Can cryptocurrency become an alternative financial system for people of color who have historically encountered discriminatory banking practices? Some color-enthusiastic crypto enthusiasts who spoke to ABC News say they believe so, despite the crash in digital currency prices.
Concerns about the volatile cryptocurrency market also leave some wondering whether using digital currency can harm colored people financially, who generally have less net worth and generational wealth than white people, instead of helping them.
Prejudice in banking
Black and brown people have a history of being “underbanked” and discriminated against by traditional financial institutions.
Many Latin American and low-income black households have little or no banking access, according to research from the Federal Deposit Insurance Corporation.
At least 40% of black Americans are under or without a bank – 13% are without a bank account and 27% rely primarily on other financial services that do not fully meet their financial needs, according to the Federal Reserve.
An analysis of Home Mortgage Disclosure Act data also found that of all mortgage applications, black borrowers had the highest denial rate of 27%, followed by Latin Americans at almost 22%.
And several studies on discrimination from several banks have shown that people of color have been charged more for bank fees or higher interest rates than their white counterparts.
Teri Williams, the president, COO and owner of OneUnited Bank, one of the country’s largest black-owned banks, told ABC News that “banking while Black” is a phrase used to describe discriminatory banking practices.
“There are many reasons for the large percentage of black Americans without a bank or subbank, including lower median income and education, less access to banking services due to a lower concentration of bank branches and a higher concentration of checkouts in black societies, and systemic racism,” she said.
She says that many black Americans simply feel unwelcome when they walk into most national bank branches.
Even black-owned banks have fought for adequate investment financing and do not have access to the same resources as large banks.
Cryptocurrency became a space, she says, where color communities could support and connect without the bureaucracy of financial systems, according to Olayinka Odeniran, founder of the Black Women Blockchain Council.
“Everyone has always felt that we do not really care about investing or budgeting,” said Odeniran, who is also an expert on network security. “But mainly we do it. It’s just that historically we have not had the resources to allow us to take on risk, and get some freedom of money that is beyond paycheck to paycheck.”
However, the recent crash of a popular stablecoin and the dramatic fall in Bitcoin from nearly $ 69,000 to under $ 22,000 in about two years (at the time of publication) highlight some of the dangers and risks of decentralized financial systems.
The crash in the cryptocurrency market erased billions of dollars and put investors in check.
Even the most enthusiastic cheerleaders of cryptocurrency recognize the potential risks and instability that cryptocurrency can have. The volatile marketplace and coin prices can change quickly and regularly, putting your money at stake. The market is also full of scammers who are eager to take advantage of users.
Still, some say that there is not much different than the tides in the stock market.
“Even though we are experiencing a bear market right now, historically Bitcoin is still on the rise,” Mesidor said. “This is a currency that no one took into account, and now it is around $ 20,000.”
Market volatility is one of the biggest risks. When the market crashes, colored people are likely to be included in the wreck.
Crypto is so volatile because it is not supported by anything more valuable in itself than the public interest in it, according to Forbes, while the US dollar is supported by the government.
This means that different currencies can fall in value or rise within a day. People can lose money, or potentially owe more on their crypto-based loans, in an instant.
Another risk for those operating in the crypto area is falling victim to fraudsters, who have exploited a decentralized market filled with a growing number of potentially uneducated newcomers.
Reported losses to crypto fraud in 2021 were up nearly sixty times the losses in 2018, according to the Federal Trade Commission. Without a third party to flag fraud or suspicious activity, or reverse payments, more than 46,000 people have lost money since the start of 2021 to crypto fraudsters.
An “alternative financial system”
A report from the Pew Research Center found that black, Asian and Latin American people are more likely to say that they have invested in, traded or used a cryptocurrency such as Bitcoin or Ether.
“Color people sometimes have trouble getting a bank loan or getting some kind of help from the government or a way to start their business, and they get rejected,” said cryptocurrency enthusiast Steven Bumbera. “Crypto does not care.”
Cleve Mesidor, CEO of the Blockchain Foundation, said colored people use crypto as “an alternative financial system to operate” without discrimination.
Enthusiasts claim that the benefits of managing money on blockchain technology outweigh the risks of many colors, and they stick to it.
When using crypto, it can cost almost nothing and takes almost no time to transfer money to anyone in the world at any given time, even if it depends on the type of crypto.
For crypto-supported loans, borrowers can get money from a stock exchange or lending agency without having to worry about racial discrimination.
“If you’re on a chain and you have a wallet address, you’re a wallet address – that’s it,” Bumbera said. “Crypto does not care about color, race, sexual orientation.”
Enthusiasts like Bumbera say they like that anyone with a smartphone can access cryptocurrency, without the bureaucracy of banks or government institutions where it takes days and costs fees or interest to do the same.
They also say that crypto can be used to finance companies and organizations directly without donations being penalized by a third party for transferring the money.
But for the wave of coloreds working in the market, Williams says this new financial frontier is bound to bring risks and challenges.
“Crypto is not a competitor to traditional banking, but a complement,” Williams said. “There will still be a need for traditional banking services, but crypto, in moderation, can provide opportunities for wealth building and opportunities to develop new services – such as money transfer services – that can better meet the needs of the black community.”