How can cryptocurrency help solve global income inequality?
Many citizens still do not have access to ordinary banking services and advanced financial services (i.e., services limited to qualified investors), which are easily accessible to wealthier residents. Cryptocurrency can help narrow the wealth gap by providing users with ways to earn, store, receive, send and invest funds. This article focuses on how cryptocurrency can help narrow the income inequality gap.
How does cryptocurrency solve the problem of income inequality?
Cryptocurrency makes it easier for users to access financial instruments and provides a more affordable way to remit money.
Many people in developing countries rely on their families abroad to send money to help pay for their living expenses. Remittances account for 20% to 38.5% of the GDP of El Salvador, Haiti and Tonga. Stable currencies linked to the United States dollar, such as USD coin (usdc) and tether (usdt), can ensure that the payee receives more transfer funds without the fees charged by intermediaries.
Swift transfer costs can be high, with some banks charging a fee of 3% to 5%, while others charge a fixed fee of $25 to $45. The average online transfer fee through Western Union is $25, and the credit card / debit card is $2.99 to $29.99. On the other hand, the sending cost of stable coins like usdc on Ethereum is $3 to $5, while the cost on BNB smart chain, Tron and Cardano blockchain is less than $0.01.
Although the additional saving of $20 to $44 in transaction costs does not seem to be much for many people, it means a lot to developing countries or people with lower incomes. For example, the average monthly salary in Venezuela is about $25.
In addition, due to the very low cost and fast transaction time, family members can also send money home more frequently.
Ben caselin, head of research and strategy at cryptocurrency exchange AAX, told cointegraph: "bitcoin and stable currency usually provide more accessibility than traditional banks, especially in emerging markets, where many people often find themselves without bank accounts, either because of lack of infrastructure or documents, or because of social status, gender, religion or political views."
He added that "the shift to bitcoin and stable currency payments may also be driven by sanctions or strict capital controls, which makes it almost impossible for ordinary citizens and enterprises to participate in the global economy through trade, commerce or other means."
Caselin also pointed out the importance of low cost when using cryptocurrency for remittance, He said: "Users in developed and emerging markets can benefit from bitcoin and digital assets when making cross-border payments. This is not only because these are more efficient on the blockchain, but also because the cost is much lower than that through operators such as proxy banks and Western Union remittances. But this is not only about accessibility and efficiency. As society continues to digitalize and threats to privacy and freedom surge, it turns to digital assets and self custody, Instead of holding funds in banks and using their services, we are building a new and more mature financial culture and security. "
Easier access to payment systems
Although PayPal is one of the most popular collection methods for freelancers, users need to associate their account with the bank to cash out the payment. This is because users can only withdraw money to their bank account, and the only other option is to use PayPal debit card for consumption. This will make it difficult for people without bank accounts to make a living online.
On the contrary, blockchain technology enables users to receive payments without requiring intermediaries such as banks. Users only need to control an encrypted wallet to get rewards directly from another user. This is very useful for online freelancers. For example, if freelancers are entrusted with developing websites or providing any other online services, they only need to provide their crypto wallets.
Dunstan Teo, co-founder of philcoin, a blockchain based charity project, told cointegraph that "cryptocurrencies usually only need a wallet and Internet connection to register and trade. They provide people in developing countries with the opportunity to store assets elsewhere."
He went on to say: "this helps to reduce income inequality and make the same financial products available to anyone anywhere in the world so that they can get a return from fast-growing assets. It's simple, crypto creates a level playing field for all."
If freelancers cannot access the bank, they can withdraw their income through bitcoin ATMs. Countries / regions such as Uruguay, Nigeria, India and Kenya have installed bitcoin ATMs, providing users without bank accounts with an alternative way to buy and sell cryptocurrencies, making them a feasible cashing method.
Crypto wallets make it easier for workers to earn income online and send and receive payments. Some wallets even allow users to receive payments through user names, instead of the usual alphanumeric encrypted addresses. For example, Solana based Web3 payment platform PIP uses tags.Instead of the wallet address to prevent the user from making an error when sending or receiving a payment. If users have installed browser extensions, they can send and receive encrypted payments through social media by hovering the mouse over the label to activate the payment box.
Given that it is estimated that 20% of bitcoin is lost due to user errors, it is crucial for users to obtain protocols that simplify the user experience. In addition, a survey conducted by cointegraph found that 75% of respondents said they found crypto transactions "stressful" and "complicated". However, human readable addresses can solve this problem and help improve the adoption rate in developing countries.
The use of cryptocurrencies and self managed wallets in the casual economy helps to create income opportunities for people from developing countries or low-income backgrounds.
Cryptocurrency exchange and wallet bitcoin Corbin Fraser, director of financial services at com, told cointegraph that "cryptocurrency is a good way for users to receive service payments. This is one of the original beliefs of bitcoin. With the help of magical internet currency, middlemen can be eliminated, fees reduced and new opportunities provided for people connected globally."
Fraser continued: "the silver lining of the COVID-19 is the widespread adoption of remote work. As the company naturally develops to consider remote work in recruitment, we expect that companies that provide crypto payment will attract more dedicated employees."
"Making international payments through traditional financial institutions is still a huge pain for everyone. Money will be in a state of uncertainty and expensive in a few days or even weeks. We see that cryptocurrencies are rising and focusing on low fees. Even after the merger of Ethereum, the fees will be less than $0.05. Therefore, there is no doubt that this is the future direction."
Easy access to financial instruments
Cryptocurrency can help narrow the gap between rich and poor by providing financial tools to a wider range of users. Centralized financial instruments such as stocks, bonds and indexes usually require users to register with the platform and provide legal documents, including income certificates and bank details.
On the other hand, decentralized Finance (defi) allows users to only use their wallets to participate in financial agreements, such as pledge, income and lending platforms. This makes it easier for low-income users and people in developing countries to earn interest from their assets and lend or borrow funds. Defi essentially provides a level playing field for the accessibility of financial instruments.
Defi provides users with a variety of ways to use their crypto assets to earn income without interference from any centralized entity, from providing liquidity in decentralized exchanges and earning a certain proportion of trading tokens to earning up to 20% of income by pledging stable coins.
Charles hoskinskin, founder of Cardano, believes that the defi revolution will take place in developing countries. Hoskinson predicted in a previous interview with cointegraph that developing countries would add 100 million new users in the defi field in the next few years.
Anti inflation currency
Inflation reduces the purchasing power of a country's legal tender. Therefore, people in Venezuela and other countries use cryptocurrency to fight hyperinflation. Cryptocurrencies like bitcoin are deflationary in nature, which means that their supply will decrease over time, thus increasing their value and purchasing power. For example, in 2010, one BTC was worth $0.40, while today, one BTC is worth $21000.
Teo expressed his views on the impact of inflation on people in developing countries: "Let's face it - everything has become more and more expensive recently, especially for people in developing countries. Around the world, we are dealing with higher gasoline prices, inflation, food costs, housing, education and so on. The disposable income we once had is now being eroded by the higher cost of living. And since inflation shows no signs of slowing down, we can expect that disposable income It will continue to shrink. "
If users in developing countries do not want to deal with the volatility brought by traditional cryptocurrencies, they can also hold stable currencies. Tether and USD coin are good choices for users who want to save their funds in cryptocurrencies linked to US dollars.