On January 26th, Tuesday, Women Advancing Microfinance UK are hosting a dinner in London to explore how innovations in financial technology, especially digital currencies, can further financial inclusion. Tickets to the event are available here.
On the night, Diana Biggs from Uphold, the fastest growing money platform in the world since its launch in 2014, will be leading the discussion. Diana is listed as one of the Top 25 FinTech influencers in the UK by City A.M.
Ahead of the event we asked Diana some questions for a primer on digital currencies and how we can reach the unbanked to ensure that they are not overlooked by technological advancement.
First things first, Diana, what are digital currencies and how do they work?
When we talk about digital currency, broadly we mean electronic money: payments that happen online, outside of a banknote, a coin; this could be paying online with paypal or credit cards and online bank transfers. Money is, from economic theory, a store of value, a medium of exchange and a unit of account. For a digital currency to serve as money, it must fulfill these things.
Virtual currencies, on the other hand, do not exist outside of the digital world – for example, payments you make on a video game, or Facebook credits. According to a recent European Central Bank report on emerging currencies, one could argue that the line between a virtual currency and a digital currency lies in the interchange – if they can be traded P2P and used in the real world for physical goods and services they tend toward digital currencies; if used only for virtual world purchases in closed loop systems, then they are likely virtual currencies.
Finally, we have cryptocurrencies made popular by bitcoin, introduced in 2009. Cryptocurrencies use a cryptographic algorithm for security and anti-counterfeiting – they can also be, as is the case with bitcoin, decentralized, meaning there is no central government or party controlling it. Bitcoin’s value is determined by the market forces of supply and demand. While still very much in the early stages and likely not about to replace any of our home currencies anytime soon, it has opened up a lot of thought as to the benefits that come with truly digitizing money. Bitcoin is now used for interchange in the real world, so in that, it is also a digital currency.
We often hear of Bitcoin as a blockchain technology, what is that? And is it safe?
A blockchain is essentially a distributed ledger. A distributed ledger isn’t necessarily anything new technology wise, but it has been brought to the fore recently given the novel approach of bitcoin, which is the first and arguably only decentralized ledger – meaning there is no one central party controlling it.
The bitcoin blockchain is a secure database of all the transactions which have occurred on the bitcoin network. The “blocks” in the blockchain are groups of transactions, which have been computationally verified by bitcoin miners. Each of these blocks are time-stamped and secured cryptographically. For transactions to be approved, it need to be openly verified by all parties, using a consensus algorithm.
All nodes in the bitcoin system can download the blockchain ledger, meaning each node can have a full record of all transactions (hence, distributed and decentralized – there is no one central database). You and anyone else are free to download this, and all transactions are public and transparent. Being open and cryptographically secured, the blockchain is essentially tamperless.
Now that we know more about digital currencies, how can they help enable financial inclusion?
Digital currencies can take on the properties inherent in the internet, holding advantages over real cash, as email does compared to mailing a letter: it’s efficient; global and works across distances and borders; 24/7 and instant; peer to peer, and can have near zero cost – bringing massive efficiencies and cost savings over traditional methods.
With these advantages in mind, we begin to see how this kind of digitization of money and financial services, enabled by new technology, can help open doors for women and forward financial inclusion.
Can you give an example of how digital currencies further financial inclusion?
Sure. I’ll take the Uphold platform as an example, since that is what I am closest to.
Uphold’s digital money account provides individuals excluded from the banking system with a safe place to send and store their money, without cost and without borders. Within the platform, which is free to join, members can instantly send, hold, or convert between any of the 25 currencies on the platform at zero cost, with currencies converted at the mid-market rate – meaning no hidden fees in the exchange, bringing massive efficiencies and cost savings over traditional methods. Accessible from any connected device, Uphold is unique in being a truly global money account, available to individuals and businesses around the world, unlike banks whose operations are geographically siloed by country.
Our partners, who integrate with our platform via our open API, bring new on-ramps and off-ramps in various markets which further the opportunity. For example, LibertyX allows individuals without access to bank accounts to deposit their money into an Uphold account at over 10,000 retail locations in the US. This gives them a safe place to hold money, in the currency of their choice, be it US dollars or Mexican Pesos, with no account fees, transfer fees or FX fees, and send it worldwide instantly and for free.
We’re currently building out partnerships with mobile wallet providers and remittance companies across several geographies. The average cost of sending remittances worldwide is 7-8%. With Uphold, this is dramatically reduced – sending and converting is free and the only cost involved might be a fee for local cash out.
How big is the digital currency market currently and where do we expect it go?
At present, the understanding around digital currencies and integration into society remains relatively small. A recent report by the Bank of England noted that although digital currencies could, in theory, serve as money for anybody with an internet-enabled device, at present they act as money only to a limited extent and only for relatively few people.
Despite the widespread use of cards, innovations like contactless and Apple Pay, and apps like Uber saving our card details sparing us from needing cash, today, in both rich and developing countries, cash remains king. Cash, however, has its disadvantages. It is easily lost, it is untraceable (whether that is a disadvantage or an advantage can be debated), it can be difficult to move around, risky to carry, and can even spread disease.
I believe, however, that the movement to digital currencies – whether a new currency itself or the digitization of fiat currencies (on Uphold, we work with both) – is inevitable and a matter of time. As mobile phones and internet connectivity becomes more ubiquitous, this is a key enabler. Comparable to email vs. the post, using and sending money digitally, makes it instant, secure, globally accessible and low cost to free. Governments, banks and businesses are beginning to realise these benefits and open up to the possibilities here.
How can those that are excluded by mainstream financial services access digital currencies?
There are a variety of ways. Anyone with a connected device and a form of ID can join an online platform, such as Uphold. There are no costs or restrictions to making an account. As mentioned above, LibertyX is one example of a platform (and there are more coming on each day) that allows individuals without bank accounts to store their money, deposited as cash, safely and securely in the cloud.