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Bitcoin and developing countries: why Bitcoin isn’t an economic saviour

by Steven Weru
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Bitcoin and developing countries

There’s increasing public awareness on the experience between Bitcoin and developing countries. Can Bitcoin help fight global poverty? Are cryptocurrencies the solution to economic problems facing people in developing countries? Will developing nations be faster to adopt crypto?

These questions draw a wide array of opinions from cryptocurrency enthusiasts, financial reform advocates and economic development experts.

Cryptocurrency enthusiasts will argue that Bitcoin has the power to empower the population in developing nations. When viewing Bitcoin and developing countries, skeptics on the other hand view cryptocurrencies as a double-edged sword that will result in more harm than good.

The truth is, Bitcoin is still in its youth and its potential to transform or harm developing economies is yet to be tested.

Why is Bitcoin considered a solution for developing economies?

Cryptocurrency evangelists will tell narratives of how Bitcoin can empower people in emerging countries. A common narrative is that cryptocurrencies will facilitate cheaper cross-border remittances. Since cryptocurrencies don’t need an intermediary to ensure trust, Bitcoin money transfer will be cheaper and faster.

Another narrative is that cryptocurrencies will allow the unbanked population to gain access to banking services such as credit and savings. As opposed to setting up a bank account, which requires a user to have certain documents, a decentralized global bank account is easier to set up. All one needs is to download a Bitcoin wallet on their phone.

Crypto evangelists will also preach about how cryptocurrencies can facilitate global trade. A Coffee farmer in Kenya can sell their produce to UK clients for Bitcoin. The farmer can then exchange the Bitcoins for local or foreign currency. Using cryptocurrencies for trade eliminates the need for intermediaries; thus, the farmer gets the full benefits of their efforts.

Bitcoin is not a silver bullet

As someone who has lived and worked in a developing country, I can dispel the myth that Bitcoin can fix problems in developing countries.

Developing countries lack the infrastructure to support widespread crypto adoption. Although cryptocurrency enthusiasts argue that all one needs to join the crypto universe is a mobile phone that can download a Bitcoin wallet; this is easier said than done. In most less developed countries, stable internet connection is a problem. Downloading an open source application is still not possible for many people in less developed nations.

For mass adoption to occur, businesses need to accept Bitcoin as a mode of payment. In many developing and developed countries alike, very few businesses accept crypto payments.

Most businesses still prefer being paid in fiat currency. In countries such as Venezuela, where Bitcoin is said to be saving families, there are very few enterprises that are willing to accept Bitcoin as payment.

For cryptocurrencies to be successful in any market, a network of agents should be available. The availability of agents will allow people to exchange digital currencies for fiat currency and vice versa easily. However, in many developing nations, this network of agents is missing.

There are no bitcoin ATMs, and there are very few trusted exchanges. These challenges limit the number of people who can access cryptocurrencies.

And then there is the issue of mining. To environmental conservationists, proof of work mining is a crime against humanity. Mining requires high amounts of electricity and results in increased CO2 generation.

In many developing countries, access to reliable electricity is still a major problem. Establishing mining farms in emerging countries puts pressure on the already existing energy sources.

Electricity costs in less developed nations are also extremely high, which leaves Bitcoin mining to only a few wealthy individuals who can afford to operate farms.

Cryptocurrencies are not a solution for institutional inefficiencies and poor economic policies. Many developing countries are experiencing high inflation levels. Crypto enthusiasts will often mention countries like Venezuela and Zimbabwe, where people are using Bitcoin to escape local economic problems. However, this is not the issue on the ground.

Many of those using Bitcoin are either freelancers, traders, or miners. Most of the people in such countries still experience problems resulting from poor economic policies.

In developing countries, most people who own Bitcoin exchange it for dollars. However, in countries facing hyperinflation, getting these dollars is often problematic.

Bitcoin for charity

Crypto donations have gained popularity in the past few years. There are over 70 social enterprises that are now encouraging sending donations using Bitcoin and other cryptocurrencies.

Having worked with a blockchain charitable platform, I found a common problem with the funding approach that many crypto charities use. Commit Good entered into a partnership with a Botswanan charity foundation that builds houses for the poor.

However, the funds raised through the charity were only enough to construct a single house, despite the goal of the project being the construction of 80 houses.

Having worked with a blockchain charitable platform, I found a common problem with the funding approach that many crypto charities use. Commit Good entered into a partnership with a Botswanan charity foundation that builds houses for the poor. However, the funds raised through the charity were only enough to construct a single house, despite the goal of the project being the construction of 80 houses.

Despite the good intentions, this is not an isolated case as many crypto donations are given without a strategy based on the real situation on the ground.

On the bright side

Cryptocurrencies have the potential to transform many developing nations. They are already being used for cross border remittances. In countries such as the Philippines, cheaper cross border transfers are essential in improving the local economy since most of the economy is remittance driven.

Freelancers, miners and traders in developing countries have also been beneficiaries of cryptocurrencies.

However, a lot more needs to be done to ensure cryptocurrencies offer feasible solutions to local problems facing less developed nations.

One solution would be to create a network of agents willing to exchange Bitcoin for physical and vice versa. In Kenya, M-Pesa, which is a mobile money transfer service, was able to achieve widespread success and adoption due to leveraging a network of vendors and agents.

For Bitcoin, this network of agents can include setting up ATMs or even having physical shops where agents can exchange Bitcoin for dollars or the local currency.

Another approach to ensuring cryptocurrencies are an effective solution is by educating the masses on the benefits of digital currencies.

In countries such as Argentina, Bitcoin ATMs are readily available, but crypto adoption is still low. People are always skeptical of new technologies and the lack of enough education and knowledge results in reduced adoption.

Developing cryptocurrency use-cases native to developing countries can also ensure digital assets provide solutions to local problems. Most of the crypto-case uses are based on developed countries financial systems. When applied to developing economies, most of the solutions fail due to the lack of consideration of the local institutions.

For Bitcoin to provide a full-fledged solution to problems in developing countries, crypto and blockchain startups, need to consider local institutions and problems first.

Bitcoin and developing countries – final words

I do believe that Bitcoin and cryptocurrencies have the potential to help countries facing economic challenges. In most of these countries, physical cash is constantly losing value. More and more citizens are moving towards digital money to escape these harsh economies.

However, more needs to be done to encourage higher rates of adoption. Otherwise, Bitcoin and cryptocurrencies will only be a solution to a few tech-savvy and wealthy individuals.

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