DeFi - Unbanking the Banked


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".

Piggy Bank
Source


Purpose of Banks


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.

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DeFi is "Unbanking the Banked"


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.

DAI Savings Rate
Source

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Conclusion


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 nto DeFi yet. But, would 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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This article is created on the Steem blockchain. Check this series of posts to learn more about writing on an immutable and censorship-resistant content platform:
- What is Steem? - My Interpretation
- Steem Thoughts - Traditional Apps vs Steem Apps
- Steem Thoughts - A Fat or Thin Protocol?
- Steem Thoughts - There is Inequitable Value Between Users and Apps
- Make my votes count! Use Dustsweeper!
- What caused STEEM to get dumped? Why I think the worst might be over
- Steem 2020 is about having a "SMART U"


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Comments 8


Unbanking the Banked

This is literally turning the idea on its head :)

Great writing as always!


Posted via Steemleo | A Decentralized Community for Investors

17.01.2020 14:35
1

A really interesting idea did not know about makerdeo and I will investigate about it.

I think this is the future and leads us to explore new paths. That is the idea to invent create and have alternatives that improve the quality of life and make us live the future in the present.
Thank you for informing me about all these really interesting advances. This is to gain interest with cryptocurrencies. I will try to prove it and approve oasis as well.

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18.01.2020 11:45
0

Hi @culgin

This type of process will help in the speed of financial transactions.
I agree with you I think that there is the future for the unbanked.

Regards

19.01.2020 16:02
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Dear @culgin

Indeed. When you mention it - I remember now that I used to hear that a lot in the past. Banking the unbanked. Beautiful idea, with many wonderful words and people looking into the future - optimistic and full of dreams.

Somehow I don't hear those people any more. Many similar dreams in blockchain space has been crushed.

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.

Same here. Thanks for sharing your own experience with us buddy,

The DeFi movement is bringing about a different dimension on how banking can be done.

I wonder how DeFi vs regulators will play out.

Yours, Piotr

21.01.2020 18:57
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Hi @culgin your post was in the category of finance/business and was submitted in a HoboDAO contest. In the future if you use the tag "int" we can reward you in INT tokens and help you reach high visibility on the Intrepreneur.life website.

24.01.2020 20:31
0