By design, blockchain
is a technology which cuts out the middlemen. Instead of relying on a trusted third party, you rely on the network and its users. According to a Harvard Business Review article, blockchain has the potential to bring banking to approximately 1.7 billion unbanked people in the world. By doing so, it will reduce the costs of their current informal financial services.
For example, a lot of migrant workers send a part of their monthly salary back to their family in their home country. Often, they use services like WesternUnion or Moneygram, and these tend to charge relatively high fees for doing so. The drive to bank the unbanked has been accelerated by the COVID-19 outbreak, years of economic progress has been wiped out.
Being poor, located in remote areas or not having access to the internet is costly. The most recent example of this is the economic relieve plan in the United States to aid citizens during the COVID-19 outbreak. A plan was put into action where Americans would receive direct payments to help them pay their bills. These payments were sent out in cash using mail services. The families that needed these payments most live in poor and remote communities, resulting in some having to wait weeks to receive the money. Furthermore, most bills cannot be paid in cash, so these people needed to deposit the cash, which is costly and a risky undertaking during a pandemic.
The problem is identified, so what is the solution? At the moment, around 70% of all central banks are working on or are exploring the possibility of launching a Central Bank Digital Currency (CBDC). A CBDC is an electronic version of national currency. A CBDC would reduce the role of commercial banks. While there are many different methods and ways of implementing a CBDC, let’s take a CBDC which is entirely public and operates on a blockchain. This would enable people who were unable before to use financial services and empower them to spend, save, send and secure their money. The previous example of the US aid program could have been executed faster, cheaper and safer.