Blockchain technology is quickly setting in as the next technological revolution of the decade. The rise of crypto markets and the value they represent have put this innovative technology under the mainstream investor’s spotlight. However, blockchain is much more than just a vessel for cryptocurrencies.
The decentralized ledger it is based on brings numerous advantages for countries with struggling economies. This article will explore some of these benefits and how they can help developing countries get their economies on track. In addition, the article analyzes some real-world applications where blockchain has been adopted to fight inflation and offers individuals a better financial system than the one currently in place.
Advantages of Blockchain Technology
Blockchain is based on a distributed digital ledger where every transaction is recorded and cannot be modified. What is even more important is that blockchains are decentralized and permissionless. But what does this mean exactly?
- “Decentralized,” meaning there is no single governing body that can control a blockchain network. It is the thousands of participants and validators that govern it through proper consensus. As a result, no government or central bank can suddenly shut down the payment network or change how it functions.
- “Permissionless,” meaning no one can restrict access to blockchain services to anyone else. These networks can be used by anyone, anywhere globally, without any limitations. Only an internet connection and a wallet app are needed, making the technology incredibly resistant to censorship.
Finally, individuals have full control over assets created on the blockchain. No intermediary such as a bank can revoke access to an individual’s funds or confiscate them. Individuals retain full ownership of their coins thanks to the asymmetric cryptography that secures the network.
How Does Blockchain Help Developing Countries?
The following are the main advantages on how blockchain helps developing countries:
- It serves to bank the unbanked. People with little to no access to a solid banking infrastructure can access various financial services for free. Blockchain allows people to participate in their local economy much more easily by giving them access to fast and low-cost electronic cash for daily purchases. In addition, they can use the growing decentralized finance (DeFi) ecosystem to access advanced financial instruments such as lending and borrowing to make passive income or get quick access to a line of credit.
- It fights inflation. Cryptocurrencies—with a limited maximum supply like Bitcoin—are designed to be deflationary. The usage of crypto can fight hyperinflation in some developing countries and help people retain their capital while keeping it in a liquid, transferable form.
- The immutability of the digital ledger can fight corruption. Corruption in many developing nations is rampant. Extreme poverty pushes people to resort to corruption, especially in governmental administrations. The immutability of blockchain can help digitalize all documents and archives, allowing for more transparency in administrative processes. Voting on the blockchain can also be a great tool to avoid tampering with elections.
With all that in mind, below are some real-world examples of the blockchain in developing nations.
Bitcoin as Legal Tender in El Salvador
In September 2021, El Salvador accepted Bitcoin as legal tender. This means that bitcoin can be used for daily transactions anywhere in the country, and merchants have the choice of accepting bitcoin or U.S. dollars as means of payment.
More importantly, citizens can get bank loans in bitcoin, use it as collateral and keep their savings in bitcoins to do almost anything a fiat currency can do. This was made possible by the implementation of the Lighting Network and the Chivo wallet.1
Because Bitcoin’s network is too slow, the government of El Salvador worked in partnership with payment providers for the Bitcoin network, like Strike, to offer near-instant transactions for their citizens.
Cryptocurrencies as a Hedge Against Inflation
Bitcoin is used extensively in countries where the local currency is experiencing hyperinflation. Argentina, Turkey and Nigeria, to name a few, are countries where cryptocurrencies are slowly taking over the corrupt, traditional monetary system.
In Тurkey, the rise in popularity of cryptocurrencies and crypto exchange platforms2 were met by stark regulations by the government, banning their use as means of exchange.
In South America, the story is quite different. Many governments are already pondering the idea of adopting cryptocurrencies fully and thereby helping their struggling economies and currencies. The CEO of Bitmex, Alex Hoeptner, predicted that at least five other countries would accept bitcoin as legal tender by the end of 2021.3
Blockchain technology adoption is well underway, with numerous industries starting to adopt Blockchain integration to improve their operating processes. In developing countries, this tech has had the most impact on the financial sector. Individuals are using crypto to hedge against hyperinflation and access crypto exchange platforms to speculate on their value.
As institutional interest in blockchain rises, the crypto market should become much more stable. Volatility is the main drawback for adopting Blockchain technology in developing nations. With volatility decreasing over time, the world could see even more countries adopting digital currencies as their solution against inflation.
- “A First Look At The Chivo App, El Salvador's Bitcoin Wallet,” Nasdaq, October 11, 2021, https://www.nasdaq.com/articles/a-first-look-at-the-chivo-app-el-salvadors-bitcoin-wallet-2021-10-11
- Homepage, Currency.com
- Kevin Helms, “5 Countries Will Accept Bitcoin as Legal Tender by End of Next Year, Says Bitmex CEO,” Bitcoin.com, October 10, 2021, https://news.bitcoin.com/5-countries-accept-bitcoin-legal-tender-end-of-next-year-bitmex-ceo/