As the COVID-19 pandemic has shaken the global economy, the crisis has once again shown the cracks in our financial systems. With communities around the world struggling to rebuild, many are reimagining new paths to development and financial security.
As people search for more equitable, democratic financial solutions, the modern financial system has helped protect investors and high net worth clients, but it has also left many groups marginalized: from those who face discrimination to those with too few assets to use commercial banks.
According to a 2017 study, 25% of Americans are underbanked or unbanked. Many of them do not or cannot use a bank account; those that do also rely on financial tools outside the banking system, often because they don't trust banks. According to a June 2020 survey, less than a third of people in the U.S. say they trust commercial banks.
Many marginalized groups that do access banks are sometimes met with banking policies that target them unfairly, charging exorbitant fees, or barring them from the services they need. Wells Fargo, for example, paid $175 million to settle a Justice Department discrimination case accusing the bank of charging Latino and Black customers higher mortgage rates and fees. This is just one instance of the widespread historical problem of financial racism.
Global stock markets represented the first leap for consumers but these still have strict barriers to entry, both financial and physical—especially for unbanked and underbanked populations. One group working to provide support for the underbanked is CoinFlip, a Chicago-based financial technology firm. CoinFlip is a licensed Bitcoin agency that is building tools to make access to cryptocurrency markets easier - without users ever needing to step foot into a bank.
CoinFlip COO, Ben Weiss, says his company aims to “crypto-empower” those who have no access to centralized banking systems or face other discriminatory barriers. Since cryptocurrency systems are powered by blockchain technology they are entirely decentralized. This newly formed decentralized financial system entirely removes discrimination from the equation, allowing communities and individuals to manage their finances without worrying about rate hikes, hidden fees, or unforeseen account closures.
CoinFlip, a mission-focused company, is laying the groundwork for a more equitable financial system. The firm is already the largest provider of Bitcoin ATMs in the US, having rolled out 850 machines across the country – especially in underbanked areas.
But while Bitcoin and blockchain are considered key answers for underbanked consumers, regulators in the U.S. and the EU have been slow to keep up with the new technology. This is partially due to the old stigma associated with Bitcoin for its use on the dark web. However as Wall Street and other leading financial markets begin to see the potential of the currency, Bitcoin is stepping out of the shadows as a genuine and necessary financial asset.
According to Weiss, it’s unsurprising that Congress has been slow to develop a framework given the popular understanding of blockchain and the challenges of regulating complex digital assets. He says regulation, though slow to develop, is a key step in building a new, decentralized financial system.
“The biggest issue with current regulations is a lack of clarity,” Weiss said. “By developing a straightforward framework, governments encourage investment and industry growth.”
Governments around the world are pushing ahead of the U.S. in this regard, developing more straightforward regulations and working to develop their domestic blockchain industry, most notably in Switzerland and Singapore.
U.S. legislators have debated the possibility of creating a “digital dollar”, a national digital currency. The federally-run currency would allow the government to easily distribute funds for COVID-19 economic relief.
In the case of China, the government has already rolled out the “digital yuan,” also known as China’s Digital Currency Electronic Payment (DCEP). The currency uses a distributed ledger (blockchain) to verify transactions, but the system is centralized and state-run, with the government exerting the same control they have over traditional currency. The DCEP allows people anywhere in the world to make transactions and is part of China’s efforts to make the yuan more competitive with the dollar.
Though state-run digital currencies may help some underserved populations, they do not represent an equitable or democratized solution.
Regulatory reform, on the other hand, can bring a range of benefits to the broader economy, from tax revenue to jobs. By facilitating a decentralized financial system, it also helps support tools to address poverty and empower communities across the country.
“There’s a lot of sensationalism around cryptocurrencies, but the truth is that they are gaining popularity among Americans who are looking for convenient, alternative financial services,” said Daniel Polotsky, CEO of CoinFlip. “In many cases, they are being used by people who are effectively shut out of the mainstream banking system because of its hefty service charges and fees.”
The push for regulatory clarity for Bitcoin and for broader decentralized financial services represents a pioneering movement for equity and inclusion. Firms like CoinFlip are building the infrastructure of a system that can alleviate many of the challenges faced by the underbanked. Regulators must consider this alternative to banking to help empower the powerless.
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