True decentralization is needed for financial inclusion and coronavirus stimulus

Blockchain technology can reduce the inefficiency and even corruption that accompany centralization. While those who already have access to significant capital can make blockchain investments, it’s important to remember how everyone from small-business owners and workers to underserved communities can benefit.

Blockchain is borderless. Sending money overseas works the same way as sending money to your neighbor, and fees remain independent of the sum involved. Transfers are significantly faster than traditional banks, taking minutes rather than days to settle.

Blockchain makes banking and financial services more accessible. Anyone with a mobile phone can create a secure account. With recent data from the World Bank revealing 1.7 billion adults globally have no access to a bank account — but two-thirds of them own a mobile phone — this aspect of blockchain is extremely important.

Consider the possibilities for expanding remote work. Even before this pandemic, by the end of 2022, 1.87 billion people globally — 42.5% of the global workforce — were expected to have remote jobs. Measures to counter the spread of COVID-19 have since demonstrated the practicality of remote work to millions of people, which will accelerate this trend.

For employers, the advantages are clear. Companies can enjoy access to a global labor market, with the opportunity to hire talent anywhere in the world, including developing countries. They can also make significant savings on renting office space.

The growth of remote work is just one example of an increasingly open economy. Underserved communities also can benefit from blockchain. Granting around 1 billion people access to a digital bank account will massively encourage economic activity. Because of blockchain’s borderless nature, small-business owners in undeveloped markets can find far more opportunities to attract investment.

For billions of people globally, blockchain could mean increased economic inclusion and greater flexibility in working conditions.

Increased economic inclusion through blockchain means freedom to break free of mismanaged national currencies. A degree of managed inflation can be good for economies — encouraging people to spend and stimulate growth, rather than save. Printing huge sums of money has always ended in disaster, destroying people’s savings and rendering currencies useless even as a day-to-day medium of exchange.

Hyperinflation as a result of irresponsible monetary policy continues to be a problem worldwide, such as with Venezuela, Belarus and Zimbabwe. Crypto assets or tokenized versions of stable national currencies, all managed from a mobile phone, rather than cash-in-hand payments are an alternative to unreliable national currencies. Self-custody also makes it impossible for cash withdrawals to be blocked, as to avoid issues similar to what’s happening in Lebanon.

Bitcoin has enforced protections against hyperinflation. While bitcoin has a fixed maximum supply of 21 million (effectively making it deflationary, since coins will be lost), other assets like Ethereum have no maximum supply but limited inflation rates.

Inflation for cryptocurrencies is not controlled by a single central bank, but by the community running the currency’s blockchain, which is distributed around the world. With cryptocurrencies, radical changes in monetary policy are practically impossible, given the distributed nature of their communities.

The management of normal inflation in developed countries also points to economic injustice. As a case in point, consider the current COVID stimulus package in the U.S. A certain degree of increased inflation during a crisis isn’t a problem. However, questions are raised about who will benefit from this cash injection and whether the stimulus is really reaching those who most need it. The centralized management of inflationary stimulus packages makes it possible for those closer to power to benefit most — and with the currency devaluing as a result, they can effectively represent a redistribution of wealth toward the top.

Blockchain-based currencies offer opportunities for stimulus packages that don’t raise the same concerns. It would be straightforward for a central bank-operated cryptocurrency to allow stimulus “checks” to be credited to wallets.

In a centralized system based on blockchain, specific wallets could be registered for tax tracking, making it trivial to send a set amount to each citizen. The stimulus process would be faster, with reduced bureaucracy and reliance on physical infrastructure. With a simpler, more transparent process, the privileging of specific entities close to those controlling the money supply would be less of an issue.

The current Digital Dollar Project isn’t created in this spirit, proposing a “two-tiered banking system” where commercial banks and other regulated entities act as intermediaries between the Federal Reserve and end users. The project’s white paper claims that this “preserves the current distribution architecture and its related economic and legal advantages.” Advantages for whom?

Fully decentralized digital currencies have far greater protection against total mismanagement and corruption of capital. Blockchain technology makes it practical for even state-controlled blockchains to make inflationary measures fair. Of course, whether central banks embrace this possibility remains to be seen.