Olya Green


Is blockchain the last resort for the emerging economies?

By Olga Grinina

Last week Coinbase announced the launch of a charity crypto fund with a sole purpose of helping the emerging economies by globalizing cryptocurrency distribution. No wonder. Emerging markets and economically challenged countries have always been the fruitful soil for introducing innovation not only because there are very few goods and services, but also because of their great potential to leapfrog. Leapfrogging, or using the lack of existing infrastructure as an opportunity to adopt the most advanced methods, has been a highly effective strategy for developing nations over the last few decades. At the same time, the demand for basic services like mobile banking in developing countries is surging like nowhere else in the world together with the mobile adoption rate. Now think about it for a second: people in Africa might not have a MacBook and won’t be able to afford a Tesla any time soon, yet they all have a mobile phone and they all want to get their pizza delivered to the door on a rainy day or a utility bill at hand to make an instant payment. But the reality is that the infrastructure is poor, and the technology has no grounds to take off from.

Or it hasn’t until now. With blockchain preached about at every corner of the world, it looks like we’re talking about the next level leapfrog to help developing nations. Let’s look at some real life applications. Probably the most visible example of leapfrogging is South Africa that rolled out the ultimate telephone access using 3G networks instead of laying down cables and providing internet access via smartphones rather than via desktops. But it’s not just physical infrastructure that can be leapfrogged. So can be the business operational model! Take Japan. How could the country ruined by the World War Two emerge as the world’s next high-tech leader? It’s their newly implemented approach to quality control that revolutionized the Western approach to production. Another prominent example of leapfrogging is M-Pesa mobile payment system in Kenya and Tanzania that basically lets people bank in their national currency using only their phones, therefore eliminating traditional banking practices. This boosted the overall economic growth by lowering transaction costs and allowing poorer farmers to securely send and receive payments at affordable rates. Curiously enough, the mobile money services such as M-Pesa are even more advanced than their counterparts in developed economies!

Coinbase’s charity fund is continuing the sequence of initiatives coming from big players targeted at helping emerging countries to build over the capitalist world conventional systems. Back in 2015, the Bill & Melinda Gates Foundation funded a blockchain startup in Ghana that is focused on promoting acceptance of mobile payments by minor retailers. Yet again, a good example of leapfrogging by searching for alternatives to traditional ways of transmitting data and focusing on mobile.

Token economy takes off where traditional financial and banking systems are barely established or not established at all. That is now especially true for the least developed countries concentrated mainly around Southeast Asia and Africa. Never been to either, but I believe finding an ATM can become a real challenge there. Moreover, the recent study revealed that only 54 % of adults in developing countries have access to a bank account. The 3% penetration rate of credit cards sounds rather shocking too. Oddly enough, the mobile adoption rate here is running up to 100%! Blockchains are probably a perfect tool to spur innovation and start building ecosystems that could provide a secure technical framework to build financial digital products for those located in the remote regions. The decentralization and open source mean that distance to infrastructure like data centers doesn’t matter anymore. Developing economies can build their own technology hubs, and any code created there would be as secure as the service created anywhere else in the world. Dapps — whether it be a banking service or an insurance provider — would create an easy access to savings accounts, cashless payments, peer-to-peer lending and whatnot to millions of people. Remember Bill & Melinda Gates’s fund in Ghana? Investing in Dapps that leverage cash money spendings at retail stores is probably the most promising, because they are aimed directly at the end retail customer.

Apart from banking. other crucial economy sectors — both public and private — can be transformed greatly. Leveraging access to global trade and the supply chain is probably the one lying on the surface with the greatest disruptive potential. Economists claim that the foremost reason economically challenged nations don’t have more access to the formal economy lies in two dimensions:

1. the record-keeping systems in their developing world countries are unreliable and

2. they won’t give up information about themselves and their transactions because they don’t trust the people they’d be giving it to. With blockchain, the Internet of Agreements is technology vision for trade facilitation built on core concepts in the blockchain space: any agreement can be supported by technology making the trade global and regulation local with computers handling the red tape.

Turning to modernization of state agencies, the digitization of government functions is the pressing need of developing-world governments. Dubai is leading the way here with their Dubai Blockchain Strategy that sets the target of envisions moving all government documents onto a blockchain by 2020. The benefits for a developing economy are clear: there’s less potential for fraud and corruption, trade becomes more efficient and less costly, government becomes more effective, and local technology hubs can form to build out the infrastructure and export the knowledge gained.

New protocols that are build on top of blockchains are now drastically changing the landscape of existing socio-economic connections. All sorts of products and services are shifting to the new realm of tokenization. With all this happening at the background, one crucial question is raised: how do we navigate in this ever-changing world of crypto hustle? Allegedly, new systems are needed to guide less tech-savvy customers in this new reality, and there are some solutions that are up-and-coming now.

Now think even bigger. What if emerging economies can themselves become perfect framework for token economy in its pure sense? The big idea of token economy is creating ecosystems that don’t compete but innovate: it’s all about being the innovator, not the market leader. Yet, this seems hardly possible in today’s post-capitalist world ruled by revenue race. Would you ever imagine a VC in Silicon Valley coming to your pitch and asking ‘Okay, so how is this valuable for the community?’ Not likely. It’s a whole different story with emerging economies: the competition is weak as there are no products, the revenues are super low, and no one really makes big money. Excuse my being a bit idealistic here, but how about trying to build an entirely new economic system from the scratch by leapfrogging not only the infrastructure or technology, but the whole modern capitalist system of values?

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