The effect of blockchain and cryptocurrencies on developing nations

The political atlas, as we all know, is divided into two brief categories. One category contains the countries that have reached an incredible level of Human Development Index (HDI) – a compound indicator of life expectancy, education, income per capita, and fertility rates. The populations of such countries, in general, are the richest, most educated, and reaching well beyond their 80s. In short, they are called developed nations.

On the other hand, there are those nations that fall behind in almost every single indicator in the HDI index; the citizens of, say, Bangladesh, Nepal, Angola, and many more have a lower life expectancy, low access to education, some of them don’t pass their youth, and some of them even live under the extreme poverty – defined by the UN as an income of $1 per day. They are called developing nations.

We mentioned the United Nations, and it’s fair to say that this organization has done a lot of incredible things to lift those nations out of their extreme poverty. In its Millenium Development Goals of 2000-2015, the first goal was to “eradicate extreme poverty and hunger”, while the rest of those were still focused on the poor conditions of the third world.

The UN alone cannot cut it

However, even though many of those countries are already getting more stable and restoring their faith in global finances, just institutional intervention cannot be an effective way to really “eradicate” these conditions in those countries. It might be somewhat sensitive for many people to hear this, but Capitalism and the free market agents have to do their work to further accelerate their development. And one of the most prevalent and innovative agents in this sense is blockchain.

Blockchain was first introduced in 2008 by an alias entity called Satoshi Nakamoto. And the first-ever product of their project was Bitcoin – the famous cryptocurrency that made headlines in 2017 and still continues to mesmerize many people.

The main advantage of this technology over the fiat currencies is that it’s totally decentralized and chained with supply and demand forces of the market. Besides, it provides transaction security, transparency, as well as instantaneous payments in any part of the globe. 

So, what exactly can cryptocurrencies and blockchain do to help developing countries lift themselves from their unbearable situation? Here we have two main components – poverty itself, and corruption and bribery- that will have a major impetus from this new technology. Let’s start with poverty.

Serving the unbanked

Cryptocurrencies, as mentioned above, have a peer-to-peer nature. Meaning no centralized government or institution has a definite say in the decision-making process here. And this, in turn, can be a tremendous relief for almost 2 billion people around the world.

According to the World Bank Global Findex Database 2017, 1.7 billion adults around the globe still remain without a bank account. They’re shortly called “unbanked” people. This problem is way more prevalent in developing countries for several reasons. Maybe the unbanked people live too far from the bank, or they don’t have enough paperwork to apply for a virtual financial account, or anything else.

The result of this rampancy is that people don’t have access to loans and credits, cannot pay for things online, invest in various assets, or even pay their bills without making several-dozen-mile trips. With cryptocurrencies, however, this problem can be finally alleviated.

Creating a crypto-account doesn’t require a financial declaration or a burdensome task of collecting the paperwork. You just register on a platform and enter some basic credentials, including your national ID details – and that’s it, you’re already eligible for crypto payments.

This can have a massive impact on people’s lives. They can finally accumulate some credit on their accounts, receive loans, make investments, order things from Amazon or any other global store. Even small entrepreneurs can benefit from it: they too can receive loans and expand the production chains. 

People will finally have some sort of financial security and stability. Their confidence will be restored. This, in turn, can increase the aggregate production of the country and its overall GDP.

Providing transparency in public spending

While almost every single nation is battling the problem of corruption, the third world countries are undeniably more entrenched in this quicksand. And the reason is pretty obvious. They don’t have sufficient monitoring mechanisms that can track the political transactions and if necessary, reveal them.

According to the estimates, bribes account for almost 2% of the global gross domestic product – that’s almost $2 trillion! And the big chunk of this number goes to the developed countries. However, blockchain is a system that can effectively put an end to it. 

In the blockchain-enabled transaction system, every single payment will be recorded in a safe database providing transparency. Thus, if there’s a suspicion of a bribe in any government contract, the public will definitely be aware of it.

In conclusion, financial technologies could greatly benefit from the blockchain-based system, improving the living standards of the developing nations. Not only can they serve the unbanked citizens and provide a fair platform of payment, but they can also provide more transparency in public spendings. It can help to undermine the corruption schemes that are so rampant in countries. All in all, the future of blockchain is looking good for the third world.

References:
1. http://hdr.undp.org/en/content/human-development-index-hdi
2. https://globalfindex.worldbank.org/
3. https://www.imf.org/external/pubs/ft/sdn/2016/sdn1605.pdf