During the ICO fever in 2017/18, "banking the unbanked" was a common slogan. The "unbanked" are defined as adults who do not have their own bank accounts. How this termed came about still baffles me as I think in order to be called un-banked, one must first be banked. In any case, many ICO projects aimed to bring the concept of "banking" to the "unbanked" during the ICO fever.
"Banking the unbanked" is a cool concept. In this article in 2017, it was reported that over 2 billion people in this world is considered "unbanked". As banks are considered one of the most profitable businesses in the world, the "unbanked" population therefore represents a massive untapped market. At that time, the idea of "banking the unbanked" captivated me as well. Without thinking much deeper, I too believed that cryptocurrencies can achieve that. But I was wrong.
Fast forward 2 years, none of the projects actually managed to "bank" the "unbanked". Why? I see 2 reasons. First, it is difficult for these "unbanked" people to get their first cryptocurrency. Next, logically, only the bankers can "banked" the "unbanked", isn't it? As a result, it is going to be hard to "bank" the "unbanked" through cryptocurrencies. If we were to live in a world where everyone is already using cryptocurrencies, that will be possible. Unfortunately, that is not the case today.
However, I see cryptocurrencies, as we speak, being able to do just the opposite. To "unbanked" the "banked".
Crypto lovers generally dislike banks. We view them as gigantic bloodsucking corporations that make money out of someone else's money. I think the same way too, but they actually play an important role in societies.
Banks serve 2 critical functions. First, they keep our money safe as it is certainly less safe to keep all your cash under your pillow or in your wardrobe. Common souls like us do not have the means to invest in a good security system and hire security guards. Therefore, it makes sense to pass our money to the banks and they will keep our money safe. It is important to point out that his purpose is diminishing as many places are gradually going "cashless" and most money are nothing but numbers in centralized bank databases.
Next, banks also help make money flows. This is a critical economic function as money needs to flow to people who can make the most out of it so that productivity can improve as a whole. For instance, instead of having your money sitting in your house doing nothing, a bank can lend your money to an entrepreneur, e.g. Elon Musk, to build the Gigafactory. This in turn creates more jobs and produces more goods.
With cryptocurrencies and smart contracts, the original purposes of banks can be fulfilled in a decentralized manner. With cryptocurrencies, your money is no longer in physical form. As a result, it is not difficult to secure them. In the most extreme case, you can memorize your private key in your brain or the seed words (12 to 24 words) that many wallets are using now. This way, no one can steal your money from you.
Next, with smart contracts, loans can be disburse peer-to-peer in a decentralized way. There is no need for a centralized custodian to achieve that. Compound Finance is one example of how people can loan out or take up loans in cryptocurrencies. Bear in mind that we are still at the infancy stage of DeFi. Existing projects can be seen as just proof-of-concepts but they are already strong proofs of DeFi's potential.
Lastly, due to artificially low interest rates all over the world (some places are having negative interest rates), putting money in banks no longer yield good interests. DeFi presents everyone with the opportunity is to earn more interest from your money. Using DAI as an example, you can earn 6% interest directly through MakerDAO.
The DeFi movement is bringing about a different dimension on how banking can be done. We now have a decentralized option for banking, thus "banked" people can opt to "unbanked" himself/herself. For centuries people do not have a choice, but now there is an alternative.
Personally, I have embarked on this path to unbank myself. Sure, it is going to take a long time as not all financial instruments are available on DeFi at this point. In addition, there are risks such as possible smart contracts failures and I do not recommend putting everything you have into DeFi yet. But, we should be open to all such opportunities and start somewhere. Some time back, I started putting my DAI to work on Oasis. Will you be starting this journey to "unbank" yourself too?
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