By Margarita Vznuzdaeva
June 22nd, 2018

Cryptocurrencies in third-world countries

Cryptocurrencies in third-world countries

By Margarita Vznuzdaeva
June 22nd, 2018

Despite their speculative reputation, cryptocurrencies might have a positive impact on the third-world countries developing economies by improving lives of their citizens. Making no allegations, let's discuss the ways it can be made possible and how it is being realized now.

Fast transfer and taxes avoidance

Introduced by Satoshi Nakamoto, Bitcoin is the first “brand” cryptocurrency and a beneficial way to avoid banking systems. For example, it takes three business days for credit card transactions to be confirmed and not less for transactions between different bank accounts. Moreover, inter bank transfers cost money and local purchases may sometimes include credit card imposed 1- 3% fee on transactions.   PayPal as a service faces the same issues, thus being prohibited in some countries: Burma, Cote d’Ivoire, Democratic Republic of Congo, Iran, Iraq, Liberia, Sierra Leone, Sudan, Syria, Zimbabwe and others. Cryptocurrency transactions fully decentralized and separate from traditional banking systems (might be a controversial statement if we speak about XRP, for example), can be made with no  time delays or extra costs.

Why is it important? Fast transaction speed and no money loss is a significant advantage for third-world countries representatives who work abroad. To top it all off, according to the World Bank, more than 2 billion (about 39% of total population) people worldwide are unbanked and most of them come from developing countries. In Pakistan, Chad, Burundi, Niger, Yemen and Cameroon less than 15 % of adults have bank accounts. The ones who hold them have no access to premium banking services and are not able to participate in global payment processes all the same.

A great alternative and a real rescue for banking in developing countries is mobile transfers. According to The Economist statistics, over 25% of money in Kenya is transferred through a mobile service called MPesa. This tendency was strategically selected by cryptocurrency-oriented platforms like Nebeus, that provide banking services through apps. The MicroMoney project is a Burma alternative to PayPal and is also frequently used in Cambodia, Thailand, Indonesia and Sri Lanka. Citizens of the Philippines have Rebit – a platform that helps transfer bitcoins to the country from anywhere in the world and Nigerians have SureRemit. Looking into business-oriented platforms, BitPesa is the one that supports importers in Kenya, Nigeria, Tanzania, Uganda, DRC, Senegal and Ghana moving money to accounts located in Europe, USA or China “cutting out all the middlemen, saving on conversion and transfer fees in just a few clicks”. Everex project also has an ambitious purpose to add 2 billion people to the global economy with the support of blockchain and mobile services.

The answer to inflation and corrupted financial systems

Some experts perceive volatile cryptocurrencies as alternative to unstable national fiat currencies. As stated by the specialist investment bank Exotik, the biggest potential for blockchain platforms is in the developing markets rather than in the developed ones thanks to smartphones and the access to mobile services.

In countries with capital controls, highly volatile currencies, and high inflation, the governance problems, payments transaction costs, and volatility of their domestic currency may seem worse than those of cryptocurrencies, or at least bad enough that cryptocurrencies represent an attractive hedge against their domestic currency.

(Paul Domjan to Business Insider)

This opinion was also supported by Goldman Sachs analysts, even if just in theory.

Why is it important? Specialists note that in some countries cryptocurrencies can become an alternative to national money, because they are less volatile and consequently more stable. Inflation isn’t a crucial problem for developed countries as most of them have had stable national fiat currencies and adequate inflation rate long before bitcoin made an appearance, eliminating the need of this financial instrument for any economy regulations.

The founder of BitFinance in Zimbabwe Verengai Mabika said to Quartz that the financial problems inside the country made bitcoin attractive for its citizens. After having suffered a hyperinflation shock in 2008 and loosing great amount of personal savings, many Zimbabweans now save cryptocurrencies for a rainy day: about 37% of BitFinance users hold cryptos for saving purposes. No matter the inflation rate in the country, bitcoin (or any other more or less trusted digital currency) will be more stable.

To sum up

As one of the BlockchainForums users from Nigeria wrote: not one specific country, but most of the developing ones were affected by different scams and Ponzi schemes; numerous citizens were involved in financial frauds and as a result lost their money and trust into cryptocurrencies. He also added, that the main audience involved in crypto economy is mostly young people, the ones “technically exposed enough” to deal with digital currencies. Such attitude towards cryptocurrencies is a common thing, but the blockchain technology met even the United Nations acceptance criteria. Talking about Third World economy we cannot bypass the UN’s World Food Programme that currently builds cash transfers on blockchain. This system enables food and cash transfers to vulnerable families in Pakistan through a smartphone app with a public Ethereum blockchain .

We felt we could replace the services offered by banks with blockchain. Blockchain helps promote collaboration by providing enormous amounts of data.

(Robert Opp, Director of Innovation and Change Management at the UN World Food Programme)

Doesn’t it sound like blockchain (as a concept broader than cryptocurrencies) might become a real challenge and an impending threat to traditional financial institutions in the face of banking industry? Anyway, cryptocurrencies along with the mentioned technology can be successfully implemented in various areas of any country’s economy. The main issues still remain to be lack of trust and accessibility.