Blockchain and banks

Privacy is sorely needed in the cryptocurrency ecosystem. Cryptocurrencies could help raise people out of poverty in developing countries and boost economies with increased money transfers—or they could be a way for oppressive regimes to track down every transaction and have more opportunities to accuse innocents of wrongdoing.

The appeal of blockchain technology to people with antiauthoritarian streaks is obvious. Many in the US have a bone to pick with the banking system. In the thirties, the Federal Housing Administration, which insures mortgages, drew maps of areas in which it would do business, excluding poor and minority communities. This practice continued for a generation, and it was devastating to the core of many American cities, destroying hundreds of billions of dollars in wealth:

More recently, the 2008 global financial crisis resulted from speculative bets on future derivatives and dodgy lending practices, which drove real-estate prices sky high (and then very low).

Some regulation was passed in response to this malfeasance, but unlike the savings and loan crisis in the 1980s, few faced criminal penalties. Since then, numerous candidates for public office have decried the perceived unfairness in the treatment of the bankers (who were bailed out) relative to others said to have committed crimes against society, such as low-level drug offenders.

Less politically, it's not difficult to find widespread dissatisfaction with the available solutions for banking and payments. Anyone who lives abroad for any length of time will have some difficulty getting access to their money. Anyone who travels will have their credit or debit card locked up with a fraud alert. How about setting up banking for a new business without a domestic office? Good luck. For added difficulty, try sending an international wire transfer from that new business bank account.

It's easy to say that banking hasn't caught up with the times, but that's not quite right. Establishing a business bank account is harder than it has been in the past. As a consequence, some startups have chosen to go unbanked, including some with which several of this book's authors were involved. This approach provides some advantages as far as administrative expense is concerned (no bank fees, no endless declarations and disclosures, no locking out users of payment cards because of fraud alerts). It also carries risk, and as we'll see in subsequent sections, going unbanked will require some development to become a viable alternative.