It’s a sad reality that while life may be getting better for large swathes of the world, for equally large swathes it unfortunately isn’t. In recent decades, industrialization has dragged many countries out of poverty, but still significant parts of Asia, South America, and especially Africa are bereft of advanced infrastructures, with not just poverty, but inflation, and corruption, rife.
Developed vs developing countries
Firstly, let’s define what is a developed, and developing country. The World Atlas defines a developing country as having a lower Human Developmental Index, which generally means it will have “lower life expectancy, lower educational attainment, lower per capita incomes, and higher fertility rates than found in other countries.”
Within this definition, are several segmentations, such as a newly industrialized country (NIC), which isn’t yet a developed country but is developing at a faster rate than most of its counterparts who are also defined as a developing country. Examples of NICs include Brazil and China. On the other hand, a developed country is defined as having a “high industrial and Human Development Index compared to other countries”, and an advanced infrastructure and economy.
While issues such as corruption, poverty, and inflation are omnipresent across the globe, they are indubitably more prevalent in developing countries. Indeed, many of these issues go hand-in-hand, with research from anti-corruption NGO Transparency International showing a clear correlation between poverty and public sector corruption. It’s also where cryptocurrency and blockchain technology can offer solutions.
One of the biggest problems facing developing countries is corruption, as they often don’t have mechanisms in place to be able to track fund transfers. Bribes in the public sector have been estimated annually by the International Monetary Fund to be worth between $1.5 and $2trillion, or 2% of the global GDP. But cryptocurrency and blockchain can put a stop to this scourge of so many societies.
The payment for public projects through cryptocurrency and blockchain can through cryptography ensure that every transaction is secure and fully verifiable. Although transactions through Bitcoin are normally identifiable through keys, there are other cryptocurrencies, such Ether, on the Ethereum network, which use smart contracts and therefore even less anonymous in their nature. A public sector institution could then allocate cryptocurrency on the network to those involved in the project, and transactions would be verified through miners who are rewarded with cryptocurrency. Some other examples of where blockchain is helping to fight corruption include in Brazil, where state-run tech firm Serpro have put it to work in the Amazon in a fight against fraud in the country’s outdated land titling system.
Cryptocurrencies can also be used to give a financial identity to some of the 40% of adults around the world who don’t have a bank account, of which most are from developing countries. In some countries, such as Myanmar, the figure is as high as a whopping 95%. Reasons as to why may include living too far from a bank, not having enough assets, or lacking the necessary documentation.
What cryptocurrency and blockchain technology can do for these people is to bring them financial inclusion, and this is important so they can build up savings and credit, receive loans, to pay for goods and services online, and make investments, something which they couldn’t have done previously. These things can in turn help to reduce poverty.
This can be done by providing these unbanked individuals with a digital identity. No bank account is needed, and so the lack of access is of no significance. There are some Ethereum based projects which are already putting this into practice. OmiseGo is one such example. Although still in its early stages, the ambitious network aims to promote financial inclusion by creating a secure, accessible and scalable platform by which transactions across eWallets can be done quickly and safely.
This has the potential to allow the unbanked to finally have financial inclusion, and ultimately give them more financial security. Being able to transfer currency in this way also provides tremendous growth potential for small businesses in developing countries, with the decentralized nature of cryptocurrency allowing many of them for the first time to truly operate on a global scale. Additionally, many start-ups, who may have been unable to receive loans through traditional financial institutions because of concerns of their risk, can now receive loans in cryptocurrencies instead thanks to the establishment of crypto loan platforms. This then has the potential to have the positive knock-on effect of boosting these countries’ economies.
Yes, cryptocurrencies are known for their volatility. This is part of their attraction to some, while not for others. In some countries with very high levels of inflation and practically worthless currencies, however, such as in Venezuela with the bolivar, Bitcoin in particular is increasingly being seen as a worthy investment and a worthy form of currency. To put into context the crazy levels of inflation, according to the BBC, a cup of coffee cost 373,000% more in March 2019 in the country than it did a year earlier.
Unsurprisingly therefore, adoption in Venezuela has skyrocketed, with trading volumes on some Bitcoin buying platforms even rivaling that of the US. Bitcoin ATMs have sprung up, and many Venezuelans are converting their bolivar into Bitcoin, so they can hold onto something of worth. Also, mining Bitcoin can bring vast amounts to money to the locals – in Venezuela according to 2018 estimates around $530, which may not seem much to someone in the West, but certainly is to someone there. Incidentally, the Venezuelan government last year launched their own cryptocurrency – the petro. However, with it being pegged to the value of the disastrous bolivar, it was almost universally negatively received internationally. The New York Times labeled it a “nonexistent, nontraded cryptocurrency” and a Venezuelan entrepreneur in a Coin Desk interview said it was “terrifying” that the “dictatorship was going to try using blockchain to further centralize its power” So, in essence the petro was everything that Bitcoin was created NOT to be.
With poverty and a myriad of social problems looking not likely to go away anytime soon in many developing countries, (on current estimates 2.5 billion people worldwide live in poverty and this number is still rising) solutions are needed – quickly, and cryptocurrency and blockchain technology has already shown that it can provide some of them. Ending corruption is key to this, and with blockchain technology, transparency can be brought – the antithesis to what corruption at the core fundamentally is.