from the very beginning on a playing field where the rules are inhumanely rigged against them. One of the solutions we are proposing is to leverage highly developed biometric solutions including facial recognition technology paired with a blockchain layer to create an immutable identity instantly. Access to smartphones and tablets has grown dramatically over the past decade with much of the developing world having access to mobile network coverage. Biometric and cryptographically secure identity signatures could be created for everyone, becoming a digital identity fabric to be used in both the physical and digital worlds.
Banks, mobile operators, e-commerce stores or other services that require identity verification would authenticate individuals using the digital identity fabric which can contain personalized information such as credit profiles can be accessed based on permissions sharing. The reputation built through transactions enables lenders to identify and lend at lower risks, which ultimately fuels small businesses and entrepreneurial growth. Linking ownership of assets to the identity essentially creates a basic asset registry further fueling the ability to obtain loans based on owned collateral. From a technical and investment perspective, all this could be achieved for a fraction of the cost of other solutions.
Despite remaining governance issues to resolve, this would make a major impact on changing the world in a cost-effective and scalable manner.
3) Remittances Challenges
Costly remittances represent another major challenge. According to The World Bank, the average remittance fee is 6.84% however, depending on the amount and destination this can increase to 10% or even 20% of the amount sent. Banks and Money Transfer Operators (MTO) charge enormous fees. According to the United Nations (UN) Sustainable Development Goals (SDG) member states have pledged to bring the cost of remittances down to 3% globally by 2030. In the developing world, cashpoints are very important to be able to send and receive money — and for the unbanked cash, spots are the only touchpoints to the formal financial system. The high remittance fees are a tax on the underprivileged that lack broader access to the financial system, eating away a large share of the little that they do have.
Blockchain technology is part of the solution to lower remittance fees Yet, its impact is highly dependent on the strategy used to reach the people most in need. MTO’s such as Western Union sign long-term exclusivity contracts with shops and post offices, eliminating competition and keeping fees high. If MTO are the exit point to convert crypto to fiat for remittance receivers, integration of blockchain may generate cost savings for the MTOs however, these savings may not be passed through to the receiver in the form of lower fees on the funds received.
Blockchain can and will change the world. However, the important part is mobilizing the right stakeholders. If adoption is pushed across mobile operators and merchant acceptance of digital currencies grows, blockchain may help to reduce the reliance on cash points for transferring funds. With the appropriate oversight, it would make mobile to mobile remittance transfers a more cost-effective and feasible option for many that are underserved by the financial system. Blockchain would change the lives of billions of people for the better.
References:
This is a repost of the Article written by Aly Madhavji featured in the Crypto Investment Times Magazine for the July 2019 edition:https://cryptoinvestmenttimes.com/downloads.php?edition=jul19
