The Uptake of Cryptocurrencies in Developing Countries
In developing countries, the need for a secure way to make and receive digital payments is becoming more and more apparent. While millions of people transition out of poverty each year by several means, a significant amount of these citizens unfortunately find themselves quickly falling back into poverty. A rather surprising solution to this problem might turn out to be cryptocurrencies.
At the crux of this issue, you will find the deplorable financial and banking services available in developing countries today. Without the proper infrastructure in place for citizens to be able to send and receive money digitally, most households in development countries fully rely on cash, physical assets and bartering to conduct financial transactions. Yet, these methods of payments are highly insecure, expensive and complicated. If you combine this with The Bill and Melinda Gates Foundation’s findings that only 41% of citizens living in impoverished areas have a bank account in their name – dropping to just 20% of the citizens living in extreme poverty – and you are faced with an unfathomable concern for the financial infrastructures of developing countries.
Lack of Trust
A major consequence for citizens without a bank account is that they cannot build up a credit history. This will essentially mean that they are unable to build trust or relationships with institutions for lending. In addition, bank accounts allow people to manage financial risk by providing a secure place for them to store their money and save for emergencies. Saving up actual cash is a fragile solution, and far from sustainable.
A rather surprising solution to this crisis has recently been proposed – the uptake of cryptocurrencies in developing countries. Initially this may seem ludicrous given that many developing countries typically tend to lag in technological developments. However, shifting to digital payments presents an opportunity for increasing financial inclusion of citizens in developing countries through easy account ownership, an increase in the security of payments, and it can allow citizens the first point of entry into the formal financial system.
Great Potential in Sub-Saharan Africa
Sub-Saharan Africa is already demonstrating great potential for cryptocurrencies to benefit their overall economy. More than 40% of the adult population are active mobile money users, confidently using their devices to make person-to-person (P2P) transfers, including bill and merchant payments. Mobile money is showing growth with mass-market adoption, enabling millions of people to access financial services for the first time and contribute to economic and social development. Financial operators are using digital money to create new financial ecosystems that can deliver a range of innovative new services across multiple industry sectors, including agriculture and utilities.
BitMinutes is a type of cryptocurrency set up by Tom Meredith that is gaining momentum in developing countries. It is being targeted at two billion unbanked citizens and is a blockchain-based token technology in which tokens are exchanged for prepaid airtime minutes. BitMinutes offer a P2P payment service through these token, which are already being accepted as an informal currency within the communities being targeted.
Business Insider Intelligence predict that 2018 will see the wider adoption of cryptocurrencies, and a need for more secure payment systems, both of which BitMinutes offer a solution to.
To conclude, wide adoption of cryptocurrencies in developing countries where a majority of the population are unbanked may be difficult to imagine. However, there are several indicators that cryptocurrencies can prosper. Firstly, over 40% of adults are already using mobile money and P2P payment services which indicates that low bank account usage or technology isn’t a barrier.
Second, cryptocurrencies are already generating interest and demand in developing communities, particularly in Nigeria where a substantial increase of 1500% in Bitcoin trading in 2017, making them the world’s second top traders in Bitcoin - just one spot behind China.
Also, Zimbabwe have recently announced the highest Bitcoin value in the world as its citizens turned to cryptocurrencies as a store of value following a collapse in their economy. Finally, in South Africa, over 1000 merchants already accept Bitcoin as a payment method, increasing the uptake of cryptocurrencies.
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