Is crypto a solution for the unbanked?

Crypto is not a solution for the unbanked, because by its deflationary design it cannot function as a currency therefore it is unusable as a scaleable means for purchasing goods and services.

The purpose of retail banking services is to provide stable, reliable and safe means for citizens to transact with money that is safely custodied by a trusted third party with the guarantees of regulation by the government that the party will hold their accounts on their behalf. This includes practices like customer service, deposit insurance, fraud detection, transaction reversal and issuing of payment cards.

Crypto exchanges cannot function as banks because they do not custody customer deposits and have no deposit insurance. This pushes unnecessary counterparty risk down to consumers and in the event of fraud, insolvency or market shocks customers may be left with no access to their funds. This is an unnecessary risk that is strictly worse than traditional banking products and is a form of predatory inclusion with parallels to predatory lending done during the subprime mortgage crisis and alternative money service business like payday loans.

References

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  7. Greeley, B. (2019). Facebook’s Libra will not help the unbanked. Financial Times, 18.
  8. Kapsis, I. (2021). Should we trade market stability for more financial inclusion? The case of crypto-assets regulation in EU. FinTech, Artificial Intelligence and the Law: Regulation and Crime Prevention, 85–104. https://doi.org/10.4324/9781003020998-9
  9. Sen, A., Lindquist, J., & Kolling, M. (2020). Who’s Cashing in? Contemporary Perspectives on New Monies and Global Cashlessness (Vol. 19). Berghahn Books.
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  11. Vasudevan, R. (2020). Libra and Facebook’s Money Illusion. Challenge, 63(1), 21–39. https://doi.org/10.1080/05775132.2019.1684662
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