Analyzing the economic challenges in developing countries reveals that cryptocurrencies have the potential to significantly accelerate development across various sectors. As Chudnovsky and Lopez (2006) highlighted, embracing new technologies and innovations is essential for these countries to catch up.
The Role of Internet Access in Cryptocurrency Adoption
For people to benefit from cryptocurrency-based advancements, internet access is crucial. Only those with internet access can engage in cryptocurrency trading. Fortunately, internet usage in developing countries has surged dramatically over the past decade (Aker & Mbiti, 2010; Tapscott & Tapscott, 2016).
Rising Internet User Penetration
This illustrates the internet user penetration rate across different regions, comparing the status with future estimates to show the development from 2017 to 2025.
Significant Growth in Internet Usage
The data indicates that the share of internet users within the total population is expected to rise significantly worldwide. This growth is particularly pronounced in regions with more developing countries, such as Sub-Saharan Africa, where the growth rate exceeds 90%. This trend highlights the rapidly growing interest in the internet and related innovations in developing countries.
Enhancing Currency Exchange Efficiency with Cryptocurrencies
Without cryptocurrencies, local fiat currencies often need to be exchanged for more widespread ones like the US dollar or Euro, and then converted again into the target currency. This is because there is often no liquid market for direct exchanges between certain fiat currencies. Cryptocurrencies can streamline this process, making it faster and cheaper (Ammous, 2015).
Real-World Example: Remittances
Consider a Chicago-based Indian worker who wants to send money to a family member in India. By using a local service provider to convert US dollars to Bitcoin, the worker can transfer the Bitcoin to the family member, who then converts it to Rupees via a local service provider. This method could challenge traditional companies like the Western Union. However, for this to work efficiently, a liquid market for exchanging Bitcoin to both US dollars and Rupees is essential. Start-ups like BitPesa in Kenya are already providing such liquid markets for specific currency corridors, such as directly exchanging Kenyan Shillings to US dollars.
Facilitating International Trade Without Bank Accounts
Cryptocurrencies can also address the challenge of participating in international trade without a bank account. Bitcoin, for example, enables individuals and businesses to conduct small-scale international trade by selling products in exchange for Bitcoin, bypassing traditional e-commerce systems that often require a merchant account with a formal bank (Scott, 2016).
Increasing Financial Inclusion
Cryptocurrencies can serve as quasi-bank accounts, accessible to anyone with internet access. By downloading a Bitcoin wallet, individuals can perform savings and daily transactions (Honohan, 2008; Scott, 2016).
Reducing Transaction Costs for Microcredits
Cryptocurrencies can significantly lower transaction costs, making microcredits more feasible. Currently, high transaction fees make small loans impractical. By eliminating these costs, cryptocurrencies open immense possibilities for international financing. Small money transfers from individuals in developed countries to those in developing countries could be life-changing (Ammous, 2015).
Strengthening Social Trust and Combating Corruption
Cryptocurrencies, especially when combined with smart contracts, can enhance social trust and fight corruption through a transparent contract system. Publicly available blockchain records allow citizens to monitor state fund usage, and governments can better track their spending and improve budget allocation (Schmidt Kai Uwe, 2017).
Reference: Medium
