unbanked

MIT, Maiden Labs examine CBDC inclusiveness issues in report from 4 countries

The report concentrates on real-world research from low- and middle-income countries and untangles questions of inclusiveness, trust and functionality.

The Massachusetts Institute of Technology (MIT) Digital Currency Initiative (DCI) and associated organizations marshaled a sizable team of researchers in four low- and middle-income countries — India, Indonesia, Nigeria and Mexico — to study inclusion issues related to retail central bank digital currency (CBDC) design. They released the results of their 15-month research project on Jan. 13.

In spite of a growing body of work related to CBDCs, “few if any proponents have offered practical insight into how CBDC will promote greater access to financial services,” the DCI, along with the MIT Media Lab and Maiden Labs, claimed.

The authors considered CBDC design options, existing financial infrastructure and user experience, based on real examples from people’s lives. They particularly emphasized the differences between intermediated and non-intermediated (cash) payments, saying:

“An important potential risk is that an intermediated CBDC will replicate the design – and therefore the harms – of existing intermediated money forms.”

Cast your vote now!

The six CBDC pilots and projects existing today all use intermediated models. The researchers remained neutral in regard to intermediation and blockchain, or distributed ledger technology (DLT). Echoing a conclusion the DCI reached in its first Project Hamilton report, this report says:

“The question of whether to use DLT technologies is really about governance and trust, with some related issues around performance, rather than about its capability to achieve specific features.”

The report went on to compare five affordances (“what a user can do with a technology”) in intermediated and non-intermediated systems and the real-world uses and challenges they hold for vulnerable users. About a quarter of the world’s adult population is unbanked, and many of those people lack identification.

Related: Nigeria revisits its payments landscape amid sluggish eNaira adoption

Trust was as serious a concern as practical issues for many vulnerable users. The report says:

“Especially considering the rise of authoritarian regimes around the world, the acceleration of the surveillance state, and the increasing challenge of regulating the technology industry, it is far from self-evident that people should trust a CBDC.”

The report concluded with a list of a dozen related research topics.


We need to move a lot faster on Global South Bitcoin adoption — Paxful CEO

“The Global South is where we should be looking” for Bitcoin adoption, Paxful CEO Ray Youssef told Cointelegraph in an interview at the gym.

Cointelegraph hit the gym with Ray Youssef, co-founder and CEO of Paxful, to tackle Bitcoin adoption in the Global South. In between sets and a little out of breath, Youssef told Cointelegraph, “The Global South is where we should be looking” for Bitcoin (BTC) adoption.

A New Yorker born in Egypt, Youssef regularly visits Africa and the Global South to promote Bitcoin and peer-to-peer finance. He is determined to bring Bitcoin to those living and working across Africa and to undermine the “economic apartheid” created by government-issued fiat money.

Youssef is a firm believer that government-backed, fiat money is a scourge on human progress. He posited, “Creating money is the greatest creative opportunity of any government,” before launching into a diatribe against Western governments as he pumped iron. Nonetheless, thanks to Bitcoin, people around the world — especially in the Global South — now have the means to fight back against economic repression:

“The good news is we have a few tools at our disposal. We have the internet, we have mobile phones, and now, we have Bitcoin peer-to-peer, electronic cash.”

Youssef’s business, Paxful, currently numbers 10 million users worldwide. But the CEO explained that the crypto community needs to move a lot faster in order to reach a billion users in the next five to 10 years. He referred to the explosive growth of telecommunication companies such as M-Pesa in Kenya as examples that adoption can flourish rapidly:

“The telcos have shown us the path, but we aren’t listening. We’re still trying to replace banks with wallets, and that is not the path to a billion citizens. We need something more.”

Ultimately, the key to unlocking growth in emerging markets is teaching citizens about Bitcoin and the properties of hard money, Youssef believes.

“A focus on education is great. But primarily we have to shift away from this mindset that we have right now of just replacing banks with wallets.”

It’s true that Bitcoin wallets do act as a replacement for banks. In El Salvador, for example — a heavily unbanked country — Bitcoin adoption onboarded 4 million users in a year: 70% of the unbanked population gained international payment and remittance services.

However, Youssef went one step further, envisioning a world where Bitcoin helps the unbanked trade and transact freely, creating an abundance of entrepreneurship.

Related: Bitcoin in space is good for user privacy, says Adam Back

Finally, Youssef also joked that Ronnie Coleman, a bodybuilder and eight-time Mr. Olympia winner, would be a Bitcoiner. Cointelegraph reached out to Coleman for comment and will update when possible. 

Vietnam’s crypto adoption: Factors driving growth in Southeast Asia

Vietnam has the highest crypto adoption rate in the world. There are numerous factors driving the trend.

The Southeast Asian nation of Vietnam now ranks among the top nations adopting cryptocurrencies. Indeed, the country has ranked first on Chainalysis’ Global Crypto Adoption Index for two years in a row.

Chainalysis’ research methodology took into account population-adjusted adoption in crypto platforms ranging from centralized exchanges to peer-to-peer (P2P) payment networks. Web traffic to major crypto networks was analyzed to determine countries with the highest interest and adoption percentages.

That said, Vietnam’s high adoption rate is a puzzling phenomenon, begging the question: Why is crypto adoption so high in the country?

No cryptocurrency taxes

There are numerous reasons why the crypto adoption rate in Vietnam is so high and one of them is that, unlike in the United States and other major jurisdictions where cryptocurrency holdings are taxed, there are no crypto taxes in Vietnam. 

Right now, the Vietnamese government does not even recognize cryptocurrencies as legal tender. While the nation’s tax authorities have shown interest in taxing cryptocurrencies, they lack the mandate to designate them as taxable assets. As such, Vietnamese law is largely silent when it comes to crypto taxation. 

Consequently, financial institutions in the country are barred from handling them. However, Vietnamese citizens are allowed to possess and trade crypto.

The lack of crypto taxes makes digital currencies ideal as investment instruments, hence the rise in adoption. The trade-off is that Vietnamese law doesn’t protect crypto users in the event of scams or losses. As such, cryptocurrencies cannot be used legally in trade relationships.

However, the nation’s financial regulatory agencies are working to come up with elaborate crypto usage guidelines. This is following a July 2021 directive issued by Prime Minister Phạm Minh Chính in which he asked the State Bank of Vietnam to explore the benefits and downsides of digital currencies with a view to draft regulations. The institution is likely to come up with a raft of measures that include tax and user protection guidelines.

Cointelegraph had the chance to speak with Gracy Chen, managing director of the Bitget cryptocurrency exchange, regarding Vietnam’s regulatory landscape and the developing situation.

According to Chen, clear and robust regulations would allow institutional inventors in the country to start dealing in crypto, and this would be a big win for the industry:

“When the regulation actually comes out, it may lead to a short-term impact on local fiat exchange trading, but in the longer term, clear regulation may encourage broader adoption and lay the groundwork for increased retail and institutional engagement since a better-regulated market will provide greater protection and increase trust of investors. So overall, the pros outweigh the cons.” 

Vietnam has a huge unbanked population

Many Vietnamese have limited access to standard financial services. According to a 2021 study carried out by Statista, the country ranks second among the top 10 unbanked nations. The report highlights that about 69% of the citizenry lacks access to typical banking services.

World Bank estimates indicate that just over 61% of the country’s population resides in rural areas, where access to modern banking services is limited. This void is rapidly being filled by cryptocurrency networks. Novel revolutionary blockchain concepts such as decentralized finance (DeFi) are also gaining traction among Vietnamese crypto investors who wish to obtain credit for crypto investment purposes.

DeFi is a hypernym for blockchain-based financial networks that provide services similar to those offered by banks. DeFi platforms allow users to earn interest on their money, lend and borrow funds, as well as trade in crypto derivatives. They also enable investors to safeguard their assets using DeFi insurance and don’t require paperwork. This makes them convenient for unbanked Vietnamese, especially those who wish to scale their crypto investments and earn passive income.

Notably, Vietnam is ranked second among nations with the highest DeFi usage in the world, according to the 2021 Chainalysis Global DeFi Adoption Index report.

Remittances

In 2021, Vietnamese nationals living in the diaspora sent home over $18 billion in remittances, setting a new record, which made the country the eighth biggest remittance beneficiary in the world. This was a 3% increase from the $17.2 billion recorded in 2020.

For Vietnamese who regularly send money to their families in Vietnam, transfer fees are often exorbitant. The surcharges usually include administrative fees and exchange rates. According to World Bank statistics, remittance costs to Vietnam average about 7% as of 2020.

Exorbitant fees, in addition to the unbanked population’s lack of access to money transfer services, have made cryptocurrency transfers an appealing option for Vietnamese living abroad to help support their families back home.

While blockchains do have transactions fees, they often pale in comparison to those of remittance networks, and furthermore are P2P and don’t rely on a middleman to complete the transaction.

The rising popularity of GameFi 

Blockchain games with financial incentives, often referred to as GameFi, use innovative economic models that allow users to earn rewards while playing. The rewards are usually in the form of nonfungible tokens (NFTs) and cryptocurrencies.

As cryptocurrencies are at the heart of GameFi environments, many gamers learn how they work as part of the gameplay, providing another avenue for adoption.

According to Chainplay’s State of GameFi 2022 survey in August, 75% of GameFi crypto investors said that they started investing in digital currencies after joining GameFi platforms.

GameFi, especially play-to-earn (P2E) games, are immensely popular in Vietnam and have contributed greatly to cryptocurrency adoption in the country.

According to a 2021 research report published by data aggregation service Finder, Vietnam ranks sixth on the list of countries with the highest percentage of P2E gamers. According to the survey report, 23% of Vietnamese participants said that they had, at some point, played P2E games.

Today, numerous GameFi startups have set up shop in the country due to the pervading NFT gaming culture, and this is, in turn, driving crypto adoption. The developers include Ancient8, Sipher and Summoners Arena.

Notably, Axie Infinity, one of the most popular play-to-earn games in the world, has its roots in Vietnam.

Chen said that the relationship between GameFi and crypto adoption is part of the reason why both sectors are thriving:

“According to data from Google, Sensor Tower, and Data.ai, Vietnam ranks first in Southeast Asia in producing applications and games in stores like Apple Store and Google Play. Meanwhile, the new huge crypto adoption all over the world last year was in part due to GameFi. These two factors are significantly connected, creating massive crypto adoption in Vietnam.” 

Cryptocurrencies as a hedge against inflation

Vietnamese citizens have, throughout history, preferred using other national currencies such as the United States dollar during times of economic turmoil and hyperinflation. In recent years, Vietnamese people have also been accumulating assets such as gold to hedge against inflation.

At some point in the past decade, the Vietnamese citizens held as much as 400 tons of gold.

Of course, the emergence of cryptocurrencies has also led to more Vietnamese citizens using them to hedge against inflation instead of tangible assets such as gold.

While the Vietnamese central bank has warned individuals and institutions against dealing in virtual currencies due to their mercurial nature, dwindling faith in the Vietnamese dong has led to more Vietnamese investors turning to digital currencies. According to data derived from Statista, Bitcoin (BTC), which is widely used by investors as a hedge against inflation, is currently the most popular cryptocurrency in the country.

The report reveals that search interest in the country for the prime cryptocurrency stands at about 84.5% relative to other cryptocurrencies.

Crypto adoption in Vietnam is set to persist as more Vietnamese discover the convenience and possibilities of digital assets. Extensive regulations, however, appear to be a long way off. The State Bank of Vietnam has until 2023 to study the pros and cons of cryptocurrencies and come up with policy recommendations.