In a world increasingly connected by networked digital technologies, there are several barriers and challenges concerning how global financial systems interact with populations around the globe, particularly in the developing world. Problems such as a lack of access to stable banking, government corruption, and the high cost of currency exchange and remittances for migrant workers sending funds back home all contribute to perpetuating existing inequalities. Cryptocurrencies and blockchain technology offer a potential solution to many of the pitfalls of the current financial system, particularly in relation to the developing world.
Lack of Access to Banking
A study conducted by the World Bank estimates that there are upwards of 2 billion people on the planet that lack access to banking. The majority of the unbanked live in developing countries. In some countries, such as Pakistan, Chad, Niger, and Yemen, less than 15% of the adult population have access to banking, and even those that do lack access to the kind of banking services that allow them to participate in global commerce.
Interestingly, in many places where banking remains inaccessible, modern telecommunication technologies have achieved mass adoption. Even in some of the poorest places on earth, mobile phones are widely accessible. In 2016, an estimated 62.9 percent of the population worldwide already owned a mobile phone. That number continues to increase as mobile broadband becomes cheaper and more widely available. As one Hackernoon writer put it, in an article touching on the potential for Bitcoin in Afghanistan, “people who cannot even read or write in their native language, let alone English, still use smartphones. They may not know the Persian alphabet but they know how to browse Facebook, like their friend’s photos, and post their own.”
So, we have a huge chunk of the world’s population cut off from the traditional banking system, but many of them have access to smartphones. So it isn’t too surprising that Bitcoin and cryptocurrencies in general have become an alternative for people living in the developing world. Blockchain-based currencies allow users to hold their digital wallet on their smartphone and transact both locally and internationally, eliminating many of the challenges of currency exchange and instability of national currencies, as well as the lack of access to traditional banking.
Currency Exchange & Remittances
Migrant labor plays a significant role in the current global economy, and it largely involves people from developing countries going to developed countries to find work. These individuals typically need to send money back home, often to support their families, which requires services like Western Union, Money Gram, etc. International exchange and money transfer services like these charge hefty fees, chipping away at the sum that actually arrives back home. In 2016, the World Bank found that remittances to developing countries totaled around $441 billion, comprising more than 50% of global remittances.
Beyond the high fees charged by existing services, long wait times and an often complex system of third-parties, adds to the difficulty many overseas workers face when transferring money back to their home countries. Cryptocurrency and blockchain offer an alternative that is already gaining traction in many places. Notably, in Sub-Saharan Africa, where global remittance fees were found by the World Bank to be, “an average of $20 per $200 — which was the highest in the world,” cryptocurrency use has grown rapidly.
Once again leveraging mobile communications, services like MPesa and BitPesa have emerged to facilitate financial transfers using digital currency. According to one article on Leaprate, “Mobile money transfer has become so popular, that it was reported in The Economist that over 25% of money in Kenya is transferred through the mobile money service M-Pesa.” Handling remittances via blockchain eliminates much of the hassle involved with third-party intermediaries, and it can reduce remittance fees from roughly 10% to 1–3%.
Unstable and Corrupt Governments
Corruption is a big problem throughout much of the developing world. Issues such as misuse of public funds, a lack of institutional accountability, election rigging, and corrupt officials contribute to instability and insecurity in many countries throughout the world. While crypto may not be able to make a corrupt official less corrupt, blockchain technology does offer some potential solutions to issues of transparency and accountability.
Beyond serving as a financial access point and an alternative to traditional banking, blockchain-based currencies and smart contracts also have implications towards things like voter registration, ensuring a fair and democratic electoral process, and tracking state usage of public funds.
The Bottom Line
As access to mobile telecommunications continues to grow even in remote areas, there is great potential for cryptocurrency to reduce social and economic disparity, and to create new opportunities for citizens across the globe. Particularly in developing countries, cryptocurrency and blockchain offers promising solutions to some of the most pressing problems facing the current financial infrastructure (or, in some cases, lack thereof). Mobile payments using digital currencies and digital wallets enable underbanked or unbanked citizens, local merchants, and migrant workers to transact with one another efficiently, securely, and cheaply, and creates a gateway to participation in the global economy.