Learn about Bitcoin's impact on third-world countries and how it can help developing countries combat inflation.
Introduction of Bitcoin to third-world countries
Bitcoin (BTC), along with other cryptocurrencies, has aided many countries' economic development. Despite widespread poverty, Bitcoin is commonly used as digital money for online transactions in third-world countries. This is most likely due to the fact that people can connect to the internet and participate in the crypto economy.
Many developing countries, such as India, and continents, such as Africa, have a high rate of cryptocurrency adoption. Bitcoin holders in third-world countries can trade BTC for profit or keep their tokens as an investment after purchasing Bitcoin through platforms available in their countries.
Bitcoin's decentralized nature enables people in third-world countries to trade with people all over the world. In theory, all that is required to begin Bitcoin trading is a crypto wallet and a reliable internet connection. Individuals and businesses alike benefit from using Bitcoin as an alternative to centralized currency, particularly in countries with a high proportion of unbanked citizens.
Financial institutions can be hostile to people with low incomes, making it difficult for them to obtain basic financial services. Even opening a standard savings account may be difficult for some, given that banks almost always have a slew of documentation and prerequisites. Loans may also be out of reach for many people, including entrepreneurs in need of start-up capital.
Cryptocurrencies like Bitcoin, through decentralized finance (DeFi) platforms, make financial services available to the unbanked. Cryptocurrencies benefit emerging markets as well because they fill the gaps left by developing countries' national currencies.
Whether used as a means of exchange, a store of value, or a unit of account, cryptocurrencies address a number of issues that frequently affect national currencies, including:
Cryptocurrency can also be used as an alternative to traditional remittances, which are a vital economic lifeline for many developing countries. Where traditional platforms, such as Western Union, charge exorbitant fees to transfer money across borders, peer-to-peer (P2P) cryptocurrency networks with much lower fees are a viable option.
Developing countries and poverty
According to World Vision, 1.3 billion people live in multidimensional poverty across 107 developing countries. This represents 22% of the global population, with 84.3 percent living in South Asia and Sub-Saharan Africa. Financial hardship, poor health, a lack of education, violence, and disempowerment are all examples of multidimensional poverty.
The causes of poverty in developing countries are numerous, with some of the most common being:
So, the question is, "Is Bitcoin beneficial to developing countries?" Will it aid in the resolution of any of these issues? Yes, the answer is yes. Although Bitcoin was created to address financial instability caused by a heavy reliance on centralized banking, the technology that underpins Bitcoin has been used in many industries other than finance.
That much is clear: the use of blockchain technology and crypto solutions does not claim to cure poverty. However, it is undeniable that they have paved the way for improved services in countries where they are most needed. Even in the health sector, blockchain-based solutions like CareAI have improved access to healthcare for underserved populations.
The impact of Bitcoin on developed vs. developing countries
In developed countries, cryptocurrencies such as Bitcoin are frequently regarded as investments or viewed with suspicion. Bitcoin is frequently viewed as a risky venture and highly volatile fad, particularly in the financial world, where traditional notions of centralized finance still reign supreme.
JP Morgan CEO Jamie Dimon, for example, has been a vocal critic of Bitcoin, even calling it a "fraud" in 2017. His company, on the other hand, appears to be moving in the opposite direction as the value of cryptocurrency rises.
Crypto enthusiasts, on the other hand, are free to participate in the crypto economy in any way they see fit. Bitcoin adoption can be seen among investors, miners, and traders in developed countries such as the United States, United Kingdom, and Canada. Regulations differ, and those involved in cryptocurrency continue to do so.
However, in countries such as Nigeria, where a large number of people have come to rely on cryptocurrency to help them navigate financial difficulties, the freedom to transact is not as easy to come by. Instead of regulations or warnings, the Nigerian government banned cryptocurrency in 2021, putting a stumbling block in the way of crypto-enabled financial freedom.
Cryptocurrency is gaining traction in developing countries, particularly in areas prone to financial instability. The impact of Bitcoin in Africa, for example, is evidenced by the region's high adoption rates. "Africa could be the next frontier for cryptocurrency," according to the United Nations. Individuals and businesses alike have discovered practical applications for Bitcoin, such as paying for overseas suppliers in BTC rather than dollars.
According to a Reuters report, a small business owner in Africa shared how paying his suppliers in Bitcoin increased his profits and protected his company from currency depreciation. He didn't have to pay any additional fees with BTC. Transacting in Bitcoin was faster, safer, and cheaper than buying dollars with Nigerian naira or using high-fee money-transfer companies.
Simply put, Bitcoin allows people in developing countries to break free from the shackles of poverty and, at the very least, navigate the difficulties that come with living in a developing country.
In third-world countries, inadequacies in traditional financial systems create gaps, making them a fertile environment for Bitcoin use. People can use cryptocurrency and blockchain technology if they have access to them.
Can Bitcoin help bank the unbanked?
There are currently over two billion people in the world who are unbanked. Decentralized financial infrastructures can assist them in gaining access to financial services that would otherwise be inaccessible to them.
According to Statista.com, high percentages of the unbanked are from countries with less stable economies. In some cases, citizens may have a general distrust of financial systems that are less developed or corrupt.
Big banks and traditional financial institutions typically charge exorbitant fees for their services. Everything, from requiring an initial deposit to maintaining a minimum balance and paying withdrawal and membership fees, may be difficult for the financially disadvantaged.
Even in first-world countries such as the United States, unbanked people cite a lack of money as the primary reason for remaining unbanked. Banks do not provide services to low-income households, exacerbating the divide between the banked and the unbanked.
So, can Bitcoin help to reduce inequity? By filling the gaps that traditional financial systems leave, Bitcoin enables the unbanked to take control of their finances without having to deal with crippling fees and monetary requirements.
How does cryptocurrency help in improving developing countries?
Financial inclusion is at the top of the list of benefits that cryptocurrency provides to developing countries, but it's not the only one. Individuals in developing countries can save money by trading Bitcoin and paying lower transaction fees. Small businesses can also participate in global trading by using Bitcoin as a payment system, avoiding the bureaucracies associated with traditional finance.
Reducing corruption and promoting transparency
Corruption is a major cause of poverty in third-world countries. According to research conducted by the anti-corruption NGO Transparency International, there is a positive correlation between the two. Corruption deprives a country of vital funds that could otherwise be used for infrastructure, healthcare, crisis response, and other purposes, further impoverishing an already impoverished country.
One of the most high-profile corruption scandals occurred in the Philippines, where former President Ferdinand Marcos stole an unprecedented $10 billion during his presidency. This caused the country to enter a recession and ballooned the national debt, causing the economy to stagnate.
Singapore, on the other hand, was able to eradicate poverty by first eliminating corruption. The country revitalized its economy through an anti-corruption campaign led by the People's Action Party, opening Singapore up to foreign investment and economic development.
Through the use of blockchain technology, cryptocurrency can assist developing countries in eliminating corruption. Because blockchain records are accessible to the public via an immutable distributed public ledger, governments can be held accountable. Government spending on projects and initiatives can be tracked without the risk of falsification or tampering with records. Authorized individuals may also be barred from using funds for purposes other than those for which they were intended.
According to the Brookings Institution, blockchain technology has the potential to solve a 15-month corruption investigation with a single click. According to academics, cryptocurrency has the potential to reduce illegal bribes in the public sector by up to $1.5 trillion to $2 trillion per year. It promotes transparency because data is stored across multiple computers, removing the risk of data loss. Encryption also improves data security, while trackability makes nearly all transactions public.
Greater financial inclusion of the marginalized
Blockchain technology enables marginalized populations to gain access to banking services that were previously unavailable or inaccessible. Blockchain technology can be used to facilitate instant, secure, and low-cost peer-to-peer money transfers between countries.
Unbanked people can now access financial services such as loans and investments thanks to blockchain-based DeFi projects. Something as simple as saving money can be accomplished by trading cryptocurrency and profiting.
People can use cryptocurrency to obtain smaller loans and investments from individuals. These microloans and microinvestments are an excellent way for individual lenders to spread risk.
The unbanked can use cryptocurrency as long as they have a crypto wallet and do not need to open a bank account. Participants in microfinance (microloans and microinvestments) do not require documentation because blockchain technology makes everything freely accessible.
Because cryptocurrency does not necessitate physical infrastructure, it is still beneficial to developing countries. By increasing financial inclusion, cryptocurrency provides developing countries with an effective tool for poverty reduction.
Reducing transaction costs and time
Overseas workers from developing countries can benefit from cryptocurrency as well, thanks to lower remittance fees. They no longer have to be concerned about paying exorbitant transaction fees when transferring money to their home country. Traditional remittance platforms can charge up to 10% of the total amount, whereas crypto-based platforms only charge 2-5%.
Remittances sent by Haitians working abroad to their families back home account for 26 percent of Haiti's GDP. Fees for workers sending money from the United States, Canada, or the Dominican Republic can be as high as 8-10%, amounting to $150 million in fees alone per year. Savings on transaction fees can be significant for workers who do not earn much or are just starting to save money.
Crypto applications such as Abra are beginning to compete with traditional remittance platforms such as Western Union, reducing transactions by up to 90%. Money sent by an overseas worker is converted into Bitcoin and sent to the recipient via the blockchain via the app. It is then converted into a local currency, making the service accessible to both the sender and the recipient.
Combating inflation
Inflation is characterized by currency depreciation as well as rising prices for goods and services. It is still a threat that is bubbling beneath the surface, particularly for fiat currencies. As a result, people typically turn to cryptocurrencies such as Bitcoin — an asset that retains its value over time — to protect themselves from inflation.
Another relatively stable asset, gold, has traditionally been used as an inflation hedge. However, cryptocurrency has grown in popularity as a more accessible option.
What happens to Bitcoin if there is a recession? Bitcoin is considered relatively inflation-resistant due to its fixed supply of 21 million. As a result, it is expected to withstand recessions, especially given that it was built on the heels of one.
How are governments in the developing world using Bitcoin?
ConsenSys Ventures, a blockchain software firm, is an example of Bitcoin adoption in the developing world. The company has implemented blockchain in land titling in collaboration with the National Institution for Transforming India Aayog — the Indian government's policy think tank. Other applications of blockchain technology include the use of the technology in health records and supply chains across the country.
Twiga Foods, a B2B logistics platform in Kenya, has partnered with IBM to provide microloans to food stall vendors in the country. To assist such vendors in purchasing more inventory and expanding their businesses, the company created a blockchain-based lending platform that can instantly evaluate lender credentials.