Introduction of Bitcoin to third-world countries
Bitcoin (BTC), alongside other cryptocurrencies, has aided the economic development of many countries. Bitcoin is typically used as digital money for online transactions in third-world countries despite widespread poverty. This is probably because people can connect to the internet and participate in the crypto economy.
Many developing nations such as India and continents like Africa have high cryptocurrency adoption rates. After purchasing Bitcoin through platforms accessible to their countries, Bitcoin holders in third-world countries can trade BTC for profit or hold on to their tokens as an investment.
Thanks to its decentralized nature, Bitcoin enables individuals from third-world nations to trade with others around the globe. In theory, all a person needs to start Bitcoin trading is a crypto wallet and good internet connection. Individuals and businesses alike benefit from using Bitcoin as an alternative to centralized currency, especially in countries with high percentages of unbanked individuals.
Financial institutions can be unfriendly to people from low-income backgrounds, making it very difficult for them to access basic financial services. Even opening a standard savings account may be challenging for some, given that banks almost always have a lot of documentary requirements and prerequisites. Loans may also be inaccessible to many, even to entrepreneurs that might need initial funding for their businesses.
Through decentralized finance (DeFi) platforms, cryptocurrencies like Bitcoin make financial services accessible to the unbanked. Emerging markets also benefit from cryptocurrencies because they fill in the gaps left by the national currencies of developing countries.
Whether they are used as a means of exchange, store of value or as a unit of account, cryptocurrencies address certain issues that often affect national currencies such as:
Crypto also serves as an alternative to traditional remittances, a crucial economic lifeline for several developing countries. Where the use of traditional platforms like Western Union to transfer money across borders is very expensive, peer-to-peer (P2P) cryptocurrency networks with their much lower fees are a viable option.
Developing countries and poverty
According to World Vision, 1.3 billion people spread across 107 developing countries live in multidimensional poverty. This accounts for 22% of the entire global population with 84.3% living in South Asia and sub-Saharan Africa. Multidimensional poverty encompasses financial difficulty, poor health, lack of education, violence and disempowerment, among others.
The reasons for poverty in developing countries are multi-faceted with some of the most prevalent causes being:
So, the question is, “Is Bitcoin good for poor countries?” Will it help solve any of these issues? The answer is yes. Although Bitcoin was initially created as an answer to financial instability caused by a heavy reliance on centralized banking, the technology behind Bitcoin has served many industries beyond finance.
The use of blockchain technology and crypto solutions do not claim to cure poverty — that much is clear. However, it is undeniable that they have paved the way for better services in countries that need them the most. Even in the health sector, blockchain-based solutions like CareAI have helped disadvantaged populations gain better access to healthcare.
The impact of Bitcoin on developed vs. developing countries
In developed countries, cryptocurrencies like Bitcoin are often viewed as investments or met with suspicion. Especially in the financial world where traditional notions about centralized finance still reign supreme, Bitcoin is often seen as a risky endeavor and highly volatile fad.
For instance, JP Morgan CEO Jamie Dimon has been a famous detractor of Bitcoin, even calling it a “fraud” in 2017. His firm, however, seems to be moving in the opposite direction as the crypto rises in value.
Crypto enthusiasts, however, are free to participate in the crypto economy as they wish. In developed countries such as the United States, United Kingdom and Canada, Bitcoin adoption can be seen across investors, miners and traders alike. Regulations differ and individuals involved in cryptocurrency continue to push back against regulators.
In countries like Nigeria, however, where large numbers of people have come to rely on cryptocurrency to navigate financial challenges, freedom to transact isn’t as easy to come by. In place of regulations or warnings, the Nigerian government banned crypto in 2021, placing a roadblock in the path towards crypto-enabled financial freedom.
Cryptocurrency is building deeper roots in developing countries, especially in areas with a history of financial instability. The impact of Bitcoin in Africa, for example, is evidenced by high adoption rates within the region. “Africa could be the next frontier for cryptocurrency,” the United Nations stated. Individuals and business owners alike have also found practical uses for Bitcoin such as paying for overseas suppliers in BTC instead of dollars.
In a Reuters report, a small business owner in Africa shared how paying his suppliers in Bitcoin boosted his profits and helped protect his business against currency devaluation. With BTC, he didn’t need to pay extra charges. Compared to buying dollars with Nigerian naira or using money-transfer firms with high fees, transacting in Bitcoin was faster, safer and cheaper.
Quite simply, Bitcoin provides a way for people in developing countries to break away from the shackles of poverty and, at the very least, to navigate the challenges that come with living in a developing country.
The inadequacies inextricably linked to traditional financial systems in third-world countries create gaps, making them a fertile environment for Bitcoin use. Access to cryptocurrency and blockchain technology allows people to overcome financial inequality and currency instability issues.
Can Bitcoin help bank the unbanked?
There are currently over two billion unbanked in the world. Decentralized financial infrastructures can help them access financial services that may otherwise be unavailable to them.
Statista.com cites that high percentages of the unbanked come from countries with less stable economies. In some cases, citizens may generally distrust financial systems that may be less developed or embroiled in corruption.
Financial services by big banks and traditional financial institutions typically come with high costs. Everything may be difficult for the financially disadvantaged, from requiring an initial deposit to maintaining a minimum balance and paying withdrawal and membership fees.
Even in first-world countries like the U.S., unbanked individuals cite lack of money as the primary reason for remaining unbanked. Banks do not have accessible services for lower-income households, further exacerbating the inequality between the banked and the unbanked.
So, can Bitcoin reduce inequality? Very much so by filling the gaps that traditional financial systems create, Bitcoin allows the unbanked to take charge of their finances without dealing with debilitating fees and monetary requirements.
How does cryptocurrency help in improving developing countries?
Financial inclusion tops the list of benefits that cryptocurrency offers developing countries — but, that’s not all. Individuals in developing countries can leverage trading Bitcoin and lower transaction fees to save money. Small businesses can also engage in global trading using Bitcoin as a payment system, sidestepping bureaucracies associated with traditional finance.
Reducing corruption and promoting transparency
Corruption is one of the biggest drivers of poverty in third-world countries. Research by the anti-corruption NGO Transparency International shows a positive correlation between the two. Corruption robs a country of essential funds that could otherwise be spent on infrastructure, healthcare, crisis response and more — driving an already poor country deeper into poverty.
One of the most high-profile corruption scandals occurred in the Philippines, where former president Ferdinand Marcos stole a historic $10 billion during his term. This drove the country into recession and ballooned the national debt, causing the country’s economy to stagnate.
On the other hand, Singapore was successful in eradicating poverty by first eliminating corruption. Through an anti-corruption campaign led by the People’s Action Party, the country revitalized its economy, opening Singapore up for foreign investment and economic development.
Cryptocurrency can help developing countries end corruption through the use of blockchain technology. Governments can be held accountable since blockchain records are accessible to the public via an immutable distributed public ledger. Government spending on projects and initiatives can be tracked without the risk of forging or altering records. Authorized persons can also be barred from using funds for purposes other than what they were intended for.
As per the Brookings Institution, blockchain technology can tackle a 15-month corruption investigation with a single click. Scholars suggest that cryptocurrency can significantly reduce illegal bribes in the public sector by as much as $1.5 trillion to $2 trillion per year. It promotes transparency since data is stored across many computers, thereby eliminating the risk of data loss. Encryption also enhances data security, while trackability makes virtually all transactions publicly accessible.
Greater financial inclusion of the marginalized
Blockchain technology allows marginalized populations to access banking services in areas where these are not available or accessible. People can use blockchain technology for instant, secure and cheap peer-to-peer money transfers between countries.
Blockchain-based DeFi projects make financial opportunities such as loans and investments available to the unbanked. Something as simple as saving money can also be done by trading cryptocurrency and making profits.
With cryptocurrency, people can take out smaller loans and investments offered by individuals. These microloans and micro-investments are a great way to distribute risk among individual lenders.
The unbanked can access cryptocurrency as long as they have a crypto wallet, all without opening a bank account. Those wishing to participate in microfinancing (microloans and micro-investments) do not need documentation since blockchain technology makes everything freely accessible.
Since cryptocurrency does not require a physical infrastructure, it remains advantageous to developing countries. By providing greater financial inclusion, cryptocurrency provides developing countries with an efficient tool to reduce poverty.
Reducing transaction costs and time
Overseas workers from developing countries can also benefit from cryptocurrency through reduced remittance fees. They no longer have to worry about steep transaction fees when transferring money to their home country. While traditional remittance platforms charge as much as 10% of the total amount, crypto-based platforms only charge around 2-5%.
In Haiti, 26% of its GDP comes from remittances sent by Haitians working abroad to their families back home. For workers sending money from the US, Canada, or the Dominican Republic, fees can be as high as 8-10%, adding up to $150 million in fees alone per year. For workers who do not earn much or are just starting to save money, the savings on transaction fees can be substantial.
Crypto applications like Abra are beginning to compete with traditional remittance platforms like Western Union and reduce transactions by as much as 90%. Through the app, money sent by an overseas worker is transferred into Bitcoin and sent across the blockchain to the recipient. It is then transferred into a local currency, making the service convenient to both sender and recipient.
Combating inflation
Inflation is characterized by a devaluation of currency alongside increasing prices of goods and services. It remains a threat that continues to bubble under the surface, especially for fiat currencies. Therefore, people usually turn to cryptocurrencies like Bitcoin — an asset that maintains its value over time — to hedge against inflation.
Gold, another relatively stable asset, has typically been used as an inflation hedge. Yet, cryptocurrency has become a more popular option because it is arguably more accessible.
What will happen to Bitcoin in a recession? Since Bitcoin has a fixed supply of 21 million, it is considered relatively inflation-resistant. Therefore, it is expected to weather recessions, especially since it was built on the heels of one.
How are governments in the developing world using Bitcoin?
Bitcoin adoption in the developing world is exemplified by the blockchain software firm ConsenSys Ventures. In cooperation with National Institution for Transforming India Aayog — the Indian government’s policy think tank, the company has implemented blockchain in land titling. Other applications include the use of blockchain technology in health records and supply chains across the country.
In Kenya, B2B logistics platform Twiga Foods has partnered with IBM to extend microloans to food stall vendors in the country. To help such vendors buy more inventory and grow their businesses, the company built a blockchain-based lending platform that can instantly assess lender credentials.