Academics and the media often talk of cryptocurrencies as a technological innovation, or discuss the economic and regulatory challenges posed by them. Much less attention is given to the possibility that digital currencies may promote and enable social change. But cryptocurrencies may provide opportunities to democratize credit and investment, financial services, enable small-scale international transactions, and provide an alternative store of value to protect savings from less stable national fiat currencies. The result could be opportunities for social mobility and wealth creation for those amongst the poorest in society.
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For the British, and their cousins across the Commonwealth, this past month has been one of structured reflection. On September 9th, Elizabeth II became the longest reigning monarch in the entire thousand-year history of British royalty. This has given Brits a valuable opportunity to look back on Her Majesty’s 63-year reign and recall the immense social change that occurred between 1952 and 2015. Undoubtedly the greatest agent of social change in the last half-century has been the World Wide Web, invented by Briton Sir Tim Berners-Lee, but it is less clear what will bring about the next great social revolution of the Queen’s reign.
There are many candidates for this next great agent of social change, but cryptocurrencies are amongst the most exciting. While much media and academic interest has focused on the technical, economic and regulatory aspects of digital money, the potential consequences of the introduction of cryptocurrencies on society have escaped mainstream attention. Despite this, digital money stands poised to radically change the way people think about fundamental economic processes like transaction, investments, and international exchanges.
A criticism often leveled at cryptocurrencies these days is that, due to a lack of consumer confidence and acceptance amongst businesses, they often do not fulfill a role as a mode of exchange. Instead, digital money is often treated as a speculative investment. While many would consider this a hindrance to cryptocurrencies’ potential as agents of social change, it is in fact an important opportunity to democratize commodities investment. Cryptocurrencies tend to be of relatively low value, but some – especially DNotes – are able to steadily appreciate in value. Such low-value, low-risk investments allow private individuals, often priced out of conventional commodity investment, to engage in a safe alternative to traditional speculative investments, savings accounts, and cash ISAs in conventional currencies. This is especially important in countries where national currencies suffer from high inflation and uncertainty.
As cryptocurrencies become more widely accepted globally, the opportunities to engender social change also increase. Global acceptance of cryptocurrencies and increased consumer confidence could lead to micro-exchanges across international borders, allowing low-value goods and services to be transmitted in circumstances where exchange fees and import taxes might otherwise make such transactions prohibitively expensive. For developed economies, this would be a convenient way of avoiding burdensome fees and red tape; in the developing world, however, cryptocurrencies may promote entrepreneurialism, connectivity, and the pooling of resources.
In these same developing countries, corrupt governments often pose a direct threat to the value of fiat currencies and the security of financial services. Peer-to-peer digital currencies may, however, provide a degree of protection from instability at governmental level. Cryptocurrencies allow for anonymous, secure transactions of guaranteed value; in situations where rampant inflation or political instability threaten the strength of national currencies, digital money may provide an alternative store of value and mode of exchange in which both consumers and businesses can have confidence.
But even before crisis strikes, cryptocurrencies may benefit the poorest in society. The numbers of people globally without access to proper banking services are incredible: one study revealed that up to a third of Americans had limited or non-existent access to banking services. For many banks, the risk of providing banking services to people with poor credit ratings is simply too great. The result is unequal access to credit, hindering entrepreneurialism, social mobility, and personal improvement. Cryptocurrencies can greatly decrease the cost of extending banking services to low-income customers, providing access to basic credit arrangements such as overdrafts.
Thanks to the internet, connectivity and democratization have been the two main themes of social changes over the last 63 years. With cryptocurrencies, those themes would continue: connecting businesses and consumers across international borders, democratizing access to credit and investment, and protecting individuals and businesses from the unstable economic times in which we live. But it is only with greater adoption and appropriate regulation of cryptocurrencies that these opportunities for social change will be realized.