In 2013, everyone was convinced bitcoin was the next big thing ready to take the world by storm. However, after the world’s largest bitcoin exchange, Mt. Gox, imploded a year later, bitcoin became someone of an afterthought. Despite the misfortunes of Mt. Gox and Silk Road, all is not lost with the digital currency. In fact, this year bitcoin and digital currency have burst back on the scene with full force. What is more appealing, is the blockchain technology which underlies the entire Bitcoin network. A blockchain is a public ledger of all transactions ever conducted in bitcoin. The chain is constantly growing and contains complete information of user’s account balances as dealings occur.
While experts may have been overzealous with regards to bitcoin, there is a high probability blockchain technology will live up to those expectations. Blockchain is already thought to have a practical purpose in financial services, energy and the media and entertainment industry. Even more surprising, some experts have pointed to bitcoin and blockchain as a possible solution to income equality and poverty.
Bitcoin, Blockchain and Alleviating Poverty
Basic financial services can be hard to navigate in the developing world. While Bitcoin won’t be the end all be all solution, it does have the capabilities of addressing these challenges in a cost efficient manner. For many people in third world nations, it is fairly normal to rely on remittances from relatives in advanced economies. Last year officially recorded remittances to impoverish countries amounted to $432.6 billion, reflecting a 0.4% increase from the year prior. What people don’t see from this number is the amount that it costs to send funds. In 2015, average costs stood at 7.7% if you counted transaction fees and exchange rate spreads. Since Bitcoin is largely unregulated, it has the ability to replace conventional methods of transferring funds.
More importantly, Bitcoin has the capabilities to expand on existing payment services and in doing so connects users with the global economy. Many impoverished regions simply don’t have the abundance of bank branches you might find in New York City. This lack of financial infrastructure is a major impediment to stable economic growth. Transactions are typically conducted under the table and leaving behind no track record. This can clearly be a problem in developing countries where it is difficult to prove ownerships. However, blockchain’s cryptography is all about digital transfer of ownerships in a way that is completely transparent and public. Once you introduce this technology, public ledgers of ownership and transfers cannot be denied in the court of public law, regardless of how corrupt the government may be. The easiest way this can occur is through smartphones, which are becoming widely adopted around the world. Currently, about 50% of the world has access to a smartphone with modest estimates rising to 70% by 2020.
What's the Problem?
Since blockchain technology and bitcoin has really only made a splash in the past five years, there are many skeptics who disregard it as just another fad, which very well could be the case. As far as alleviating poverty, switching to bitcoin is not all that simple. While blockchain removes a degree of anonymity in regular transactions, some consumers prefer it the way it is. They want to remain anonymous for various reasons including their fear or distrust of banks. Meanwhile, finding these unbanked individuals is quite the endeavor in itself. Even with access to these people, you would have to convince them that bitcoin is a trustworthy means to conduct day to day transactions. Last but not least, bitcoin has been found to be illiquid in the poorest countries. In areas without proper infrastructure, it is difficult to value bitcoin as a viable form of fiat money.
The Bottom Line
Bitcoin and blockchain technology have a lot of potential to make a difference across various industries. Helping the world’s poorest would obviously have the biggest impact on developing countries. However, this wouldn’t be an overnight endeavor and would require a large amount of implementation and coordination to make this work.