Can cryptocurrencies replace traditional banking in developing countries?

According to the World Bank an estimated 1.4 billion people remain outside the formal financial system, with the majority in developing nations[1]. For this “unbanked” population, traditional banking systems can be often inaccessible due to high fees, stringent documentation requirements, and at times physical distance. On the other hand, cryptocurrencies operate on a decentralized blockchain technology, and has been heralded as a revolutionary solution, which provides the promise of democratizing finance with just a smartphone and internet connection. But can this digital promise withstand real-world pressure? 

When examining the theoretical aspects of cryptocurrencies, it is rather compelling. This is a result of the peer-to-peer system that can drastically reduce the cost of transactions, especially for remittances – money sent home by migrant workers. Globally remittance fees average 6%, a significant cost for families depending on that income. [2] Cryptocurrencies, on the contrary offer transaction fees a fraction of what traditional banks are averaging. For example, sending $200 via the Bitcoin Lightning Network would cost approximately $0.001. The recipient would receive roughly $199.999 compared to the $188 they would receive through traditional banking means, a fee of roughly 0.0005%. However, these benefits are impaired by significant shortcomings. The most critical being the volatility. A cryptocurrency that can lose up to 20% of its value in a day fails to provide a reliable and secure means of storing family’s life savings, an unsuitable vessel. Furthermore, technical complexity, the risk of losing funds through missing private keys, and scalability issues present barriers to mainstream adoption.

An example of these challenges in practice is in El Salvador, which adopted Bitcoin (BTC) as legal tender in 2021. The government had launched a digital wallet, “Chivo,” aiming to boost financial inclusion. Despite the new initiative, a comprehensive study by the National Bureau of Economic Research (NBER) concluded that the adoption had been minimal. The study had noted that “usage of cryptocurrencies for everyday transactions is low and concentrated” and that the new “Chivo” wallet was not widely used for remittances – its key intended purpose. [3] In fact, Salvadorans were largely deterred by Bitcoin’s volatility and technical issues of the platform, highlighting that imposing reforms from the top down cannot easily bypass core economic and practical barriers.

Moreover, perhaps the greater challenger to decentralized cryptocurrencies is a state- controlled alternative: the Central Bank Digital Currency (CBDC). A CBDC is a digital version of a country’s fiat money, which is issued and backed by its own central bank. It ensures fast, digital payments without the unpredictable fluctuations tied to cryptocurrencies. Nations like Nigeria, the Bahamas, and China are already pioneering CBDCs to improve financial inclusion based on their own terms, aiding in retaining control over monetary policy. For example, the Bahamian “Sand Dollar” directly tackles this by providing financial access via a mobile app to residents on remote islands where physical banks are scarce. This overcomes geographical barriers, boosts inclusion, and makes the financial system more resilient to natural disaster.

In conclusion, cryptocurrencies are unlikely to replace traditional banking in the developing world. As El Salvador’s experiment showed, they remain too volatile and complex for the most vulnerable. Instead, their true legacy is not as a replacement but as a powerful catalyst. They have forced a global conversation on financial inclusion, spurring innovation in traditional finance and prompting the creation of more stable solutions such as the CBDCs now developing.

-Parth Mishra

Jul 30, 2025

[1] World Bank. (2022). The Global Findex Database 2021.

[2] World Bank. (2024). Remittances Remain Resilient but are Slowing. Press Release, June 2024.

[3] Alvarez, F., Argente, D., & Van Patten, D. (2023). Are Cryptocurrencies Currencies? Bitcoin as Legal Tender in El Salvador. NBER Working Paper No. 31005.