While the debate about whether Bitcoin will ever gain full footing in the global financial ecosystem continues, there has been less talk about Bitcoin’s prospective benefits within communities that are not well served by traditional financial services, in particular the African-American community, reports The Atlantic in an article published Wednesday.
The article begins with a brief profile of Edwardo Jackson, a 39-year-old Las Vegas-based professional poker player who has spread Bitcoin’s gospel on his blog – Blacks in Bitcoin – since 2013.
An African-American, “Jackson doesn’t neatly fit the image many have of the typical Bitcoin user – the affluent, white, libertarian-leaning male,” says The Atlantic.
The magazine suggests it is within the African-American community where Bitcoin needs a higher profile, pointing to studies released last year that observed that black people were less likely than whites and Hispanics to have heard about digital currencies in general, and less likely to know “a lot” about Bitcoin.
Within the African-American community, Nicholas Colas, the chief market strategist of the brokerage firm ConvergEX Group, sees Bitcoin filling a significant financial services gap. As support, Colas points to a Senate committee letter penned in 2013 by then-Federal Reserve Chairman Ben Bernanke and a Bitcoin primer published by the Chicago Fed. While neither made any official endorsement of Bitcoin, both noted the potential benefits of fostering low-cost transactions in communities where currency exchanges, prepaid cards, and payday loan services are commonplace.
“That’s where the promise is for the African American community, because in a finished form, it allows for a cheaper money-transfer system than anything that the current financial system can provide,” said Colas to The Atlantic.
Shawn Wilkinson, founder of the cloud-storage service Storj, told the magazine that Bitcoin could enable individuals to engage in micro loans.
“Bitcoin, or some kind of cryptocurrency, has the ability to decouple African Americans from the economic system in a positive manner,” he said. “With Bitcoin, there are a lot more methods with microlending, where you can have communities using cryptocurrencies to help themselves without any intermediaries.”
Wilkinson also believes Bitcoin mining would influence more black people to become knowledgeable about back-end technology.
Nicholas Pearce, an assistant professor at Northwestern University’s Kellogg School of Management, sees some value in African-Americans adopting Bitcoin, especially among those who depend significant on prepaid cards and currency exchanges to manage their money.
“Bitcoin can be a very useful tool to engage historically under-engaged populations into more digital transacting,” said Pearce to The Atlantic. “One thing that is true of any type of innovation of this sort is that there are going to be some people who are early adopters, and Bitcoin is an answer to a problem they have had for years.”
However, Pearce, who believes there is a distrust among African-Americans of the financial landscape at large, is not convinced that anyone outside of early adopters will start using Bitcoin in the black community.
“For African Americans in particular, I think the issue with Bitcoin is that it stimulates arms-length transactions,” Pearce said. “In the African American community, by and large, people tend to be more relationship-oriented than transactionally-driven.”
The Atlantic notes that Bitcoin’s volatility might raise red flags among African-Americans, who are a “powerful consumer force” (the magazine points to study last year projecting black people’s purchasing power would reach $1.3 trillion by 2017), yet their wealth continues to lag significantly behind that of whites. The magazine cites another study from last year showing that black households own only five cents of wealth for every dollar white households own.
Such wealth disparity means black people amass less in savings and stock holdings compared to other groups, which does not provide a strong case for holding an asset as volatile as Bitcoin, says The Atlantic, which also notes security worries surrounding the digital currency, demonstrated by Mt. Gox’s collapse and the loss of hundreds of millions of dollars.
Despite being bullish on Bitcoin, Colas, of ConvergEX Group, acknowledged that such concerns should not be taken lightly.
“Typically, lower-income households should primarily focus on trying, as best they can, to build up a small savings buffer,” he said. “That isn’t necessarily well-served by having it in Bitcoin because of the volatility of the currency.”
Colas believes those concerns will be mitigated over time as mining activity increases and more Bitcoins are released into the digital monetary supply, possibly bringing more stability to Bitcoin’s price, attracting more users, and leading to more businesses accepting the digital currency. The Atlantic says with these developments, Bitcoin could potentially exist alongside the historically “relationship-oriented” transactions that Pearce, the Northwestern University professor, described.
But there is still the question of whether Bitcoin is conductive to illicit activity. In economically-distressed African-American communities vulnerable to the devastation of drugs and violence, the prevalence of Bitcoin could be considerably unnerving, says the magazine.
Pearce is also an assistant pastor of the Apostolic Church of God in Chicago’s Woodlawn neighborhood, parts of which have for years seen rampant drug use, violence, and gang activity. As a notable figure in Woodlawn, Pearce can empathize with residents being wary of Bitcoin. But he does not foresee Bitcoin worsening black communities’ socioeconomic woes any more than he envisions it fostering African- American financial empowerment.
“Bitcoin is not going to be the cause of illegal activity,” Pearce said. “People are the issue.”
Colas told The Atlantic that he thinks worries about illicit activity can be dealt with as Bitcoin moves into the regulatory realm of the financial system at both the state and federal level.
“As Bitcoin gets cleaned up, as regulators put rules around it, that will get resolved.”
Jackson, who runs the Blacks in Bitcoin blog, believes there is another barrier to overcome before Bitcoin becomes more widely adopted among black people: racial perception.
“I think what has hindered Bitcoin in some respects is that its early adopters have been largely counterculture, libertarian white males,” said Jackson to The Atlantic. “There’s nothing wrong with those early adopters at all, and they don’t exclude anyone. It’s just that they tend to sit in their own coffee klatch of like-minded demographic folks, and some of them may eventually say, ‘Oh, we haven’t reached out to minority communities, to women, and to certain parts of the globe to bring them into Bitcoin.’”
That is why Jackson is passionate about getting black people on board with the digital currency, even with all the issues that need to be addressed.
“Just like with poker, Bitcoin right now is a very egalitarian game,” he said. “There are so many avenues that are set up where you can buy Bitcoin, there are no real institutional blockages between you getting Bitcoin, and it’s still relatively early and cheap enough.”
Given demonstrable benefits to using Bitcoin, The Atlantic wondered: how might more black people come around to using the digital currency in everyday life? Kinnis Gosha, an assistant computer-science professor at Morehouse College – a historically black all-male college in Atlanta – said that African-American merchants could play a bigger role as they are ever-mindful of transaction costs.
“If you’re a small business owner, and you say, ‘We’re not doing PayPal, we’re only doing Bitcoin,’ and it is actually in places where African Americans shop, it’s going to be hard to get African Americans to refuse it.”