How can cryptocurrencies help address global income inequality?

Inequalities in the global distribution of wealth have become more pronounced over the past few decades. As of 2022, the richest 10% of people in the United States own nearly 70% of the wealth in the United States, which means that 90% of the people in the country own only 30% of the wealth. In South Africa, the top 10% of income earners own 65% of the wealth.

Many citizens also lack access to regular banking services as well as advanced financial services (i.e. services limited to accredited investors), which are readily available to wealthier residents. Cryptocurrencies can help close the wealth gap by giving users a way to earn, store, receive, send and invest money. This article looks at how cryptocurrencies can help close the income inequality gap.

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How can cryptocurrencies solve income inequality?

Cryptocurrencies make financial instruments more accessible to users and provide a more affordable way to send money.

Many people in developing countries rely on their families abroad to send money to help pay for living expenses. Remittances represent between 20% and 38.5% of GDP in countries such as El Salvador, Haiti and Tonga. Stablecoins pegged to the U.S. dollar, such as USD Coin (USDC) and Tether (USDT), can ensure that recipients receive more funds transferred without intermediaries taking fees from them.

SWIFT transfers can be expensive, with some banks charging a fee of 3% to 5%, while others charge a flat fee of $25 to $45. The average online transfer fee via Western Union is $25 and credit/debit cards are $2.99 ​​to $29.99. On the other hand, stablecoins like USDC cost $3 to $5 to send on Ethereum and less than $0.01 on the BNB smart chain, Tron and Cardano blockchains .

While the additional savings of $20 to $44 in transaction fees may not seem like a lot to many, it can mean a lot to people in developing countries or those with lower incomes. For example, the average monthly salary in Venezuela is about $25.

In addition, family members can also send money home more frequently due to very low fees and fast transaction times.

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Ben Caselin, head of research and strategy at cryptocurrency exchange AAX , told Cointelegraph : “ Bitcoin , as well as stablecoins, generally offer more accessibility than traditional banks, especially in emerging markets, where many people often find themselves unbanked, or It’s because of lack of infrastructure or documentation, or exclusion because of social status, gender, religion or political views.”

He added, “The shift to bitcoin and stablecoin payments could also be driven by sanctions or strict capital controls, making it nearly impossible for ordinary citizens and businesses to participate in the global economy through trade, commerce or otherwise.”

Caselin also pointed to the importance of low costs when sending money using cryptocurrencies, saying: “Users in both developed and emerging markets can benefit from bitcoin and digital assets when making cross-border payments. Processing on the blockchain is more efficient and at a much lower cost than through operators like correspondent banking and Western Union. But it’s not just about accessibility and efficiency. As society continues to digitize and threats to privacy and freedom proliferate , moving to digital assets and self-custody, rather than holding funds in banks and using their services, we are building a new, more mature financial culture and security.”

Easier access to payment systems

While PayPal is one of the most popular ways to receive payments for freelancers, users need to link their accounts with a bank in order to cash out payments. This is because users can only withdraw money to their bank account, and the only other option is to spend with a PayPal debit card. This can make it difficult for the unbanked to make a living online.

Instead, blockchain technology enables users to receive payments without the need for intermediaries such as banks. Users only need to control one crypto wallet and get paid directly from another user. This is great for online freelancers. For example, if a freelancer is commissioned to develop a website or provide any other online service, they only need to provide their crypto wallet.

Dunstan Teo, co-founder of blockchain-based philanthropy project Philcoin, told Cointelegraph, “Cryptocurrencies typically only require a wallet and internet connection to register and trade. They provide people in developing countries with the ability to store their assets elsewhere. Opportunity.”

He continued: “This helps reduce income inequality and makes the same financial products available to anyone, anywhere in the world, so that they can reap the rewards of a rapidly growing asset. Quite simply, crypto creates for all level the playing field.”

If freelancers don’t have access to a bank, they can withdraw their earnings through Bitcoin ATMs. Countries such as Uruguay, Nigeria, India, and Kenya have installed Bitcoin ATMs, offering unbanked users an alternative way to buy and sell cryptocurrency, making it a viable way to cash out.

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Crypto wallets make it easier for workers to earn income and send and receive payments online. Some wallets even allow users to receive payments by username instead of the usual alphanumeric encrypted address. For example, Solana -based Web3 payment platform PIP uses tags (eg user@solana) instead of wallet addresses to prevent users from making mistakes when sending or receiving payments. If users have the browser extension installed, they can send and receive crypto payments via social media by hovering over the tab to activate the payment box.

Given that an estimated 20% of bitcoins are lost due to user error, it is critical for users to have a protocol that simplifies the user experience. Additionally, a survey conducted by Cointelegraph found that 75% of respondents said they found crypto trading “stressful” and “complex.” However, human-readable addresses can solve this problem and help increase adoption in developing countries.

The use of cryptocurrencies and self-custody wallets in the gig economy can help create income opportunities for people from developing countries or low-income backgrounds.

Corbin Fraser, head of financial services at cryptocurrency exchange and wallet Bitcoin.com , told Cointelegraph, “Cryptocurrencies are a great way for users to receive payment for services. It was one of Bitcoin’s original tenets. With the magic of internet money, eliminating middlemen, Reduce costs and provide new opportunities for a globally connected population.”

Fraser continued: “The silver lining of the COVID-19 pandemic is the widespread adoption of remote work. As companies naturally move to recruiting with remote in mind, we expect those that offer crypto payments to attract more engaged employees.”

“International payments through traditional financial institutions are still a huge pain for everyone. Funds can be in limbo for days or even weeks, and fees are expensive. We’re seeing a rise in cryptocurrencies with a focus on low fees, Even after the Ethereum merger, the fee will be below $0.05. So there is no doubt that this is where the future is headed.”

Easy access to financial instruments

Cryptocurrencies can help close the gap between rich and poor by providing financial tools to a wider range of users. Centralized financial instruments such as stocks, bonds and indices often require users to register with the platform and provide legal documents, including proof of income and bank details.

On the other hand, Decentralized Finance ( DeFi ) allows users to participate in financial protocols such as staking, yielding and lending platforms using only their wallets. This makes it easier for low-income users and people in developing countries to earn interest on their assets and lend or borrow funds. DeFi essentially levels the playing field for the accessibility of financial instruments.

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DeFi offers users a variety of ways to earn income from their crypto assets without the interference of any centralized entity, from providing liquidity on decentralized exchanges and earning a percentage of trading tokens, to Earn up to 20% on staking stablecoins.

Cardano founder Charles Hoskinskin believes that the DeFi revolution will take place in developing countries. In a previous interview with Cointelegraph, Hoskinson predicted that developing countries will add 100 million new users to the DeFi space over the next few years.

inflation-resistant currency

Inflation reduces the purchasing power of a country’s fiat currency. As a result, people in countries like Venezuela have adopted cryptocurrencies to combat hyperinflation. Cryptocurrencies like Bitcoin are deflationary in nature, meaning their supply decreases over time, increasing their value and purchasing power. For example, 1 BTC was worth $0.40 in 2010, and today 1 BTC is worth $21,000.

Teo on the impact of inflation on people in developing countries: “Let’s face it – everything is getting more expensive lately, especially for people in developing countries. Around the world , we are dealing with higher gas prices, inflation, food costs, housing, education, etc. The disposable income we once had is now being eroded by higher living costs. And with inflation showing no signs of slowing down, We can expect that disposable income will continue to shrink.”

If users in developing countries don’t want to deal with the volatility that comes with traditional cryptocurrencies, they can also hold stablecoins. Tether and USD Coin are good options for users who want to keep their funds in USD-pegged cryptocurrencies.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/how-can-cryptocurrencies-help-address-global-income-inequality/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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