Cryptocurrencies are changing the world in many ways.
Cryptocurrencies are changing the world in many ways. Its impact will be important in developing economies.
The advent of cryptocurrencies has changed the world in many ways than imagined. Cross border transactions are now easier and safer and the blockchain technology that accompanying cryptocurrencies is now being deployed for various other uses.
One very important offshoot of the existence of cryptocurrency is the effect it is having on developing countries. From its early days to date, cryptocurrencies have so far been seen mainly as just another investment tool or commodity for wealthy people in advanced economies. In actual fact, many people in the developing world have been taking advantage of cryptocurrencies to join the global financial market in ways that have been previously unavailable.
The bulk of the world’s poorest people, the so called bottom billion are resident in developing countries. Not only are many of the people in this demographic excluded from the formal financial system, they also find it difficult to prove ownership of their own business or property and also face a high cost of sending or receiving funds across borders.
According to 2017 estimates from the World Bank, upwards of 76% of global remittances of US$613 billion went to middle and low income countries. The bulk of this remittances was sent to India, China, Mexico and Nigeria, all high population countries hosting a large percentage of the bottom billion. The remittance fees, which averages about 12% for transfers to Sub-Saharan Africa, is an enormous cost to the poor. This is where new technologies like cryptocurrency and blockchain can offer a solution.
Whether they are from Ratnapura in Sri Lanka or Bujumbura in Burundi, poor people from developing countries have historically been disadvantaged by lack of access to banking infrastructure or credit. This creates a tremendous potential for the future as such disadvantaged individuals, communities or countries can benefit from the many opportunities provided by new technologies like blockchain and cryptocurrencies. In some places, these technologies are already helping the poor by permitting better access to financial institutions, reducing high cost of remittance, tackling inflation and somehow mitigating corrupt practices.
In many other places in the developing world where there is conflict, the financial system is further worsened and many displaced peoples or refugees are left stranded and completely cut off from the commercial world.
For a long time such situations in distressed communities have hampered the ability of NGOs to provide much needed relief and aid. To overcome this, international agencies like the UNHCR, USAID and the UKAID have resorted to new technologies like distributed ledgers (blockchain), cryptocurrencies etc. More and more humanitarian agencies are changing over to electronic voucher based funding as a means of bypassing the non-functional financial system they meet on ground.
The agencies achieve this by creating a kind of closed circuit micro financial system which is based on electronic vouchers distributed to the camp dwellers or indigent communities and can be exchanged for specific number of physical goods.
The vouchers may also be exchanged for cash or used to load prepaid cards. A good example of how successful this system is can be found in the troubled North Eastern part of Nigeria where the Islamist group, Boko Haram, has devastated the entire area. Catholic Relief Services (CRS) and the United States Agency for International Development (USAID) have been distributing “red cards” which are preloaded with money to thousands of refugees to procure supplies and food from designated seller points.
The United Nations also took things a step further when the organization ventured into cryptocurrency proper by sending Ethereum-loaded cards to thousands of Syrian refugees in a camp in Jordan. The cards can be redeemed at several shops which have been fitted with the technology to process them.
Cryptocurrencies therefore offer an alternate option to traditional banking which is extending to countries of varying levels of economic development.