What is Cryptocurrency?
Cryptocurrency is digital currency used to secure financial transactions. They allow you to make purchases online at places that accept this form of currency and act as a store of value. The most famous cryptocurrency is Bitcoin and others include Ethereum, Litecoin, Zcash, Stellar Lumen, Chainlink, etc. These currencies can be bought and sold on cryptocurrency exchanges.
What is Blockchain?
Blockchain is a shared, immutable ledger used to share information, record transactions and track assets through an application. Each block has a record of many transactions and once it is attached to the chain, the information cannot be altered.
What is Microfinance?
Microfinance refers to providing financial services, such as small loans, to the poorer sections of the society that are not usually served by traditional banks. Banks are reluctant to lend loans to individuals earning a lower income as they require a loan of a small size and they have no assets that can act as collateral for the loan. As a result, microfinance is used to provide financial inclusion to these sections of people and can improve their conditions. Furthermore, it can act as a source of income for entrepreneurs and encourages the development of these small firms.
How do blockchain and cryptocurrency impact and influence microfinance and financial inclusion?
Blockchain and cryptocurrency have a significant impact on microfinance and financial inclusion.
Firstly, the development of blockchain and cryptocurrency will provide improved access to financial services as cryptocurrency is decentralized, i.e. it is not governed or controlled by any body so, small businesses and individuals can access these services with fewer rules. Moreover, it can be accessed from anywhere at any time with an internet connection and the use of blockchain technology makes it possible to track transactions and reduce the risk of fraud, making it more secure.
Furthermore, transactions made through cryptocurrency can be done with low fees, making it more cost-effective for microfinance institutions to provide financial services. Fast transactions with high automation will help in improving the efficiency of many microfinance institutions as it will make processes such as loan applications and payments easier and faster.
In addition, cryptocurrency can provide a means of financial inclusion for individuals and small businesses in developing countries as it will help in providing them with more opportunities that are secure unlike the informal financial sector. Improved financial inclusion could be instrumental in reducing poverty and promoting economic growth and development as businesses will have access to the capital and finance required to grow and expand.
To sum up, blockchain and cryptocurrency in microfinance has the potential to improve access to financial services, increase transparency and efficiency, and promote financial inclusion for underserved populations.
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