While cryptocurrency has gained a lot of attention and popularity in the past few years, it is still seen as an esoteric topic by many. This isn’t a surprise, as it is a new type of currency that operates on very different principles than you may be used to. As is common knowledge, cryptocurrency is a form of digital money that can be used to make payments online. Unlike traditional forms of payment, cryptocurrency operates independently of a country’s financial system, and it’s not controlled by a central bank or other authority. This has raised concerns about the security of cryptocurrency, but also has the potential to solve a lot of problems that plague the current financial system. Before exploring problems cryptocurrency could potentially solve in the financial industry, though what problems do we currently face with banks?
Common Issues That Exist with Banks
Banks are a part of the global financial system that most of us depend on, but many of us don’t understand what they do or how they work. They’re one of those things that most of us just “have” to have; since we’ve been told that it would be impossible to manage our finances without them. And because banks are set up as “too big to fail,” we’ve all figured that the risks we take with them are relatively low. But just because the government protects you from the consequences of your bank’s failure doesn’t mean that you won’t ever suffer from their mistakes. From identity theft to penalties for overdrawn accounts, banks can put you in dire financial straits if you’re not careful.
Still, the banking industry is a massive and pervasive part of our global society and economy. While it has its problems, banking has become a necessity; but like most necessities, it comes at a cost. Given that, it is hardly a surprise that alternative financial methods like cryptocurrency have arisen and solve the issues with cost and the other issues below.
Problems Solved with Cryptocurrency
1. Making Cross-Border Payments
The ability to move currency from one place to another without the need for a bank or another financial intermediary is revolutionary. Cryptocurrency is also popular with those looking to send money overseas, as it offers a cheaper alternative to traditional cross-border payment services, which can charge a significant amount for transfer fees. Cryptocurrency allows individuals in countries without stable banking systems to be able to store wealth in a value that is secure and independent of the government. For banks, this would allow them to move funds internationally without incurring the high fees associated with the current system.
2. Serving Non-Bankers
Cryptocurrency is accessible to the underserved. For those that don’t have a bank account because they can’t afford one, or if they live in an area where banks are few and far between, it can be difficult to have a bank account and use traditional currency. But with a cryptocurrency, people have greater access to the financial system, and you can exchange the cryptocurrency for local currency whenever it’s needed. Even people in developing countries who do not have access to a bank can start using cryptocurrency. With the ability to send money internationally, the unbanked have far more options for building a better life.
3. Saving on Intermediation Charges
Cryptocurrencies, in general, are revolutionary financial technologies that allow individuals to transact directly without any intermediary. Cryptocurrency enables peer-to-peer transactions between two people, in which no third party is needed to verify the transaction. By eliminating the role of middlemen like banks, you can trade seamlessly with the person on the other end. As a result, transactions avoid the need for a central bank or another financial intermediary, which can save users money on transaction fees, as the transaction cost is not as high as that of the bank.
4. Preventing Identity Fraud
Identity fraud has been a problem for years. For a long time, identity fraud has been a problem in our society. In 2018, 14.4 million U.S. consumers were victimized by identity fraud. Cryptocurrency can help prevent identity theft to some extent. This is because cryptocurrencies are not attached to your name or your financial account. In fact, the idea behind cryptocurrencies is that they are completely anonymous. You can buy and sell them online, and no one will ever know your name or your financial account numbers. This is a plus because you do not have to worry about credit card or bank account numbers being stolen and used for malicious purposes.
5. Removing Credit Card Companies From the Equation
Major credit card companies have a strong hold on the world economy, which makes it difficult for many people to avoid borrowing money. Cryptocurrency is an alternative payment system that doesn’t require a centralized authority to manage transactions or hold records. Instead, it uses digital currency to keep track of who owns what.
Cryptocurrency is the ultimate form of trade, with no third parties, no credit or debt, and no interest charges. Exchanges are based on a free-market system. There are no “banks” to make you pay interest on credit, and you don’t have to pay any interest for services rendered. The decentralized nature of cryptocurrency means that governments, banks, and even the people around you don’t have to know or know about your business, and it’s all securely encrypted. If you have the right machine and software, it’s easier than carrying cash and a lot more convenient than sending a wire transfer.
6. Remittance Fees
At any moment, over one billion people are either sending or receiving remittances. About one out of every seven people walking on the planet send or receive money daily.
And the global migrant population extraordinarily depends on the traditional remittance system to support itself and send money back home to families that rely on them. And most of those families live in rural, remote, and non-urbanized areas in developing countries.
The average migrant worker in the world sends up to $300 back home every 60 days to 90 days. And that amount can represent over 15% of their total pay. Over 50% of the daily remittances are sent to poor, food insecure, and rural households. Over 75% of the world’s poorest and food insecure populations are financially dependent on 50% of the world’s remittances.
And the traditional remittance system also benefits many developing countries in the world. Over 70 sovereign nations depend on remittances to fund over 4% of their respective GDP. And for many countries in the world, remittances are one of the primary drivers for socio-economic growth.
Remittances are a vital lifeline for people around the world. Unfortunately, remittances are mainly profitable for the companies and services that enable them.
Over 65% of the remittances sent in 2020 were enabled via smart device interfaces and were worth an estimated $1.2 billion. And that is just the tip of the iceberg. Between 2015 and 2030, over $8.5 trillion could be sent by migrant workers alone.
Meanwhile, sending remittances has become ever more costly and bureaucratically inefficient for migrant workers. About 7% of every remittance sent pays for currency conversions and various transaction fees. Collectively, about 20% of annual remittances are spent on transaction fees. And remittances sent across borders are more expensive and time costly. Cross-border remittances can take up to three to five business days or longer to finalize.
Remittances sent via cryptocurrencies could obsolete the traditional remittance system within decades with an infrastructure changeover. Remittances can be shipped within five seconds across borders with fees that could cost pennies or less with a stable global blockchain system.
7. Inflation Hedge
Buying and investing in cryptocurrencies can act as a reliable financial hedge against inflation. But before discussing all of that, we must first the current financial crisis causing economic havoc in the United States.
American inflation has risen to its highest in decades. Skyrocketing inflation rates have completely rocked Americans who have spent decades experiencing relatively stable American economic cycles.
Inflation is the marked decrease in the buying power of the dollar. In other words, you get fewer quality products, less quantity of products, or fewer services accompanied by increased prices.
The current inflation rate in the United States is over 6.2%. And that means that the American dollar has depreciated in buying power by around 6.2%. Over 39 countries are grappling with global inflation problems.
Many factors can cause inflation.
What Causes Inflation?
A sudden surge in consumer demand for services or products can cause inflation.
Or increases in the cost of raw goods, equipment, and or maintain production facilities can cause higher inflation. In other words, the increased costs in supplies or production are later passed down to consumers.
Price increases in the housing market and in all of the accompanying construction supplies and businesses connected to the housing market can cause higher inflation.
Governments, central banks, and mints printing and circulating too much money into an economy can cause inflation. And pandemic-enabled supply chain crises can cause inflation hikes.
We live in a fiat currency global infrastructure so severe inflation hikes can be financially destructive to your bank account, savings, investments, spending habits, and financial portfolio.
If you have a salary, depend on Social Security benefits, or buy bonds, you always have to worry about inflation.
The point is that if you love saving money and protecting stores of value, it’s hard to escape inflation.
So, why are cryptocurrencies a hedge against inflation?
Cryptocurrencies are decentralized virtual currencies. They are not controlled by any government, world leader, central bank, or mint. Cryptocurrencies are considered an asset class by the IRS and not a currency. And beside some stablecoins, almost all cryptocurrencies are not tied or tethered to any fiat currency. So, cryptocurrencies are not linked to the political and economic machinations perpetrated by governments and global companies that can cause inflation.
Cryptocurrencies are a store of value that is easily transferable. A person’s overall net worth can be tied-up in non-liquid investments, properties, and assets that can take time to sell. And in such situations, you can lose a lot of money via high inflation rates. And it will also take time and inflation-related losses to move gold in times of high inflation. Meanwhile, you can just transfer cryptocurrencies from a hot or cold wallet or from an online cryptocurrency exchange.
Additionally, all crypto currencies have a maximum cap on circulating coins. There are no such things as a maximum cap on fiat currencies. Inflation plagued governments will print even more money to get out of a problem caused by too many circulating currencies.
8. Increased Trust in Charities
One of the most recession-resistant businesses is the scam, especially the charity scam.
Scam artists and unscrupulous charities make a lot of money scamming kind-hearted but unwitting Americans every year. And in the process, millions of dollars are diverted in the pockets of criminals instead of going where they can do some good.
Americans gave over $471.4 billion to their favorite charities in 2020. And according to some statistics, Americans lost over $145 million in 2020 to coronavirus-themed charity scams alone.
And many Americans are hesitant to give to international charities because they can’t be assured of the chain of custody of finances and if their money will ultimately help those in need.
Cryptocurrencies and blockchain technology can revolutionize and scam-proof the charity industry as we know it. Every charity donation via cryptocurrencies can be validated and tracked via blockchain technology.
The Future’s Problems Can Be Solved With Cryptocurrency
Cryptocurrencies have been around for over a decade and are gaining more traction. A lot of people associate crypto with its most famous offering, Bitcoin, but there are other cryptocurrencies that can be used for other purposes. As the world becomes more digitized, the need for cryptocurrencies will become greater because they offer solutions to the problems of the future, and it has already solved problems that once seemed unsolvable.
