Let’s discuss “Blockchain and Financial Inclusion. The Case for Distributed Ledger Technology.” How blockchain creates transparent, secure, and affordable financial services for the unbanked. Real-world applications of blockchain in remittances, cross-border payments, and supply chain financing.
Imagine being unable to open a bank account, save money, or send cash to your family because traditional financial systems are out of reach. Enter blockchain technology—a digital innovation that offers a way to solve these challenges without needing banks.
Blockchain: An Overview
A blockchain is composed of a sequence of protected information segments that are linked consecutively. Collectively, they constitute an immutable ledger disseminated across the participating nodes. These nodes are computing platforms that engage with the end consumers. The blockchain’s objective is to facilitate the exchange of information among all parties who utilize an application to access it. Access to this ledger regarding reading and writing may be unrestricted (‘permissionless’) or restricted (‘permissioned’). The shared information is safeguarded from modification, meaning any alteration would be immediately and readily identifiable. Therefore, data is deemed immutable once recorded on the blockchain due to its robust protection.
Blockchain is the optimal solution for transmitting that information, as it offers immediate, shared, and observable data that is recorded on an immutable ledger accessible only to authorized network members. A blockchain network can monitor orders, payments, accounts, production, and numerous other items. Additionally, the ability to observe a transaction from beginning to end is facilitated by the fact that members share a unified perspective on the truth. This provides a sense of assurance and presents new opportunities and efficiencies.
Key Statistics
- Global Unbanked Population: As of 2021, approximately 1.4 billion adults worldwide remain unbanked, lacking access to essential financial services.-World Bank
- Financial Empowerment Initiatives: Since 2019, efforts have been made to financially empower 11.8 million people, aiming to integrate them into the formal financial system.-Santander Corporate Website
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What is DLT?
The core of Distributed Ledger Technology (DLT) is an encoded database containing transaction records. A distributed ledger is a database that is accessible by multiple individuals worldwide and is distributed across a variety of computers, nodes, institutions, or countries. A network of nodes keeps distributed ledgers. Each node keeps a copy of all the ledgers, validates the information for any disputes arising from it, and establishes a consensus regarding its veracity. Although distributed ledgers have been around for decades, their recognition, research, use, and development have accelerated since the initial introduction of Bitcoin.
Distributed ledgers are applicable practically through technologies in every business that work with features that engage in data collection and analysis. Distributed ledgers tend to be created for various purposes; however, one of the most common applications includes becoming a platform for others to leverage and utilize. Hyperledger Fabric is one of the more well-known distributed ledgers. Aviation, education, healthcare, insurance, manufacturing, transportation, and utilities are among the sectors that have implemented DLT solutions.
All these notwithstanding, DLT enhances accountability, security, and accessibility, but the technology becomes too complicated, and scaling such becomes troublesome. The DLT employs cryptography for the reason of assuring secure and precise storage of all kinds of information. Cryptographic signatures and “keys” may be implemented to access the data. The information can be converted to an immutable database once it is kept; the ledger is dictated by the network’s regulations enforced through the database programming code.
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Blockchain for Unbanked
There are currently about 1.4 billion people in the world who are unbanked; many of them have no access to essential banking services, With this before all in employment today, blockchain technology offers a powerfully enabling proposition by facilitating secure, transparent, and inclusive banking systems, which empowers the unbanked and unbankable to go beyond traditional bank accounts. This works as an open and decentralized ledger where transactions are digitally registered across many computers. Because of this, there is no intermediary, like banks, thus reducing service fees while maintaining security and trust. In the unbanked world, it means opportunities to access instruments of finance using just a smartphone.
Among the very real applications is the ability to allow cheap money transfer functions. Stellar and Ripple provide money-shell companies with fast cross-border transactions for their users and very affordable fees compared to other means of transference, such as Western Union. Creation of digital identities. Many people who don’t have bank accounts lack the required official IDs for banking. Blockchain-based platforms such as ID2020 provide convertible, safe, and verifiable digital identities that facilitate access to banking and healthcare opportunities, thereby expanding individual educational prospects.
Blockchain also supports peer-to-peer lending, micro-lending, and secure savings via digital wallets, empowering the unbanked to lend, save, and invest for the first time. Some blockchain-based insurance solutions enable quick payouts without the hassle of paper documentation; an example is with farmers and small businesses. Blockchain removes all barriers to financial inclusion, enabling billions of unbanked individuals to participate in the global economy and enhance their quality of life.
HSBC: HSBC is actively exploring blockchain solutions to enhance banking services. They are embedding products and services via APIs to help clients automate loan distribution processes, increasing access to banking support.
JPMorgan: JPMorgan has been at the forefront of blockchain adoption in the financial sector. They have developed their own blockchain platform, Onyx, to facilitate efficient and secure cross-border payments and other financial services, contributing to broader financial inclusion.
Real-world Applications of Blockchain
- Low-Cost Money Transfers
International money transfers usually incur heavy charges and delays. Blockchain-technology-based platforms such as Stellar and Ripple enable speedy and cheap cross-border payments. For instance, a worker sending money to his home country does not have to lose much of his earnings to fees. The fund arrives almost instantaneously, thus eliminating the energy-consuming process of waiting days for it. - Creating Digital Identities
Without a government-issued ID, many unbanked individuals cannot access financial services. Blockchain solves this problem by giving a way to authenticate secure digital identities. Platforms such as ID2020 enable people to digitally store and verify their identity, giving them access to banking, healthcare, and education. For instance, refugees or remote villagers can show their identity without traditional papers. - Access to Loans
Unbanked people have difficulty borrowing not only because they are unbanked but also because of a lack of access to requisite credit history or collateral demanded by traditional banks. Blockchain became a basic channel for peer-to-peer lending platforms like EthLend, through which one can access loans directly from others. A farmer in a remote village could borrow money to buy some seeds without going through the bank. - Secure Savings
It is unsafe to save money when access to banks is missing. With blockchain wallets, you can save your money safely and digitally. Even with a simple smartphone, you can save and manage money using Trust Wallet or Coinbase Wallet. - Insurance Made Simple
Smart contracts are used in blockchain for insurance payment processing. Those applying for block-chain insurance can automatically get compensation if crops are destroyed by bad weather. This eliminates delays and paperwork and ensures timely compensation. - Fair Wages and Employment Opportunities
Blockchain has the ability to help workers, especially in informal sectors, receive just rewards on time. Platforms like Bitwage allow workers to be paid in cryptocurrency, lessening delays and heavy transaction fees associated with a traditional banking structure.
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