SEATTLE — Cryptocurrency and its blockchain technology continues to rise in popularity. Although some may be hesitant to adopt a cryptocurrency such as Bitcoin due to its volatile nature and anonymity, there are other coins and adaptions of blockchain that prove to be promising. Cryptocurrency continues to evolve, but it has already taken on a form that can advance developing countries both economically and politically.
Cryptocurrency improves developing countries by reducing corruption and promoting transparency, reducing transaction costs and time and offering greater financial inclusion and microfinancing.
Reducing Corruption and Promoting Transparency
There is substantial research that highlights the link between corruption and poverty. For example, research from Transparency International, the world’s largest anti-corruption NGO, shows the relationship between indicators of poverty to the percentage of the population who paid bribes in the past year. Moreover, corruption is estimated to increase the cost of successfully completing the U.N. Millennium Development Goal on water and sanitation by about $48 billion.
Singapore is the perfect example of a country that, although once rife with corruption and poverty, prospered after a successful anti-corruption campaign by the People’s Action Party. By eliminating corruption, Singapore promoted a sustainable and attractive environment for foreign direct investment and economic development, which led to the reduction of high unemployment and ultimately, the eradication of poverty.
Cryptocurrency improves developing countries by delivering an innovative and important method of cracking down on corruption. Government projects can now track how funds are spent and who is spending those funds. Also, authorized spenders of these funds are allotted specific timeframes of access and can only use the funds for the intended purposes. According to the Brookings Institution, blockchain technology can eliminate what would be a 15-month corruption investigation at the touch of a button. In fact, cryptocurrency has the potential to reduce illegal public sector bribes by $1.5 trillion to $2 trillion annually, a possibly groundbreaking enhancement in development efforts.
Cryptocurrency also promotes transparency through its tracking features and its handling of data. The data encompassed in the blockchain software is stored in many computers, which minimizes the risk of data loss. The encryption in cryptocurrency allows for greater security of data, while the trackability of transactions makes all transactions publicly available and searchable. There is no ambiguous or anonymous user, and since every transaction is traced, corruption can be prevented while transparency is enriched.
Reducing Transaction Costs and Time
The power of cryptocurrency affords two crucial assets to any person in the 21st century: time and money. Specifically, cryptocurrency improves developing countries and the situation of foreign workers by reducing remittance fees. These are fees for the transfer of money by a foreign worker to an individual or family in their home country. Rebit, a Philippine-based holdings company for Bitcoin-related ventures, exemplifies this notion, as they empower users to send money to the Philippines without high costs. Workers in the United States can transfer dollars into bitcoins and then have their families back home withdraw the money in pesos.
Consider Haiti, a country whose workers abroad send money to their families that is equivalent to 26 percent of Haiti’s GDP (approximately $1.5 billion). However, remittance fees range from 8 to 10 percent if the sender is in the Dominican Republic, the United States or Canada, which adds up to as much as $150 million in fees annually. As the money being sent home is for individuals who earn less than $500 per year, the extra hundred million in fees has an immense impact.
Fortunately, there have been competitors in the market for cross-border money transfers and one in particular stands out. Abra is a cryptocurrency application that can reduce transaction costs by up to 90 percent. Under its system, money is transferred into Bitcoin, sent across the digital blockchain to the recipient of the money and transferred to a local currency. The entire transaction occurs without the customer witnessing the Bitcoin transaction. Plus, Abra is available to people who do not have bank accounts.
According to Forbes, banks and cryptocurrency are in a competition of sorts since cryptocurrency offers what banks cannot: avoidance of higher cost fees for transactions. Due to the fact that cryptocurrency does not need expensive private infrastructure to function, the fees and charges common to bank accounts and mobile banking transactions are cut down.
Cryptocurrency Improves Developing Countries by Offering Greater Financial Inclusion
Cryptocurrency does not need a physical infrastructure, as it is software-based and readily available to users through the Internet. The nature of cryptocurrency’s infrastructure is advantageous to developing countries, as it provides greater financial inclusion, a key factor in poverty reduction.
The barriers to access for banking services, according to the World Bank, include the lower degree of media freedom. This lack of media freedom restricts the locations where accounts might be opened, imposes higher minimum balances to open accounts, requires more documents to open accounts and leads to more time to accept loan applications. Other barriers to access include a lack of physical infrastructure and high banking fees, especially for mobile banking, which is sometimes the only option for people far from banks. Nonetheless, cryptocurrency proposes a way to remove these barriers to access.
Access to cryptocurrency comes in the form of a software wallet that does not require a bank account. People who are subject to disadvantages in not being able to access banking infrastructure or credit can now turn to cryptocurrency to meet those financial needs. This helps solve the problem of having to carry and protect cash due to this lack of banking access.
The transactional history of cryptocurrency users can actually prove to be valuable for microfinancing undertakings. There is no need for further documentation or auditing since transactional history is freely available. Moreover, the blockchain software can function as a source for better transparency and algorithms in determining loan amounts, interest rates and other logistics of microfinancing.
Needless to say, cryptocurrency improves developing countries through the reduction of corruption and promotion of transparency, the deterioration of transaction costs and time as well as the inclusion in financial access. As cryptocurrency continues to evolve and developing countries increasingly gain access to mobile phones and the Internet, the benefits of cryptocurrency cannot be overlooked.
– Roberto Carlos Ventura