Blockchain and Emerging Markets

Blockchain and Emerging Markets

From the FDIC, which insures deposits in all US banks, to the Federal Reserve, which governs the American economy, our society is built on a trusted, central authority to regulate, insure, and govern

But what about nations that don’t have reliable governmental institutions?  What about nations where corruption and graft are endemic–which, sadly, is much of the world today?  Where can citizens, visitors, and immigrants turn to for financial services?

What is Blockchain?

As in many other areas of life, technology may provide the answer.  Blockchain, the brainchild of the reclusive genius Satoshi Nakamoto, is a perfect fit for this puzzle, given that it is set up to be a decentralized, autonomous system that relies on peer-to-peer records and not a single, unified authority.  

But first, a simple explanation of a complicated process.  Blockchain is essentially a long, ever-growing line of blocks (records of transactions), which is constantly updated by millions of semi-autonomous nodes every time money changes hands or a block is altered. 

Take Bitcoin, for example: as the most famous (and notorious) Blockchain-based technology, Bitcoin does not rely on a single organization (like a bank or the Federal Reserve) signing off on a currency trade.  Instead, if one user wishes to pay another, the payer will enter the transaction into the network, and nodes will immediately spring into action.  First, millions of nodes will race against time (and each other) to check established blocks, ensuring that the payer has sufficient funds to carry out the deal.  Afterward, the nodes will once again race to finalize the transaction, creating a new block as a record of this exchange, and adding it to the Blockchain, where it can be verified by other users (and nodes).

Basically, Blockchain-based technologies are like open-source record keeping, with one critical distinction: unlike a wiki, which can be altered by anyone, Blockchains are especially difficult to tamper with, thanks to their reliance on cryptography, as well as the competition between nodes.  Because blocks are constructed as encrypted puzzles that can only be accessed by nodes, would-be hackers have to outrace the combined computing power of millions of nodes.  Given the sheer size of the network, this is something that would be difficult, if not impossible, without a supercomputer.

The need for blockchain in emerging markets

One key distinction: Blockchain is not Bitcoin, but rather, the technology that Bitcoin is based on.  Blockchain has many other applications beyond Bitcoin and its infamous darknet deals, and can even be expanded into areas other than finance.

In fact, Blockchain-based technologies are perfect for emerging markets–often nations with weak governmental institutions presiding over an influx of capital and a rising economy.  Instead of sinking money into moneylenders or corrupt national banks, users in these areas can instead turn to Blockchain startups.

One area that’s particularly relevant is that of money remittances, which are typically sent back by guest workers and immigrants in more developed nations to their families in emerging economies.  In Africa alone, the Overseas Development Institute (ODI) estimates that nearly $41 billion was remitted in 2015–and that remitters lost a whopping 12% in fees for every $200 sent.  Most of it went to the usual culprits: unscrupulous middlemen, corrupt national banks, poor exchange rates, and of course, market domination by Western Union and Moneygram.

How blockchain technology can fill in the gap

Blockchain startups can put an end to all that, allowing hardworking immigrants and their families to hold onto their cash, and freeing them from the grip of a wasteful, corrupt system.  By expanding into emerging markets, Blockchain tech can sidestep weak, haphazard regulation, and instead allow users to take control of their financial destiny.

Take Kenyan remittance startup BitPesa, which recently won $1.1 million in funding. Based off the e-currency M-Pesa, which accounts for 43% of the Kenyan GDP, BitPesa has since expanded into the neighboring African nations of Uganda and Nigeria, and caught the attention of venture capitalist Jalak Jobanputra, who likens Blockchain tech to “the next internet.”

Yet BitPesa is only one of a rapidly growing group of startups that promise to transform remittances in emerging markets.  Already, similar companies have sprung up in the Philippines (which saw $27.5 billion in remittances in 2014), Mexico ($23 billion in 2013), and other emerging economies, like Indonesia.  While using Blockchain to transfer money is not perfect (users still have to convert their cash from local currency into e-currencies like Bitcoin or M-Pesa), it is still a huge step forward.

Blockchain applications outside of finance

One key area for Blockchain applications is what’s being called the Internet of Things (IOT), which is basically connecting things (from smartphones to jet engines) to both the internet and each other for increased efficiency.  For instance, the navigation system of a container ship transporting raw materials to a port could automatically notify harbor control of its arrival, so that the proper cranes and staff are on hand to facilitate transfers.

Critically, IOT applications require both excellent record-keeping and a tamper-proof system. Coincidentally, these are two areas where emerging economies may be weak: for instance, a power plant will require constant monitoring and data, but its efficiency may be slowed by an overworked mainframe, or its weak IT infrastructure may be vulnerable to hacking.

In both cases, Blockchain technologies are extremely useful.  As we explained earlier, such systems are extremely difficult to hack (due to their decentralized nature and reliance on nodes). Without the need for an expensive, central server room, halting one node will not cripple or destroy the entire system–something that is especially important when it comes to critical systems like nuclear power plants or air traffic control.

Blockchain for all

Sir Richard Branson recognized the potential impacts of Blockchain, reportedly hosting a Blockchain summit on his own private island for the past two years.  With its decentralized, autonomous, peer-to-peer system, Blockchain promises to revolutionize the world–but emerging markets in particular, allowing users to sidestep greedy middlemen and corrupt governments to seize their financial destiny on their own terms.


2017-06-19T14:52:46+00:00 March 2nd, 2017|Blockchain, Emerging Markets|0 Comments

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