15 years ago, I spent a good amount of time on microfinance projects with some of my friends. How could a company provide banking services to some of the poorest places in the world? We never could get it to work, but when crypto came around it seemed like an interesting tool for this problem.
So with that background, one of the talking points I used when pitching BTC in the early days was its potential for the upward mobility it could provide for the unbanked. “Democratizing access to finance” was a common bullet point on my slides.
But I’ll readily concede that is obviously not how it played out. So instead I wanted to discuss the interesting crypto use case for the far opposite end of the spectrum: ultrabanking.
First, a few broad category definitions:
- The unbanked. This is a rough category to be in. Most of the world doesn’t care about you, let alone a bank. The processing costs of opening an account would already be more than your total net worth. You typically keep what you have under a mattress.
- The underbanked. You might not have a credit card or a full blown checking account, but you might have prepaid debit cards and can therefore interface with a broad set of merchants.
- The banked. Standard stuff: checking, savings, credit cards. Maybe you have a mortgage or car loan. People are willing to lend to you. You might have a portfolio of stocks and other investments options.
- The superbanked. You have all of the above but more. A team advises you on portfolio allocations. You own stocks, bonds, have access to options and other derivatives. Advisers will explain how to minimize the tax implications of all of your transactions. Preferential interest rates are offered and you can get a loan at will. “Exclusive” investment funds are made available to you. Your private wealth advisor invites you to box seats at a Yankees game and sends you a bottle of 1982 Chateau Lafite for Christmas.
- The ultrabanked. This is where you want to be. Paradoxically, at this level you are actually trying to disentangle yourself from the traditional banking system. You’re no longer storing your wealth as much as hiding it. You have shell companies in various island regions — not to be tax optimized, but to simply not pay taxes at all. Stocks? Nah, you store your wealth in Picassos. And not in your apartment, usually in a storage facility at an airport so that it’s perpetually in transit and you do not have to pay taxes. Black bags with diamonds in safe deposit boxes, etc. etc. The must haves in this category are anonymity of wealth storage, tax evasion, and the ability to move assets at will for reasons you do not want a lot of people asking about.
A few examples. Netflix recently released a documentary about the college admissions scandal uncovered by prosecutors in 2019. Desperate, rich parents bribed various individuals with influence so that their kids could get into good colleges. Fake charities were set up, hundreds of thousands of dollars funneled into them and subsequently laundered. In the end, preferential treatment was given to those applicants.
This is an example of “specialized transaction services” that ultrabanking offers. Setting up bogus charities? Subsequently laundering donated money by setting up fake events and printing out brochures for causes that nobody cares about?
That’s a lot of work!
Here, crypto is superior. If this isn’t happening already, you can imagine a modernized college admissions scam. Just meet the dude in an alley. He gives you a piece of paper with a QR code on it and you send him the BTC. Neither of you ever have to see each other again.
Months later, a thick envelope with an acceptance letter from Harvard for your kid arrives in the mail. Much simpler, and no faux charities required. BTC is far cheaper and safer in this classic ultrabanking use case.
In 1994, the SVR (former KGB) was wrestling with a problem. They had a very highly placed spy in the Canadian government giving them excellent information. The problem was how to pay him without attracting too much attention. It’s not actually easy to just give someone $250k in hard cash. Just ask any drug kingpin — that stuff is dangerous to store and hard to move.
A rising KGB star, Sergei Tretyakov, came up with a great idea — hire him as a consultant. This is a classic ultrabanking service. Transfers of money in a nuanced way that’s tailored to this specific situation. The spy “worked” as a consultant for a Russian shell company. No actual work was done, of course. But payments were sent to him every month, and in turn the quid pro quo is he continued to feed valuable intelligence to Moscow. It’s much safer to do, with the only downside being you typically pay taxes.
Here again, BTC is superior. Just send it to him. No need to pay the lawyers for setting up front LLCs, vet contracts that are meaningless anyway, etc.
So why is this topical? What’s changed? In short, the market capitalization of crypto. As an alternative to traditional ultrabanking services, it had no chance if the total worth of all BTC in circulation is $1 billion. You cannot hide $8 billion in wealth in a market like that. If it’s $1 trillion? Much more feasible.
The point is not to take a cynical lens to this. The point is that all of this has already been happening for decades with individuals who have the means and sophistication. Years before Bitcoin was even a glint in Satoshi’s eye, well resourced people have been renting vaults, setting up fake charities, and giving bribes disguised as consulting contracts to advance their agendas.
Bitcoin is a viable / superior alternative to all of these traditionally closed off ultrabanking capabilities. If you own BTC and the market capitalization continues to stay high, you now have access to ultrabanking services that only a select few did before. In a very real way, it levels the playing field.
I guess that’s one way to democratize access to finance.