How Blockchain Technology Can Benefit Developing Countries
For the last few years, anyone involved in the financial industry has heard of blockchain technology. It’s considered a horizontal technology like the wheel or the electricity. Horizontal technologies have the power to change every sector and industry. Naturally, the question has started to circulate if blockchain can help alleviate the problems of emerging nations like Cabo Verde Islands. Let’s have the look at the possibilities that blockchain technology offers for poor developing countries.
Cabo Verde: An Overview
Cabo Verde is an island country with an archipelago of 10 volcanic islands. It’s located to the west of Africa in the Atlantic Ocean. Cabo Verde was under Portugal rule until 1975. Today it is a country with a strong population of more than 512,000.
Year-round sun, beautiful beaches, and an incredible volcanic landscape make it a great destination for travel. Despite being poor in natural resources, having propensities for droughts and lacking land suitable for sustainable agriclture, Cabo Verde has managed to achieve financial stability, but it’s nowhere near a wealthy country. According to 2016 UN Human Development Report, the Human Development Index (HDI) puts Cabo Verde at the rank of 122 out of 188 countries. So there is a lot of room for improvement in terms of dealing with poverty and moving towards prosperity.
Blockchain: The Technology
Blockchain technology gained prominence through the cryptocurrency Bitcoin. In 2009, a mysterious figure called Satoshi Nakamoto published a white paper called “Bitcoin: A Peer-to-Peer Electronic Cash System”. Developers started to implement the solution and the Bitcoin cryptocurrency was born. Blockchain was the backbone of this new form of digital money. Soon researchers and scientists realized that Blockchain as a standalone technology can achieve more than just digital currency.
Blockchain uses the power of cryptography to create immutable and distributed digital ledgers. Whenever two parties make a transaction, the record is entered into the ledger and becomes part of the chain using complex cryptography and mathematics. Because it takes enormous computing power to put a record into the digital ledger, it’s not possible for any single party to change it. The record is permanent.
For the first time in human history, two parties can transact remotely using blockchain without the need for an intermediary (like a bank or a government) to validate it. It has the potential to change the way the world economy works today.
Cabo Verde Blockchain: A Story of Possibilities
Blockchain can help a country like Cabo Verde increase financial inclusion, improve current systems, and put it on a path to defeating poverty. Here are a few interesting possibilities:
1) International Transactions and Financial Inclusion
According to World Bank’s Global Findex Database, only 50 percent of the world population has an account with financial institutions. So the rest of the population doesn’t have access to financial capital. Financial inclusion and access to capital play a vital role in reducing poverty.
Banks can be too expensive for poor people, coupled with the fact that distances from remote locations make these institutions unreachable for parts of the population. Lack of financial institutions also means lack of access to international transactions. It prevents poor people from participating in the global market.
Blockchain technology has the ability to overcome these hurdles. Using the internet and mobile technology, blockchain can help build financial relationships from all corners of the world without financial intermediaries. It can help foreign investments increase in countries like Cabo Verde.
2) Microfinancing and Small Businesses
Microfinancing was hailed as the solution for changing the landscape of poverty. It hasn’t lived up to its reputation. One of the problems in microfinancing has been the presence of third-parties like non-governmental organizations (NGOs) and microfinancing institutions (MFIs).
Microfinancing allows poor people to get credit and start small businesses. The credit system doesn’t require any collateral and depends on trust. However, maintaining the records and keeping track of the transactions can be cumbersome for NGOs and MFIs. It can make the system too expensive to maintain.
Blockchain technology can help microfinancing as a digital ledger. In a general microfinance chain, the trust can be easily broken and result in the collapse of the system. Blockchain provides the trust and security that can keep a microfinance system running at low cost and promote the growth of small businesses. The expansion of small businesses means wealth creation and prosperity.
3) Improving Current Financial Institutions and Intermediaries
Weaknesses in financial institutions and inefficiencies in financial transactions can impede economic growth. Banks and governments can fall prey to corruption. There can be lack of transparency. Inefficient financial transactions and recordkeeping can lead to land-grabbing and other property frauds. Poor people are at high risks for such manipulation.
Blockchain’s tamper-proof and immutable records can help. They provide easy-to-follow digital trails that prevent corruption. Sweden is working on a blockchain-powered land registry. Other governments are investing in blockchain-based systems to build a relationship of trust with their citizens. A developing country like Cabo Verde can definitely learn from these innovations.
4) Empowering the People
Various blockchain applications are empowering the people in unforeseen ways. Identity documents like birth certificates, driver licenses, and marriage certificates on blockchain are helping fight identity theft. Access to digital ID cards is invoking the poor to participate in financial activities through banks and in civic duties like voting. Intellectual property rights management is moving into blockchains to ensure the original creators are rewarded for their efforts. This can help the poor build wealth on ideas which were impossible before.
Challenges of Implementing Blockchain
Even though blockchain is a wonderful technology, it requires an investment of time and resources. Here are a few challenges:
- As a new technology, there is a lot of skepticism about blockchain technology. More awareness is necessary.
- Governments need to help move the technology forward. Private sectors are profit-motivated, but governments work for the good of the people: it is the responsibility of governments to provide support for the technology to help people.
- Businesses and institutions need to figure out the operational and regulatory barriers around blockchain. If governments and institutions try to shut down the technology as a threat, it will not be good for the country in the long run.
- Investment in developing talent pool who can implement the system is a necessary first step. Without a talent pool of blockchain engineers and developers, it wouldn’t be possible to create viable systems.
The Future of Cabo Verde Blockchain
Blockchain can be the catalyst to bring financial freedom to the poor, globally. Cabo Verde blockchain-based applications can play an important role in improving the country’s financial standing in the world, while helping its people break the cycle of poverty. Leaders of every industry should pay attention to this new technology as a catalyst for social change.
• http://www.eib.org/attachments/efs/economic_report_banking_africa_digital_financial_inclusion_en.pdf =