Fiat currencies such as the pound, dollar and euro are issued by national governments, but almost every transaction is made through an agent – your bank. Banks earn big profits by paying small amounts of interest on deposits and charging large credit card fees.
Due to their role in allowing us to buy goods and services, banks have a huge amount of power over the economy. Without them, “society would collapse, since people could no longer make payments”, says Youel. But banks also “mix that public good with their risky profit-making activities”, he adds.
And so when banks get themselves in trouble, as happened in the late noughties, governments are forced to bail them out. “We’re being held hostage by the banks,” says Youel.
Recessions always hit the poorest hardest, and 2007-08 was no exception. According to the Organisation for European Economic Co-operation, income inequality in 34 developed nations increased by more in the first three years of the crisis (2008-10) than in the previous 12 years.
Cryptocurrencies eliminate the banks as middlemen. Satoshi Nakamoto, the inventor of Bitcoin, defined the cryptocurrency as a “peer-to-peer version of electronic cash” that allows “online payments to be sent directly from one party to another without going through a financial institution”.
This means that money transfers – particularly international ones – can be faster and cheaper. Since every cryptocurrency transaction is recorded in an online public ledger, they are a transparent trading system, even if many users operate through a pseudonym.
Are cryptocurrencies a real alternative to government-backed currencies?
One of the biggest problems is that, at least for now, most people aren’t using Bitcoin and its ilk to pay for things.
“Bitcoin isn’t very good as an actual currency, it’s more like a crypto asset,” says Youel.
“The main reason people hold Bitcoin is not because they use it to transact. You can’t actually pay with it in many places. The main reason is that they think it’s going to go up in value. It is a speculative investment.”
The way Bitcoin works also uses huge amounts of computer processing power, and therefore electricity, leading to criticism on environmental grounds. In May, Tesla CEO Elon Musk said his electric car company would no longer accept Bitcoin for payments due to these concerns.
Cryptocurrencies offer total control of an investor’s assets – and have therefore been very popular with libertarians – but there are times when we might want a central authority to have control over the money supply. Youel points to the Great Depression of the 1930s as an example, in which it was necessary for the US government to “create more money in order to get economic activity going”.
Youel and Positive Money’s preferred solution is a central bank digital currency, run by the Bank of England. It would mean that ordinary people would have an account directly with the central bank, rather than through a commercial bank.
Youel argues this would give the stability and oversight from democratically elected institutions, while removing the issues surrounding the current role of banks in our system.
Could the rise of digital currencies lead to a two-speed economy?
To trade in almost all digital currencies, you need access to the internet – usually through a smartphone or computer. That is not a given for many people.
Since the Covid-19 pandemic started, society has gone digital at an unprecedented speed. Yet the Office for National Statistics’ latest annual report on internet access revealed that five per cent of UK adults (2.7 million people) had not used the internet in the previous three months.
Dr Hannah Holmes, a research associate at Cambridge University, has been studying the relationship between digital exclusion and poverty. She found the pandemic worsened the impacts of digital exclusion for millions of people, and the poorest had been hit the hardest.
“Often the people that are excluded from the internet are the people that are excluded already, by way of being on very low incomes,” she says. “So that just compounds the issue.”
Should cryptocurrencies take hold as a mainstream option, the digital divide could be amplified, says Holmes. We could end up with a two-speed economy, in which an elite group trades through crypto – but many are left behind.
The barriers aren’t just technological, either.
“One of the key things I found with the people I’ve spoken to for my research is there is a lot of fear about moving to that online space,” says Holmes. “When people are already on a very low income, they really can’t afford to be victim to online scams. That might put people off engaging with [cryptocurrencies].
“Cryptocurrencies are not well understood by most people. So on top of that general fear of being hacked or online scams, that knowledge gap is a real key issue.”
Can cryptocurrencies help support the world’s most disadvantaged children?
Unicef is responsible for providing humanitarian and developmental aid to children worldwide, so it may seem an unlikely early adopter for cryptocurrency. Yet in 2019, its CryptoFund saw it become the first United Nations body to be able to receive, hold and disburse cryptocurrency.
The CryptoFund is part of the broader Innovation fund, which provides early-stage funding and support to technology solutions that benefit children and the world.
“We knew what the potential was in terms of efficiency savings, cost savings and transparency,” says Unicef ventures lead Sunita Grote. “And that has turned out to be true.
“We have 100 per cent transparency on all transactions we make through the CryptoFund. Transactions from Unicef all the way down to the start-up take less than 10 minutes. The transfer fees are less than 0.1 per cent of the value that we transfer. So those are all very immediate results.”
Though the initial results have been promising, Grote says her team is “fully cognisant” of the barriers that cryptocurrency presents.
“There are still real barriers there,” she allows. “Fifty per cent of the world is still not connected to the internet. And a lot of people don’t have access to the devices that they might need or the sort of sophistication of device that would be needed to engage with this world.”
The fund is not ignoring those issues, says Grote, rather they’re trying to develop solutions “that can bring real results in the years to come”. Among their recent investments is Leaf, a block chain-backed digital wallet that offers financial services for refugees and under-resourced communities.
Nearly two billion people around the world lack access to formal financial services. This is a particular problem for refugees, migrants and cross-border traders, since they have no safe or reliable way to bring their money across borders, leaving them vulnerable to high exchange rates and theft. Leaf offers safety – and can even be used with a basic mobile phone that has no access to the internet.
Why does it matter who decides the future for cryptocurrencies?
We have already seen that technology can be used “as a way to equalise things and close gaps, or they can just exacerbate and increase them”, says Grote.
She points to recent controversies with artificial intelligence (AI) as an example. “If AI is not trained on diverse and inclusive data sets, you end up with applications that actually further divides, and misunderstandings,” she explains.
Even top-performing facial recognition systems misidentify Black people at rates five to 10 times higher than they do white people – but that would not be the case if they’d been trained on better datasets.
Similarly, the future for cryptocurrency is not set in stone. Like all technologies it will be shaped by people. Grote hopes to use the Unicef CryptoFund to ensure vulnerable groups of people are not forgotten.
“The aim of the fund is to shape how technology is developing and keep the needs of certain communities in the spotlight as the technologies evolve,” she says.
“Every one of our investments – hopefully, if they’re successful – helps make the case that, say, blockchain can be applied to have a positive impact on communities and on issues that may otherwise be neglected by the big investors.”
This article is taken from the latest edition of The Big Issue magazine. If you cannot reach local your vendor, you can still click HERE to subscribe to The Big Issue today or give a gift subscription to a friend or family member. You can also purchase one-off issues from The Big Issue Shop or The Big Issue app, available now from the App Store or Google Play.