6 ways the Blockchain could benefit developing nations

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According to The Financial Times, the Blockchain technology is a complex set of algorithms that allows crypto-currencies such as the Bitcoin to be traded and verified electronically over a network of computers without a central ledger. The popularity of the Bitcoin has shed a lot of light on its underlying technology, the Blockchain, which is now seen by several western banks as a tool of huge potential that could be leveraged to accelerate financial transactions and enhance safety. However developing nations could also rip the benefits of this new technology, here are 6 ways how:

1.Corruption reduction

Corruption is generally widespread in developing economies, where the rule of law is often lacking. Expropriation, bribing and over-taxation are common government practices that citizens have to endure regularly. Peer-to-peer transactions are also risky because there is little recourse in case of contract breach. The Blockchain, which provides an open and unique ledger that allows every transaction to be recorded and maintained for future tracking, could solve these issues. The technology could be applied to the financial system by providing citizens access to public transactions and “smart contracts”. This would bring more transparency to government spending, legal contracts, peer-to-peer transactions and could drastically reduce the risk of contract breach, money laundering, bribing, shadow economies, fake replicates and other forms of corruption.

2. Reduced inflation

A suitable crypto-currency could bring more stability to the economy of developing nations by reducing the risk of inflation. Inflation often occurs because of government intervention in the monetary system, which often involves money printing or interest rate manipulation. A decentralized crypto-currency that has a limited supply (ex: Bitcoin is capped at 21 Million units) or that is pegged against a stable commodity would drastically reduce the risk of inflation caused by an oversupply of money on the market.

3. Monetary sovereignty

Countries willing to gain more control over their monetary system could make use of a crypto-currency to do so. A good example is the CFA Franc, which is a common currency used by former French colonies located in Central and West Africa. Countries in those regions have little say on their own monetary policy because their currency is controlled by France and pegged against the Euro. There are several arguments that have been raised to justify this situation (ex: protection against inflation, economic stability, etc.), but the reality remains that the CFA Franc represents a system of economic oppression. The introduction of a decentralized crypto-currency like the Bitcoin could not only fix this hundred-year-old issue, but would completely revolutionize the financial system by allowing countries to issue their own currency through proprietary coin mining.

4. Better access to banking for communities

According to the World Bank, about 2 billion people have no access to financial services. Once the internet will be widespread across the most remote areas (thanks to initiatives such as Google Loon), the so-called “unbanked” will only need their cell phone (which has a very high penetration rate in developing countries) to transact with the world via crypto-currency mobile apps.

5. More Remittances feeding the economy

According to The World Bank, “migrants are sending earnings back to their families in developing countries at levels above US$441 billion, a figure three times the volume of official aid flows. These inflows of cash constitute more than 10 percent of GDP in some 25 developing countries and lead to increased investments in health, education, and small businesses in various communities”. Crypto-currencies like Bitcoin provide a faster and cheaper alternative to make international transfers, compared to traditional service providers such as Western Union or banks. A Kenya-based service called Bitpesa has been striving to do just that. Their service charges are just 3% per transaction while banks and other services can charge between 6 and 20% per transaction.

6. Infrastructure and technological advancements

While it is true that coin mining is an activity that requires a lot of infrastructure and energy, developing countries could once more leapfrog their way through technological advancement by using crypto-currencies or the Blockchain since the technology itself does not need to be developed locally in order to be used globally. As developing countries progressively emerge, they will be in a better position to develop their own mining activities.

By embracing the Blockchain, developing countries could gain rapid economic growth, more power in the global economy and increase their regional integration. African countries in particular could even use their huge reserves in natural resources to create a decentralized crypto-currency pegged against one or several commodity values, as well as a Blockchain system to record every transaction and contract on a public ledger. This would ensure the solidity of their financial system and a better control over their monetary policy. Even if governments are not open to these ideas initially, private marketplaces could still be built on this technology.

 

Co-Author Bio.

Waqas Javed is a digital marketing strategist that helps companies maximize online reach with his unparalleled outreach skills. Currently, he is serving at Fuad Ahmed blog.

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