As the digital era progresses, the pioneer of cryptocurrencies, Bitcoin, is presenting itself as a potentially transformative answer to a widespread problem: global poverty.
Bitcoin’s decentralized structure opens up options for financial inclusion, remittance efficiency, and access to foreign markets, all of which have the potential to be effective instruments in addressing global poverty.
Financial inclusion remains a big challenge in many developing nations. According to the World Bank, 1.4 billion adults worldwide are unbanked due to a lack of access to traditional banking services. This fact stifles economic growth and worsens poverty. Bitcoin, which is free of traditional financial limits, represents a possible answer. Anyone with a smartphone and internet access can create a Bitcoin wallet, making it a technology accessible to those who were previously excluded from the financial system. This feature of Bitcoin has the potential to bring a large portion of the population into the fold of economic activity, potentially pulling many people out of poverty.
Many people in low-income and developing nations rely on remittances to survive. According to World Bank estimates, remittances to these nations would total $626 billion in 2022. Traditional money transfer techniques, on the other hand, are riddled with exorbitant fees and inefficiency.
Wise (previously TransferWise) and other modern payment methods have greatly addressed these issues. Although they can be faster and less expensive than traditional bank transfers (completing cross-border transfers in seconds), they typically require the recipient to have a bank account in order to receive the funds. This can be a substantial hurdle for unbanked or underbanked persons, especially in developing nations where banking services are restricted.
Bitcoin’s capacity to conduct peer-to-peer transactions without the use of intermediaries can dramatically lower costs and speed up transfers. This means that more money reaches the intended recipients, potentially reducing poverty on a large scale.
Furthermore, Bitcoin has the potential to democratize access to global markets. Due to regulations and hefty fees involved with cross-border transactions, many small firms in economically disadvantaged countries are barred from participating in international trade. Because Bitcoin transactions are global and not limited to a single country’s regulations, they have the potential to open up new international trade channels for these companies. This, in turn, has the potential to generate economic growth and poverty alleviation.
However, Bitcoin’s potential benefits in alleviating global poverty are accompanied by significant challenges and risks that must be carefully managed. Given the anonymity, it provides users, one major concern is the possibility of Bitcoin being used for illegal activities. While it is important to remember that the vast majority of Bitcoin transactions — 99.76% of all crypto transaction volume in 2022, according to Chainalysis — are for legitimate purposes, the possibility of misuse cannot be overlooked. This demands the establishment of strong regulatory frameworks capable of discouraging criminal operations without strangling the innovation that Bitcoin represents.
Furthermore, consumer protection is a critical issue that must be addressed. Because of the complexity of Bitcoin, uninformed users, particularly those from poor communities, are prone to scams. To remedy this, educational activities that guarantee these communities understand the complexities of Bitcoin and can utilize the technology responsibly are essential.
Another issue is the volatility of Bitcoin’s value. While some see it as an opportunity for investment, the risk associated with such volatility may be detrimental to those who are poor. As a result, while Bitcoin has the potential to help reduce global poverty, the risks connected with it must be carefully controlled.
Finally, while Bitcoin has enormous potential, it should not be viewed as a stand-alone solution to global poverty. It is one of several methods that could help greatly reduce poverty, but it should be supplemented by broader socioeconomic policies and activities targeted at increasing education, healthcare, and infrastructure.