Can crypto cause beneficial change?
By Sarah Martin (CEO, Boone Martin)
Sex, drugs, thugs and thieves — that’s pretty much been bitcoin’s story since it arrived in 2009. But is bitcoin truly all doom and gloom? What if instead bitcoin isn’t the end of the world, but rather an opportunity for change?
Bitcoin is new and it’s a little strange. It’s virtual “money” that people trade as payment for goods and services or use as a unit of account. Anyone anywhere in the world with an internet connection can hold bitcoin in a digital ‘wallet’ and trade with one another on a bitcoin exchange. There are only 21m bitcoin available, meaning it’s finite like gold. But like something precious, you have to believe bitcoin is valuable for the system to work. The integrity of the exchange relies on the shared trust of bitcoin holders, and it’s their belief in bitcoin that may hold real potential for promise.
All eyes are increasingly shifting to the emerging markets as the new engines of growth. Expanding consumer groups in countries like Nigeria, Kenya, and Ghana are attracting capital to Africa as a global center of gravity. Like the Asian Tigers before, anticipation surrounds Africa’s lions to lead commercial activity in the coming decades.
Much of the charge is fueled by the rise of mobile technology. The spread of the cell phone and mobile money is now extending financial services to the previously underserved. Nearly 400m Africans, notably women, the poor and those in rural areas, presently lack access to banks. With mobile money reaching more people and in more regions, it’s becoming easier for new businesses to access credit, savings, and simple payment systems to start up. Better banking means more opportunities for all entrepreneurs and greater potential for inclusive growth.
Benefits of Bitcoin
How does bitcoin fit in? As a digital currency, bitcoin enables instantaneous peer-to-peer transactions that can be used as a quick way for consumers to pay merchants and merchants to conduct business. Where bitcoin stands out is in transaction fees. Unlike traditional electronic transfer services that carry 3-5% in fees, bitcoin has no or very low transaction costs. Credit card and wire transfer fees can add up for small businesses. Removing these costs may help protect the bottom line.
Remittances are another underexplored opportunity. In 2013, Africans working abroad sent upwards of $60b home. Most of this money moves through wire services and carries on average a 12% fee. Women commonly control family finances and rely on collecting remittances to manage bills, tuitions and day-to-day expenses. Recipient countries also depend on steady remittance flows. In some African countries, they can account for as much as 10% of GDP.
To date, mobile money has struggled to streamline this process. Part of the challenge is coordinating mobile operators on the front end, remitting countries with the back end, receiving countries. All participating family members also have to use the same mobile provider in order to send and receive money. It may just require more time and familiarity with mobile remittances to overcome the gap between service registration and activation. Mobile operators are speeding outreach efforts to expedite uptake, but this may be an area where bitcoin can help.
It’s still early days for bitcoin and questions abound. At its fundamental core is the question of how to build the trust necessary to make it work. Many developing nations are traditionally cash-based societies and while transitioning to a fully digital economy may appear propitious to some, it may appear incongruous to others. Mobile money’s embrace suggests some willingness to go cashless. Mobile money, however, still uses hard money and is based on a system of cashing in and cashing out.
Governments worldwide are also raising questions about bitcoin regulation, taxation and currency effects. Equally, security threats and exchange volatility have unnerved bitcoin proponents and opponents alike. Protections are improving, and there is some indication that greater bitcoin adoption could slow fluctuations and instead provide a stable alternative unit of exchange. These are hot topics sure to invite further debate as interest increases and bitcoin services improve.
Is Bitcoin the Way to Go?
Bitcoin today exists more in theory than reality. Whether it holds the power to advance economic development and support more inclusive growth is still just an idea. But, bitcoin is a system predicated on the beliefs of its users. You have to have faith in bitcoin to turn any optimism into action. And it may be in that belief where there’s real potential for change.