First, a confession: we have written, and then rewritten, the introduction to this blog three times.
Why? Whether we call it blockchain, crypto, distributed ledger technology, tokenization, or Web3, this newfangled world of financial technology – the products, the players, and the policy dialogue – is incredibly fast-changing. Take, for example, the August 2023 announcement that PayPal has created PayPal USD, becoming the first global payments firm to launch a proprietary stablecoin pegged to the US dollar. Crypto “maximalists” will undoubtedly claim that this news validates that the future of finance is crypto and that increased financial inclusion is one of the benefits we can expect from moves like PayPal’s. Crypto skeptics, on the other hand, will claim that this is a gimmick designed to defraud unsophisticated consumers, causing potential harm to people and to the U.S. financial system.
So, what is true here? What does this news really mean – and what might it mean for financially insecure households in particular? This is the question that we at the Aspen Institute Financial Security Program (Aspen FSP) have been asking ourselves repeatedly over the course of the last two years of crypto booms, winters, Superbowl ads, fraud investigations, and meteoric adoption that we have been tracking. As we have watched and learned, we have been asking ourselves – and the experts we have been convening – in which specific ways might crypto and the underlying blockchain technology actually drive financial inclusion?
Let’s be clear about terminology. At Aspen FSP, we take an expansive but specific view of ‘financial inclusion.’ Our view is that financial inclusion exists when the financial system provides all people with the ability to access, utilize, and reap the benefits of a full suite of financial products and services that facilitate stability, resilience, and long-term financial security.” [1] Put simply, financial inclusion is not just about access to a bank account. It’s about the full arc of access to, beneficial usage of, and positive financial outcomes from a suite of financial tools that people need to manage their financial lives. This notion of financial inclusion is taking root; dozens of organizations have joined us in calling for the U.S. government to develop a national financial inclusion strategy that enables full participation in an inclusive economy.
While we work to retrofit existing financial systems – banking, credit, public benefits, retirement savings, insurance, and more – to be fully inclusive, we must simultaneously seek to shape the financial systems of the future to be inclusive from the start. To that end, over the last year, the Aspen Institute Financial Security Program has convened blockchain and crypto experts alongside leaders from government and “TradFi” (traditional financial services) to understand the current landscape, debate what developments mean for people and policy, and grapple with what crypto may mean in the future for household financial security in America.
We have published an introductory guide for social sector leaders and policymakers who are newer to this emerging technology but who share our interest in how crypto can become a force for financial good. We have also spoken directly with economically, racially, and geographically diverse owners of cryptocurrency and have shared insights about how they think about the connection between their crypto and their financial life.
We have heard pro-crypto advocates claim that crypto is a panacea for financial inclusion – or that crypto is the path to inclusive wealth creation for low-wealth and marginalized households. Interrogating those claims has been at the heart of our work on crypto – because as people who think nonstop about the solutions that low-wealth households really need to achieve financial stability, resilience, and security, we want to understand what the real opportunities – and real risks – might be in this nascent space. This is especially important as we watch what is happening in crypto when it comes to fraud – and as we wonder what might be happening with crypto-driven financial losses in low-wealth households. We are clear-eyed about the bad things that could happen (and have happened) to households, from NFT fraud to rapid devaluation of cryptocurrency to the opportunity cost of investing available margin in crypto rather than more traditional asset classes. It almost goes without saying that cryptocurrency and the financial products it enables (like DeFi) require a clear consumer protection approach.
And yet, we see the opportunity that this technology presents. In this blog, drawing on our deep understanding of the drivers of household financial security, we outline 10 specific potential use cases of blockchain and crypto that could help more households access, use, and benefit from better financial tools – or, possibly, could help them affordably and equitably access asset classes that could potentially appreciate in value in order to build wealth. And, because this distinction matters, we categorize each use case by (1) whether it is enabled by either blockchain or crypto, as well as by (2) its potential impact on either financial inclusion or on wealth creation. Finally, we summarize what we have discovered about each use case.
[1] Wallace, Mack, and Ida Radebacher. “Building an Inclusive Financial System: A Global Economic & Social Imperative for this Decade.” The Aspen Institute, July 2021. https://www.aspeninstitute.org/wp-content/uploads/2021/07/Building-Inclusive-Financial-Systems.pdf.
Download the PDF above to read 10 use cases enabled by Blockchain and Crypto that could impact financial inclusion and build wealth for households.
This project is supported by Humanity Forward.
