Written by: Sourish Kundu
For many people, cryptocurrencies remain a giant question mark. Comedian John Oliver described cryptocurrency as “everything you don’t know about currencies combined with everything you don’t know about computers.” However, just because it confuses the general public does not mean that investors are not ready to risk big bucks for it. Bloomberg explains that after Long Island Iced Tea falsely rebranded themselves as Long Blockchain, their stock tripled. All it takes is a simple name change to understand the current hype around this emerging technology. And while in developed countries, cryptocurrencies appear as luxury items with the potential to make some extra cash, in the developing world, it appears that cryptocurrencies might be the key to alleviating millions out of dismal living conditions. The Borgen Magazine states, ”Cryptocurrency continues to evolve, but it has already taken on a form that can advance developing countries both economically and politically.” To fully grasp the true potential of cryptocurrencies, it is imperative to understand how the technology works, its ability to combat government mismanagement, and its promise to increase financial inclusion in the developing world.
The largest appeal of Bitcoin and other cryptocurrencies is the technology powering them: blockchain. With orthodox currencies, any transaction is done through a third party, usually a bank or some other financial institution. However, blockchain allows for transactions with cryptocurrencies to be decentralized, essentially removing the middleman from transactions. This eliminates the worry of banks and other financial institutions these days having too much influence. The transactions are maintained through a ledger, which is managed not by one single computer, but rather by a group of coders all on separate systems, meaning that one person cannot single-handedly create Bitcoin or perform fraud transactions. This fundamental characteristic of blockchain maintains the integrity of the currency.
Investing in Bitcoin can be highly profitable if done correctly. When Bitcoin initially came out in 2009, one unit of the currency was worth a mere 8 cents. In 2017, it peaked at $19,783. An investment of just one cent then would have yielded $2472.87 at Bitcoin’s peak. Essentially, if someone correctly predicted the hype around Bitcoin and made the right investment, they could never have financial worries ever again. In 2020, it’s currently hovering around the $10,000 mark. So what exactly is the currency? Bitcoin and other cryptocurrencies are essentially a piece of computer code representing a unit of virtual currency, which can be exchanged for tangible US dollars or any other fiat currency.
Because of its decentralization, Bitcoin allows countries to bypass economic mismanagement by the government. Take Venezuela, for example. The BBC reports that because of President Nicolas Maduro’s attempts to stimulate the economy by printing more money, the Venezuelan Bolivar is now effectively worthless, with the inflation rate at over one million percent. Venezuelans that have fled the country are sending back Bitcoin to help their loved ones living in economic turmoil. Because the currency is decentralized, Bitcoin’s value is not determined by one country, meaning that it is worth just as much in Venezuela as it is in the US or any other country. Carlos Hernandez, a Venezuelan economist, explains in a New York Times article that Bitcoin has saved his and his families’ lives. All of his daily transactions are done in Bitcoin and he’s very careful to stay under the government’s radar. However, he’s not the only person who’s benefiting. Venezuela is ranked second in the volume of cryptocurrency activity, meaning that millions see Bitcoin as a safe way to ensure their money retains its value over time. Bitcoin is loosening Maduro’s grasp on the country, something that Venezuelans deserve. His attempts to keep his people impoverished are becoming futile.
Another barrier that cryptocurrency overcomes is the process of obtaining and maintaining a bank account in the developing world. A 2017 World Bank report states that over 60 million Nigerians don’t have access to banking services taken for granted in the West. Typically, there’s a relatively high barrier of entry to creating an account with a bank, such as high minimum balances or loads of tedious paperwork. Also, remittance fees for sending money to Africa are at 12%, the highest in the world. The Centre for Financial Regulation & Inclusion found that over half of remittance flows into Nigeria, estimated to be valued at $12.1 billion USD, use informal channels, such as prepaid debit cards, to send money back home. The World Bank adds that a 5% decrease in remittance prices could save African migrants $4 billion dollars, which is where Bitcoin comes in.
The Wired states that startups are currently attempting to create pipelines of capital flows between Nigeria and the rest of the world through cryptocurrencies rather than established financial institutions. Individuals can send remittances to Nigeria without having to worry about the high banking fees that usually would come coupled with the transaction. Cryptocurrencies streamline the entire process. Sending capital to the developing world through Bitcoin due to the ease and simplicity of cryptocurrencies is now more appealing, acting as a catalyst for economic growth. For families that depend on remittances, they can often be up to 60 percent of that household’s income according to the UN. Cryptocurrencies only ensure the money is received by its intended recipient without banks exploiting them through fees, having the potential to lift millions of lives out of poverty.
Cryptocurrencies seem very promising, but with every new technology, there are going to be unknowns. We must not accept Bitcoin and other cryptocurrencies as the sole savior of the human condition and disregard any potential challenges that may arise during its integration into our global economy. However, the benefits are vast and we must take action to continue its proliferation into our society carefully.