Blockchains are all and well and good, but they won’t be enough to bring financial services to the underbanked and unbanked.

At least, that was the drift of a U.S. Senate hearing Tuesday on cryptocurrency regulation, where lawmakers and witnesses scrutinized the oft-repeated claim that the technology will spur financial inclusion.

During the Senate Banking Committee hearing, Sen. Brian Schatz (D-Hawaii) questioned Jeremy Allaire, CEO of crypto exchange Circle Internet Financial, on the matter.

“What it sounds like to me is tech people wanting to wave a wand and skip a bunch of steps and avoid the tough politics of doing things for people and say, ‘We’ve got a new tech that will solve all this stuff,'” Schatz told Allaire. “Do you really think that in a society in which only 81 percent of the public currently has a smartphone, we’re anywhere close to democratizing the use of these products?”

It may well be that blockchain becomes a widely-used tool, but this does not mean it will solve the problem of banking the financially excluded, Schatz said, telling Allaire:

“I don’t doubt the potential for this tech, I just don’t think it’s going to bank low income communities and I don’t think you’ve persuaded anyone here that it’s going to do that.”

Allaire agreed that the problem of financial inclusion is complex.

“These are human issues and real policy issues and the risks we have to address in the financial system … those exist significantly. This technology actually does provide an avenue to improve upon those but there’s no silver bullet here,” he said.

Not a tech problem

Another witness on the panel, University of California law professor Mehrsa Baradaran noted that roughly a quarter of the entire U.S. population does not have access to the nation’s financial system, and spend “billions” paying alternative service providers to quickly access cash. However, this is not a technological issue, but rather one of public policy, she contended.

Baradaran believes that unbanked individuals need a point of access, and while blockchain is one technology that can help, “there are many easier ways” of providing this access.

“The problems of low-income and underbanked customers is not that they’re unsatisfied by existing tech, the problem is they live in a banking desert … there is no place to [use a card] because banks are no longer interested in serving those customers,” she said.

Schatz clarified that he doesn’t think blockchain is a useless technology, but that in his view, adoption requires a number of intermediary steps that are not being addressed.

“I don’t doubt the importance of the technology or that we’ll probably all be using it in two decades but I think that’s a different assertion than ‘oh, by the way, it’s going to solve all these societal ills,'” Schatz said.

He concluded:

“The important thing here is to understand what this tech does and what it doesn’t do, because if we’re going to establish a regulatory framework for this we need to not be so triumphant about all the problems that it’s going to solve but we also need to be clear-eyed about the problems it may create but also the potential for it.”

Following the hearing, Coinbase chief legal officer Brian Brooks noted on Twitter that “Even those that are skeptical of the promise of cryptocurrencies often recognize the shortcomings of the current financial system and the effects of excluding large segments of the population from traditional banking services.”

However, he indicated that blockchain, as the “latest breakthroughs in peer-to-peer technology,” is likely to be necessary to improving the current financial system.

UPDATE (July 30, 2019, 20:35 UTC): This article has been updated with additional commentary.

Brian Schatz image via Senate Banking Committee