In the late 1800’s, landline telephone emerged on the market and quickly spread throughout highly-developed nations. Countries with robust infrastructure already in place were able to harness new tech efficiently and effectively.
Eventually, the cell phone came around to replace landline, and landline has since been abandoned almost entirely.
That’s how the basic story went for “first-world” nations. But what about the developing world?
They skipped the landline and went straight to cellular. Without the wealth to support widespread landline communication, developing continents like Africa struggled to keep up. However, when the cell phone came around, Africa was quick to adopt the new technology and skip the landline. What was once a setback was now an advantage: Africa didn’t have to unwind a bunch of previously-completed work.
Why might this be? And what does this have to do with bitcoin, or banking the unbanked, you may ask?
Bitcoin Lets Us Skip The Banks
Landline telephone serves as a great analogy for the technological shift taking place in developing nations’ financial systems (or lack thereof) today.
You may have heard the expressions “bank the unbanked” before. It represents an effort to bring financial infrastructure to the roughly 1.4 billion people that remain unbanked in the world. Nearly a fifth of the world is lacking basic financial infrastructure that most of us enjoy to transact online, save money, make investments, take out loans, and more.
While well-intended, bitcoin aims to remove the need for “banks” altogether. When bitcoiners talk about banking the unbanked, they’re generally referring to using bitcoin as the “bank account” for these communities rather than relying on centralized third-party banks.
A more descriptive message, I think, comes from Anita Posch:
“Keep the unbanked, unbanked.”
This phrase perfectly encapsulates the approach bitcoin adoption is taking in developing countries. Where there are no bank accounts and established financial institutions, those nations’ citizens tend to adopt bitcoin more rapidly than those in countries like the USA.
Like the landline telephone, rather than spending the time and energy re-creating the legacy infrastructure that’s being replaced, why not just focus on the replacement instead?
So instead of “banking the unbanked”, bitcoin let’s people skip the banks entirely.
Why Did We Need Banks In The First Place?
The banking system arrived naturally over time as a means to secure assets for individuals and businesses, in an attempt to simplify transactions and reduce theft and losses.
Barter worked in small communities, but as humanity grew and spread throughout the globe, direct trade between two people obviously became a greater challenge. Paradoxically, in order to streamline transactions, we needed to add complexity between the buyer and seller to achieve that efficiency.
Banks rose to assume that role in the world, and ever since we’ve relied on the banking system to facilitate transactions and transfers of money globally.
As a result, large banks have grown larger and larger over time, while consuming commercial banks that fail due to loose monetary policy.
So, we have an ever-growing banking system, with an ever-shrinking quantity of independent banks.
Centralization is increasing in the monetary system.
And as central banks come to dominate more and more of our finances, we lose more and more privacy and sovereignty as individuals.
What’s Wrong With Our Monetary Policy?
A symptom of increasing centralization, another result of fiat monetary policy is the Federal Reserve.
Across financial media, everyone tunes in to hear the latest on quantitative easing, quantitative tightening, interest rates, unemployment, etc. etc…
All in an effort to better navigate the ever-changing financial climate.
The thing is: unstable currencies create unstable financial climates.
In order to prevent inflation, the Fed needs to raise interest rates to slow down economic activity. And vice versa; Once economic activity slows too much, the Fed then has to cut rates to adjust. They have to print money to “stimulate” the economy, and drain money from the system in order to “contain” it when things get overheated.
All the while, these financial institutions must rely on trust in order for them to work. But as Satoshi pointed out, history shows that trust has been broken time and time again, to the benefit of these centralized institutions, and at the expense of everyday citizens.
These ever-changing terms have massive implications on powerless citizens’ own financial situations.
The average working class citizen may end up getting priced out of a home that was once affordable, or perhaps reconsider how large of a family they want to grow due to uncertain economic environments. Banks holding innocent people’s money go under from being over-leveraged and not having enough to pay higher interest rates, costing millions in monetary losses, beyond the jobs, time, and energy lost along the way.
Bitcoin Vs. Banks
How do the two monetary networks compare when placed side by side? Why should we not bank the unbanked? Why is bitcoin better than banking?
Well, let’s compare them based on the following key components of our financial lives.
Accessibility
The barrier to entry with bitcoin is drastically lower than that of a bank account. While bank accounts require invasive access to personal information (which most underbanked countries may not even have), bitcoin simply requires a simple, anonymous digital wallet downloaded on any compatible device in order to work for you.
Global Reach
You can access bitcoin from anywhere in the world as long as you have a capable device, meaning anyone can transact from anywhere in the world. On the other hand, banking requires layers of infrastructure that make widespread coverage difficult in poorer countries, so reach is limited and thus limiting so many people in the world.
Infrastructure
Banking infrastructure is extremely expensive and inefficient compared to bitcoin. Humans, rather than automated processes, have to manually move money from place to place, unintentionally introducing excess friction, incurring more costs and time on you and your money. Instead, bitcoin intentionally introduces friction and channels it towards network security expenses, making the protocol extremely costly to attack, but not to interact with.
Costs
Bitcoin payments are nearly instant with close to zero cost (provided you aren’t transacting on-chain), and settlement is instant, whereas banks may take 3-5 business days to process transactions, and can cost you large percentage chunks of your transaction. Remittance payments with traditional financial infrastructure can incur anywhere from 10-50% fees, depending on the location, whereas Bitcoin remittance payments are instantaneous.
Services Offered
Bitcoin is introducing new and innovative financial tools that build on the foundation built from our legacy infrastructure. More importantly, however, is the fact that bitcoin is breaking down our old models. Many financial services that we think of today may prove to be products of fiat monetary policy. How bitcoin realigns our incentives will change the way we interact with financial tools. The big picture being: Finance will become a lot simpler for the world.
How Bitcoin Keeps The Unbanked, Unbanked
Unlike the custodial solutions we’ve relied on for centuries to manage our wealth, bitcoin is the first non-custodial solution ever created.
Much like how we’ve gradually replaced physical hardware with digital software to grow our productivity – whether that be Netflix replacing Blockbuster, or the internet replacing print media – bitcoin is here to streamline our financial processes that have forever been restricted by their physicality.
Digitally native money like bitcoin – that’s perfectly scarce, more divisible, portable, durable, and fungible than its physical competitors, and cheaper and more efficient to transfer around the world – is bound to compete in the market at the very least.
But in the game of money, the market converges on one “to rule them all”. Throughout recent history, the US Dollar has served that role as the de facto currency for international trade. Central banks facilitate these trades around the world.
But now, we have a decentralized, permissionless monetary protocol that lives everywhere at once, like the internet.
Even putting bitcoin, BTC, the asset itself, aside – the Bitcoin protocol just works better for moving money around the world, of ANY currency you’d like to exchange.
By taking proper self custody of your bitcoin, you become the bank.
While that may sound like a lot of responsibility (it is), Bitcoin has opened up an entirely new market of options to the world: custodianship.
You have final say over how much control you have over your money. That’s the point of bitcoin.
- If you want full, solo control, then bitcoin offers singlesig wallets.
- If you want to distribute control and mitigate risk, you can use multisig wallets.
- If you want to insure your bitcoin, you can enter a collaborative custody setup.
Just never leave your bitcoin with a fully custodial solution, unless you don’t care to enjoy the benefits of decentralized money and are willing to take the risk of losing it entirely.
Self custody is paramount to bitcoin’s success, as it’s a new frontier that’s never been possible before. As long as people have access to self-custodial solutions, then bitcoin can fulfill its promise as a financially sovereign money and do away with the fiat banking system that’s been holding the world back. Therefore, we should be trying to avoid banking the unbanked and figure out how to integrate bitcoin into underbanked communities.
Which Countries Will Skip Banks For Bitcoin?
While plenty of countries are leading Bitcoin adoption, many of them also benefit from an established financial system alongside bitcoin.
However, others that have no access to those luxuries are coming to realize that they can skip the banks entirely with bitcoin.
Lebanon, for example, has citizens taking to Reddit to share their experience in a hyperinflated economy. As debit cards and other traditional financial infrastructure shut down, cash-based trade is on the rise, right alongside Bitcoin adoption.
Less than half of Lebanese citizens enjoy traditional banking infrastructure. Meanwhile, more than 70% have cell phones.
This chart just goes to show how landline vs. cell phone adoption plays out across the globe – wireless cell phone networks are simply much easier to adopt, just as decentralized monetary networks are easier to adopt worldwide than traditional banking infrastructure.
And thanks to widespread cell phone adoption in Lebanon, bitcoin will continue to prove itself as a better digital money for their economic needs than hyperinflating cash with no place to store it.
Other developing countries in Africa are taking advantage of Bitcoin tools like Machankura, which allows anyone to send and receive bitcoin simply from any mobile device. While they lack bank accounts and other financial documents that integrate them into the economy, communities like these are building up their own circular economies around the world using bitcoin instead of banking the unbanked.
Countries are slowly waking up to this reality, and as such, bitcoin is spurring up around the world fastest in places that need it the most.
Becoming Financially Sovereign With Bitcoin
Financial independence doesn’t just mean you’re living off your own money instead of your family’s. It also doesn’t mean having boatloads of money to live off of for the rest of your life.
Banking the unbanked doesn’t make someone financially independent either.
All of these things are aspects of financial independence, but what Satoshi Nakamoto revealed to the world is that financial independence describes your personal connection to your wealth.
A better way to describe financial independence though would be “financial sovereignty”.
How much say do you have over your own wealth? Do you need to ask permission to manage your wealth? Do you own it? Or does someone else?
Bitcoin makes it clear to the world that “your money” in the wrong hands can’t necessarily be considered “your money” at all.
So how can you become financially sovereign with Bitcoin?
- Earn bitcoin for providing goods and services and/or buy it without KYC through peer-to-peer exchanges like Bisq, HodlHodl, or Robosats or.
- Generate your seed phrase securely. The first step to taking control of your own wealth starts with proper seed phrase generation. If you have to rely on trust for your seed phrase, you’re defeating the purpose of trustless money.
- Write it down and store your seed phrase carefully. You don’t just want to leave your seed phrase on flammable paper or some other material that can easily be lost or destroyed.
- Learn how to recover your backup safely so that you can rest easy having verified that your setup works properly.
Finally, understand the principles of privacy and using bitcoin anonymously so that you’re prepared for the various attacks on bitcoin that will ensue over the coming decades. If you want to help people avoid these attacks, don’t try to bank the unbanked. Keep the unbanked unbanked. Learn and use bitcoin instead.
FAQs About Skipping The Banks For Bitcoin
Q: Why is bitcoin better than banking?
A: Yes, using bitcoin is better than banking the unbanked. Bitcoin offers a global, permissionless “account” to support all of your financial needs in a cheaper, faster, more accessible platform. On the other hand, bank accounts require you to give out unnecessary private information and live within supported legal jurisdictions. Beyond an overreach on your privacy, banks have more say over the money in your account than you do, as they can place holds, withdrawal limits, shut down weekend services, and more.
Q: Can I start avoiding the banking system now?
A: How far removed you can get from the financial system may depend on the jurisdiction you live within, but you can always start somewhere. Whether that be setting up direct deposit to spend a portion of your paycheck on bitcoin automatically or spending your bitcoin to grow the circular economy, there’s always somewhere you can start no matter where you live.
Q: Will the world remove the need for banks altogether?
A: In the short term, most likely not. Hyperbitcoinization won’t take place overnight, and in the meantime, there is plenty of reason for the banking system to exist and facilitate the flawed monetary system we have in place today. In the long run, however, bitcoin is all about separating money from the state. If banks are to stick around in the future, they will likely look much different than today. They may serve as a signer in a bitcoiner’s collaborative multisig setup or some other medium, but the trend is clear: we won’t be relying on disjointed in-person locations to manually move funds around for us. They won’t be a necessity, but an optional accessory.