Cryptocurrency and the unbanked
blog.prologe.press
blog.prologe.press
P.S. If you instead measure unbanked/underbanked by percentages (and exclude mobile banks like M-Pesa), you can see Japan and Korea on top 25[2], which isn't to say that they're poor (which also includes China which was mentioned in the article), but because of cultural differences. If you include the likes of M-Pesa, the graph slides slightly so that it shows that Asians (in general) tend to be the underbanked, which is technically true but doesn't automatically mean that they're poor.
[1] For example, M-Pesa (https://en.wikipedia.org/wiki/M-Pesa)
[2] Last data I read about this is on 2017, so this might have changed? But my point still stands out.
Or a pyramid scheme in need of an excuse / justification.
I'm just not 100% sure that it is a real problem, but those who buy it either believe it to be, or at least, want to hedge for it.
"Decentralised" is a phantasm.
1. there are multiple competing implementations
2. it's ultimately up to the users/merchants/miners what software they run. A commit making into the bitcoin core repo doesn't mean it's going to be adopted by the network.
What if I told you that the root cause of inflation is not the price increases, those are a side-effect. The real cause is that the value (aka purchasing power) of your money is being diluted by means of central banks printing money and stealing value from the populace over time.
70% of the US dollars that were ever created were created since the invention of Bitcoin. It is only natural that the real value of those dollars has fallen.
Inflation is theft by central bankers to pay for politician’s desires without openly increasing taxes on the people.
Bitcoin fixes this because no politician, central bank or corporation can ever inflate the supply over 21 million, nomatter what they do.
Anyone can make their own crypto, and they do - so cryptocurrency as a whole is hyperinflationary.
Bitcoin maximalists say, but bitcoin is first and unique in many ways. Certainly - but not in ways that the trading or payment markets appear to care about. The "banking the unbanked" proposal is much closer to the payments market - nothing about it seems to depend on bitcoin's special characteristics.
I note that you're proposing a bitcoin version of Austrian economics there, with the word "bitcoin" substituted for "gold" - but Austrian economics proponents have long noted this cut'n'paste cryptocurrency problem with the bitcoin proposition.
Seems to me we're actually heading for the competing private currencies advocated by Hayek, who thought the result would be long-term price stability without the need for top-down control.
Denationalisation of Money was arguably disproven by the ICO boom - it turned out that actual users just treated the shitcoins as proxies for BTC and ETH, and BTC and ETH as proxies for dollars.
But fine, I'll admit I have little to go on. Are you willing to admit the same? Because you're even further from the actual data so far.
as in, demand for using crypto as a transactional currency, rather than as a speculative asset right?
The demand that is unstable is because it is driven primarily by speculation. There's very few commodities being exchanged via crypto.
So to reach stable demand, crypto must be a currency that is used for non-speculative transactions (such as buying groceries, or buying oil from countries). I don't see that happening any time soon tbh, except for may be countries that are trying to escape USA sanctions.
...So apparently you will not admit that there's little evidence to support your hyperinflation theory.
So they claim. Could it also be that debasing the currency is far easier than taxation as a form of wealth appropriation since the effect is subtle and indirect?
Bitcoin claims it's a "currency" but almost everyone uses it like a store of value (HODL) because its value keeps increasing.
This is weird. Inflation can happen without any central bank activity. Regular banks can lend out money. People can spend their money faster. All of that creates inflation without benefiting the government at all.
Inflation like what we had under the gold standard is bad, it leads to currency hoarding. Deflation is bad, as it leads to all sorts of bad effects. And minimal inflation can also be bad, as it leads to higher asset prices if the velocity is dropping.
I've been working through a thought experiment where we have a cryptocurrency that ensures that velocity stays constant. It does so by enforcing a tax on transactions, where you lock in a transaction to occur at a certain time in the future, but you can pay for it to occur sooner. The more we are taxing, the more we can ensure that the economy is doing well, the more the money supply is allowed to expand.
I'm also thinking that PoW is an extremely bad model, and I would prefer to work with their proof-of-weather, where weather is determined by a combination of many different weather trackers that we can prove occurred but are unable to predict much ahead of time.
It seems to be a good model, but there's still a lot to think about.
1) I mentioned M-Pesa because it is the largest one in Africa. There are also smaller players there.
2) While there are problems that is specific to M-Pesa or even conventional currency, looking at the landscape of cryptocurrencies some problems, which in my opinion is inherent in how do you define value, are problems that even cryptocurrency has fallen trap into.
Cryptocoins won't solve those issues, nor can they bypass them.
- Wars. Most people in warzones don't want to hold a bank account because it is very unreliable. Cryptocurrency won't solve that problem, in fact it will exacerbate the problem because of your phone or computer is damaged it's game over[1]. Also, how do you even transact when you don't have any form of communication?
- Actually don't have anything to bank on. Their money is just enough to survive, so they can't even bank, regardless of its form. Giving cryptocurrency is often a proposed solution, while forgetting that regular currency works fine too in these situations.
- Cultural differences. Most, to be honest, don't want to depart their money to someone they don't know. They were introduced to money just a generation or two ago, so they are relatively new here. Good luck convincing that cryptocurrency is trustworthy in a way that can be easily understand.
[1] I mean you could write them on paper, but that's really stretching it, mainly because you need a computer to execute transactions.
Something that tends to be underappreciated is the risk associated with contemporary mobile payments solutions. Both the individual and the local economy become incredibly reliant on a small number of private companies.
For more well-off individuals who can spread their risk ad easily switch providers, this is much less of a practical risk and therefore are likely to shrug off. They also tend to have access to providers with human support and better platforms.
Consider also that for multi-national providers, they become affected in new ways to foreign domestic and international policies and politics.
These are just some ways in which people become serfs, at real mercy of the whims and fate of politics and businesses.
Last week, thousands of people who had Coinbase accounts in Japan are now forced to close them due to them now only being available for Japanese citizens (as opposed to residents).
This is probably not more than an annoyance for most of those affected, but transfer that to migrant populations and mobile banking in Africa and things get dark pretty quickly.
Cryptocurrencies (when done in a way that liberates the user as opposed to being wrapped in centralized fintech) break this dynamic completely.
Now, tell me how to do this exactly? (At least a general sketch?) Because I really think that this is really not a problem that can be seen with cryptocurrency, but rather with how societies work, which is hard to solve.
I don't want to favour one or the other, but societal problems are something that require all of the cogs are working. Even if I assume that people are willing to use cryptocurrencies, oppressive governments can seize digital gadgets out of their hands, much as they can block transactions. I also don't have a solution to this unfortunately, and I feel that this is unsolvable.
Apart from being sold directly to consumers, it could be issued by providers of banking services (lending or payments for example) to clients.
You would also have service providers offering key recovery services (could be shamired)
Also, your solution doesn't work against oppressive governments. (Again, I don't have a solution to that, just pointing out that they do exist.)
With crypto, if I can remember 12 words I can freely transport my life savings anywhere in the world and no government can seize my wealth without torturing me into giving up my passphrase. Can you share a similar strategy for refugees using fiat, gold, real estate, stocks or bonds?
I personally want to understand from people who understands how they do function if they do have ideas to actually do it in a practical way. While the idea presented by the GP is indeed good in the long run, it still doesn't solve the problem that most unbanked people in those areas have only either a basic phone (i.e. purely calls and text) or even none, which precludes the habitual use of cryptocurrencies. I also acknowledged that for long-term storage away from often-opressive regimes, there are solutions available.
However, unless you can give everyone in Africa a smartphone and build the infrastructure necessary to have a reliable internet connection, I cannot say that, as of what I've read, have a realistic solution to everyday use of cryptocurrencies hold well.
Unfortunately, you've just stated something that is frankly unhelpful. I've read the article, I've read the comments and be very careful since that these types of discussions tends to catch fire quickly. I've just pointed out that for realistic use in this case, it is currently simply impossible in inner reaches of Africa. Even 3np acknowedges that costs on dedicated wallets should decrease (https://news.ycombinator.com/item?id=28736599) if Africans will use it. As of now, it's not simply feasible.
close to 50% of sub-sharan africa owns a cell-phone and internet quality is of little consequence to crypto as any short frame of connection can facilitate much of what was being described in your parents context (which is infrequent "savings account" type transactions)
crypto doesn't have to be the only system of currency and probably shouldn't be until things like cell phones are ubiquitous - this isn't a criticism against crypto it's simply a lack of infrastructure needed to aid crypto in solving every currency need.
Paper money suits people without internet much better than crypto for daily trading - that doesn't mean there is no place for crypto in securing peoples savings. If you want to start saving wealth, you'll probably not want to do that in a society where everyone has cash on hand (which promotes theft) but instead you'll want to make infrequent visits to someone with internet and purchase a cheap device to facilitate savings account types of transactions that you know you can secure easily even in the event your cheap device fails. This property is one of many properties that is extremely valuable for money. Something fiat achieves with large expensive bank infrastructure that even though the concept has existed for at least thousands of years, yet is too expensive to serve people in many many places as this article outlines.
It's also likely to be expensive to send paper money to your internet bank account as you'll be purchasing wire services or similar, whereas crypto vendors could be nothing more than a contact you have buys crypto and sells in exchange for paper currency.
I don't know enough about these peoples situations to know what will end up serving them best, but I do know having options will always be to their benefit and at the very least crypto will be competition on competing forms of currency.
1) persecuted: For example, a religious cult grew to require power in the government in Turkey, clashed with the official government and even tried a military coup and failed. Following the coup, those with direct involvement to the coup went to jail and anyone known to be associated with the cult lost access everything and even their bank accounts were closed(they had a regular Banking institution that was seized) and other banks often refused to open an account for those who were associated with the cult. As a result, they started using money transfer services that are not banks and keep to money in cash.
2) financially ruined: People who screwed up or got unlucky in something and lost everything. Many would work and do business outside of the official channels and as a result they don't want to keep the money in traditional institutions because the money can be blocked or seized due to their financial situation. Also, they won't be able to get any benefit of a bank, so all they need is a way to keep and transfer money.
3) irregulars: Those are usually immigrants who entered a country trough illegal ways or overstayed their visas. In most places, they wont be able to provide the documents to open a bank account or even get a TV subscription but they will be working and making money for many years until they sort out their situation. They will need ways to get payed and pay bills, rent etc.
Therefore, "unbanked" doesn't really mean too poor, many times it means "unserviceable clients". The "decentralised" aspect can actually mean no one is left out since the usreviceability of those people come from the central government in the region.
For 1), they often seize everything, to the point that they seize computers and phones. Even if they are smart to have a backup, I'm pretty sure that they will try to hoover up anything and everything, even regular currency.
For 2), I think that this is a societal problem, really. In France (as an example), you are entitled to a bank account regardless of your status, that even means if you have been convicted of money laundering. On the flipside, and I am assuming to use cryptocurrencies like Monero which makes transaction tracking harder, if you are really wanted you could end up in situation that I described on 1).
The problem is that centralized trust creates moral hazard and over time tends to be abused. Abuse of centralized trust can be incredibly destructive both financially and in humanitarian terms.
To me the key question is which is cheaper?
Is it cheaper to run cryptocurrency with all its overhead or is it cheaper to use faster cheaper simpler centralized systems and “eat” corruption and abuse since those represent the hidden costs of those systems.
The answer differs depending on which society you are evaluating and it’s corruption index. It’s not the unbanked that represent a hidden base of cryptocurrency users. It’s those that reside in kleptocracies and failed states.
Sure "conventional" paper currency is already a good solution for in-person payments, but it doesn't work for remote payments, international transfers or savings.
Cashapp has compelling answers for remote domestic payments and savings in the US, and TransferWise is great for international transfers among wealthy nations.
These three are the use cases we're seeing blossom in El Salvador where Cashapp and TransferWise aren't available.
I suspect this is an Innovator's Dilemma situation, where crytpocurrency solutions are honed and adapted in emerging markets, then eventually compete with established players in rich nations.
Making unsubstantiated claims is easier than laying down concrete arguments.
You quickly run out of pearls to throw before the swine.
“Venting” is more socially acceptable than “preaching”.
And there is a matter of customs and culture: people see that badmouthing happens more often than singing praises, and so the cycle continues. HN is evidently the place where you don’t often see positive discussions of the merits on the front page, so that’s exactly what you see, and even if you have something to say you’d rather keep your mouth shut. But you see slandering comments in every topic so if you want to leave another then by all means, feel right at home.
All of this does not even take into account whether there are any technical merits worthy of continued discussion and fervent defense, or everything on this particular topic has been said already and perceived as general knowledge among the literate.
The field is basically fuel for the worst elements of the wider financial world - pure speculation, hype, volatility and discourse appealing to greed and FOMO, with the actual fundamentals negligible outside of a few niche uses.
Meanwhile HN is filled mostly with engineers and tech-minded people (“geeks” if you will - I include myself in that group), and it is no surprise that there would be distaste for a formerly technologically promising field that has turned into a playground for trend-following marketers.
It seems every online community these days is full of people hyping up a crypto project for financial gain.
I tried to curate my sub Reddits and still can’t escape it in the comment threads.
Even Product Hunt is just a launching ground for NFT projects these days, crowding out interesting other product launches…
But the interesting thing about crypto is - in my opinion - not technical: it's social, and economical. Due to the decentralization, it changes the kinds of systems & solutions that are socially and economically viable. When I say "economical", I don't mean that the solutions are necessarily cheaper in the dollar sense, but in the sense that it changes which parties can participate in and profit from those systems. DeFi, for example, lets individuals participate in, and benefit from, transactions that used to only be provided by traditional banks.
So while there are many technical types that do see this side of crypto, there are many for whom their deeper technical understanding is a bit of a liability on the topic.
"the discussion gets filled with negativity and even, seemingly unprovoked, outright hostility toward the IMPLEMENTATION" - here, I fixed it for you :)
If you will read any longer comments about crypto here, then most of them will approve THE IDEA of crypto, and half will admit that they were early supporters of it. But not now.
Is it also possible that you're just wrong about crypto?
Most of the people I know who are very enthusiastic about it also deeply misunderstand the technology and also some basic economics (e.g. deflationary vs. inflationary assets).
I think HN users get angry because the crypto space is a neverending parade of people getting tricked by pump-and-dump, wealthy elites, etc.
Recently, a friend was gushing about Dfinity and telling me I'm basically stupid for not seeing the promise of it... and now we find out it was a scam and the technology is just tokenized, centralized AWS.
When this happens often enough, it can be upsetting. It feels like being a doctor having to talk to antivaxxers over and over again.
The less toy-like crypto becomes, the more you see people freak out about it and try to push it back in the Pandora's box it came from. It's the same kind of thing that happens when people get deeply involved in politics and see an "us and them" and their side loses. They ghash their teeth and spread falsities to keep it from haunting them. And that is most cryptocurrency threads among crypto haters: deep down, they really want the state to enforce the market, because that is "how the world should be".
Nominating this post for the "hand-waving argument of the year" awards.
I think the key here is that it's easier for people to obtain financial literacy because crypto is more accessible than the current financial system.
>Your name & date-of-birth
>Your social security number
>Your driver's license and/or passport
>A video selfie for some online banks
>Your street address
>Your email address
>Your phone number
Some of those items can be difficult acquire and maintain, especially if you're starting from nothing. Additionally, many banks require a deposit, and most if not all online banks won't accept it in cash. Most online banks now also require a closed-source app that will, on Android, most likely also require Google SafetyNet, excluding many custom rom users. The street address requirement is a burden on those who live nomadic lifestyles, as you cannot (legally, iirc) use a virtual mailbox, and you have to depend on friends or family to receive any mail they send you.
I attempted to open an account at Ally last month and they denied me because they couldn't verify my identity, even though I'd accurately provided everything they asked me for. I assume it's because I'm not in the ChexSystems database or have no credit history. On the other hand, I can get an open-source bitcoin wallet on my PinePhone and just use it.
I rest my case.
Hope it all burns down.
Sometimes the bottom of the comments stack on HN has the most profound comment in the entire conversation. I think this is a good example. By the way, congrats sub7, you invented the phrase “ultra banked.” I hope the investment banks credit you when it lands in an analyst report.
This is a functionally incorrect description of how the system is working there, or doesn't. In practice, the bitcoin systems there are tremendously unreliable, and the populace hates everything about it. I wrote this about how it's going: https://archive.is/mJY30
You could argue that none of what went wrong with it is "bitcoin" per se - but then, the "bitcoin" system that El Salvador actually has doesn't resemble what Nakamoto proposed in any way.
This sentence alone tells me everything I need to know about your position: "the populace" (implying everyone) and "everything" -- riiight... I think you need to tone down the superlatives a bit and maybe try researching both sides for your next article. A 1000 people marched against bitcoin -- this is hardly "the populace"...
There is no arguing that it (Chivo) got off to a shaky start... but we already know that Chivo has more users than the banks have fiat accounts in El Salvador.[1]
As to "bitcoin systems" -- it's just regular bitcoin and the lightning network and these are _global_ systems, not systems that are only "there"...
Finally, you just need logic to know that if something is sold in BTC, and you have a BTC wallet, you can buy something in BTC, using your BTC wallet, without needing fiat. Hence, fiat on/off ramps are obviously not needed to be able to be paid, and live, and save, and purchase stuff there.
[1]: https://twitter.com/nayibbukele/status/1441846960332361730?s...
We know no such thing. 2.7m users is flatly implausible. That is, in fact, the number of downloads.
Chivo has refused to release the number of actually signed-up users. The customer service call centres are ghost towns. The government small business advisory service is telling businesses to install one of the other wallets (Bitcoin Beach or Muun) so they can be technically in compliance with Art. 7 of the Bitcoin Law, to charge the unsubsidised fees to the customer and not hand over the goods until the transaction has gone through.
Local newspapers (Elsalvador.com, El Faro) have detailed at length public complaints about the failures and unreliability of the Chivo network. I urge you to talk to some non-coiner Salvadorans and keep track of local coverage of how it's gone. I've been following this story closely since June and have been doing so.
If you don't want to trust my opinions, read Marc Falzon, @marcfalzon on Twitter - an ardent libertarian bitcoiner who went to El Salvador to see how all of this was actually working out, and discovered an absolute shitshow.
edit: and Bukele just claimed 65,000 transactions in the air in the system every second. If each transaction takes "several seconds" as he says, that's still a claim that Chivo does more business than the entire worldwide Visa network. Someone's feeding him numbers that sound good to him, even though they fall apart under the slightest examination. https://twitter.com/nayibbukele/status/1442624279028408321
"We have two Bitcoin payment processors, one from a private bank and another is the state owned wallet. We have had only two clients attempting to pay with bitcoin and both transactions failed. The state owned one has been down for most of the week, and the private bank app can't receive payments from the state owned one".
I'm long crypto but i think the argument of banking the unbanked is a bit contrived, much like the store of wealth narrative in the face of regular -20% "corrections".
It should be seen as a speculative investment and not really a currency. Perhaps stablecoins can serve that market eventually.
After emailing I was told that they decided not to open my account for reasons they won’t state and there’s no appeal.
This was weird because I was a new customer with no transactions and all I had done was send a photo of my passport and enter KYC info.
All a bad experience and just shows it’s ridiculous compared to banks.
Banks have problems, but they do have regulators at least.
The article mentions the core problem: being your own bank is a HUGE risk. I can accept that risk and deal with complex security mechanisms I have to maintain to both protect my own bank and keep it accessible. But a good security guide for crypto is 20-30 pages and requires serious cryptographic understanding. Currently, I can’t expect that from average users.
Everything can be solved over time. Social recovery wallets and user-friendly hardware might become mainstream. But I don’t see that happening in the next 5-6 years, and I fully expect CBDCs to be far along in that time. Then, countries will be a lot less motivated to promote crypto for the unbanked.
None of this works unless the world already runs on crypto. And not even El Salvador actually does that, because the populace hate the bitcoin system, the official payment network is completely unreliable, and the unofficial wallets don't have the fees subsidised.
The most common issue with "banking the unbanked" is a lack of sufficient documentation. This is not a problem in El Salvador, because they have a national ID card, and you can get a basic bank account with that.
And yet, only 30% in El Salvador have a bank account. What does crypto do about that? What need does crypto fill that the existing basic accounts are failing to?
I wrote a book chapter about this crypto marketing buzzphrase. It's been a common buzzphrase in bitcoin and other cryptos since 2013 - and zero of these people have ever given a joined-up account of how this is supposed to work in practice. Not even Facebook, when they put banking the unbanked as a key advantage of their proposed Libra cryptocurrency. https://davidgerard.co.uk/blockchain/2021/02/12/libra-shrugg...
"Banking the unbanked" is a complex problem, and crypto addresses none of the hard bits.
It's just people shilling left and right to pretend that cryptocurrencies will be a thing. They aren't and the will never be, because they can't.
Cryptocurrencies will make few people rich, but most people, the ones too ashamed to admit it, will lose it all and then some.
Ask yourself: where does the money come from?
Answer: that lambo is paid with other people's money.
For every 'lambo driver', there are a thousand suckers who lost. And had to lose to pay for that lambo.
I write all of this because I think cryptocurrencies are asinine in every possible way. They play on every weakness humans may have and they undermine our environment and our societies, without anything in return.
And let's be totally honest about this: it was never about banking the unbanked. It was always about one thing, and one thing only: getting rich, no matter the consequences (for others).
The conclusion of the article says: "... it's not a magical solution. The reasons for financial exclusion are rooted in deep inequality"
What kind of articles do belong on HN?
I think it’s more accurate to say: Crypto is a solution for anyone who needs to receive or send money “privately” (rather than) “anonymously”. The idea that you don’t need documents or to provide additional self identifying information (like name and address) doesn’t necessarily mean anonymity, or (imo) should anonymity be a top priority even (not that that’s not important), but being able to spend and transfer money to places where tradition banking doesn’t operate or without being charged extra is.
Whatever mess a system’s/government’s economical plan might lead to, people’s money won’t be tied to it and wouldn’t be affected.
Also, you don’t really need a smart phone, any old laptop that can run Linux would do.(which are usually cheaper, more available and function better than a phone)
In a literal sense that’s definitely true: having more options must be uniformly good, and sometimes you want these options for sure.
And yet no one says “yay loan sharks bring financial freedom”, more like “let’s fix poverty and lack of banking”.
On balance I think that if you cannot have a bank account then a crypto economy may well be better (but omg the transaction fees), but that shouldn’t be a blueprint for financial advancement.
I think increasing knowledge is one of mankind's highest aspirations. If after doing research, you find it isn't for you, so much the better. At least you've increased your knowledge.
People who knee-jerk react and downvote without having knowledge of the space seems to be the norm here.
Crypto isn't something that can be learned in an afternoon, or be taught with a few comments. It is an overlap of technological and social space that is evolving constantly.
https://www.goodreads.com/en/book/show/35525995-attack-of-th...
It was published in 2017, but lists all the false arguments the author of this article makes. Even M-Pesa, mentioned in a lot of replies of the commenters, is mentioned.
What I find interesting about the article is that it seems to acknowledge this problem. It's doesn't seem like a "crypto is the solution" article.
Crypto is inclusive in the sense that anyone can participate, but exclusive in the sense that the knowledge barrier is really high.
Does anyone know about any kind of project that teaches young people about financial literacy?