14 07 2014
Bitcoin as a Banking Alternative for the Developing World
In places like Africa and Southeast Asia, there aren’t many viable options for consumers when it comes to banking and other methods of securely storing money. The penetration of cell phones actually outpaces bank accounts in certain parts of the world, which is why we’ve seen services such as M-PESA become widely used in places like Kenya. At the end of the day, people just need a secure place to store their money, and it’s possible that some parts of the world will completely skip the banking phase of that region’s financial evolution. Much like certain parts of the world skipped landlines and went directly to the mobile phone, we could see some countries skip banking and dive directly into the world of cryptocurrency.
Bitcoin is Deflationary
One of the most noteworthy characteristics of Bitcoin is that its currency is deflationary. The adoption of Bitcoin has outpaced the creation of bitcoins over the past few years, which means holders of the currency have actually seen an increase in their wealth over that same period of time. This is contrary to the normal course of events where savers of a particular fiat currency are actually losing money over the long term through inflation.
Anyone who lives in a country that has recently dealt with double digit inflation knows the unfair nature of central banking much better than the individuals who are using US dollars and euros on a daily basis. Having said that, even the US dollar has had its own bouts with inflation throughout its history. Although the bitcoin has dealt with its own volatility issues in the past, the problem with fiat currency is that it’s only going down in value as time goes by. Whether you’re talking about double digit inflation in India or triple digit inflation in Venezuela, it’s obvious that a new option is desperately needed in these parts of the world.
A Bank in Your Pocket
The idea of being your own bank and storing your wealth in your wallet is a rather revolutionary innovation. With Bitcoin, you don’t need to ask anyone for permission when you want to spend your money, and there are no high fees to worry about when you want to do something as simple as transfer money to a relative in another country. In many countries around Africa, the fee to transfer money to a relative in another country is greater than 10% of the total transaction cost. Bitcoin basically makes a new remittance market possible because everyone now has access to a Bitcoin account on their smartphone. There is no middleman processing the transactions, so costs can plummet to basically zero. It is even possible to use Bitcoin on a more traditional cell phone through text messages. There are plenty of people who are already accustomed to this kind of mobile wallet thanks to the prevalence of M-PESA in Africa.
Access to Online Shopping
While most people would agree that Bitcoin is still a young technology that will need to mature over the next few years, there are already plenty of tech and financial gurus who believe Bitcoin is the future of online payments. It may never become widely popular at physical stores, but the fact that Bitcoin payments are irreversible is very attractive to online retailers. In fact, two of the largest online retailers in the Philippines, MetroDeal and CashCashPinoy, have already decided to accept the cryptocurrency for online sales. Bitcoin could turn into a hugely disruptive force in these kind of cash-heavy economies where online shopping is still a relatively new phenomenon.
Time Will Tell
At this point in time, Bitcoin is still very much an experiment. The currency is still subject to rather wild price fluctuations, and it remains to see how everything is going to look once the regulators take a closer look at the technology. For now, Bitcoin offers a frictionless alternative for people who wish to move money around the globe without having to jump through an endless number of hoops.