This is the 1st article of a series to come — where we are presenting challenges and blockchain use-cases to solve them. This article is part of a weekly series, of which we are excited to hear your feedback or insights in the comments below!
The big question many people ask: What problem does blockchain solve?
Have you ever tried explaining blockchain to someone else? It is a great way to test your own knowledge — because being able to explain something really shows your understanding.
We thought listing some challenges and blockchain applications/use-cases, could help you notice the bigger picture. Without a real challenge there is no justification for a solution, but at most a short-term hype. Whether blockchain cases are the only solutions is questionable — but at least they are interesting to look at! Time will show which challenges blockchain can sustainably solve.
So let’s dive into the 1st challenge for this week’s article:
Challenge 1: The unbanked
“The unexpected tragedy of our current financial system is that those who have the least money have to pay the most to ship it,” — Joyce Kim, CEO of the Stellar Foundation. (Nimfuehr, M.)
There are approximately 1.7 billion people without access to a bank account. The bank accounts remain at a shocking 22% of the world population, according to the World Bank’s financial inclusion database. (Küfner, R.)
The reasons for unbanked people often vary across regions. A huge problem for developing countries is the lack of legal infrastructure for identification and ownership. The common obstacle is an English double acronym: KYC/AML. It means “Know Your Customer / Anti Money Laundering”, where banks require a number of documents and security until they “grant” a new account — a process that can take 30–50 days. It can be even more complex for regions with low bank density, as it also requires people to travel long distances back and forth. In order to even consider having a bank account, one would need to verify the identity of an individual, and know what he or she owns. Bank accounts, credit facilities and fund transfers all revolve around accurate identities. But many people already fail at the first step — they have no birth certificate or police registration! (Nimfuehr, M.)
It seems hard to imagine but in order to fight this inequality and poverty, an inclusive financial system would be needed. However, for banks the cost of doing business and the risks associated with such communities is higher than the possible returns on investment. With this gap, intermediaries and excess rates for fund transfers prosper.
All of this continues the cycle of poverty, not allowing the poor communities to become financially stable. Did you know that the biggest flow of funds from the developed world to the developing world is in fact remittances? But right now people spend high rates of up to 10% for every single transaction, taking 4–7 days to get there.
For now, blockchain technology seems like a good solution to tackle this profound issue. Solutions for the lack of documentations, can be to identify someone by associating them through their biometrics (for example retina). Humaniq, is one example of a blockchain based startup using biometric identity joined to a cryptocurrency, in order to create an identifiable bank account.
The idea of “financial inclusion,” is popularizing in sub-Saharan Africa, in developing countries like Nigeria, Kenya, Zimbabwe and Tanzania — making up a significant number of the “unbanked” population around the world. In a report from the World Bank Global Findex, it was found that roughly 62% of sub-Saharan Africans do not have a bank account. However, Smartphone ownership in South Africa, Nigeria, Ghana and Kenya is increasing drastically. In Senegal, smartphone ownership has gone up from 13% in 2013 to 34% in 2017. (Onibudo,B.)
Taking just the Philippines as an example: while many Filipinos lack access to basic financial services (77% of adults having no bank accounts), nearly 70% of Filipino citizens use mobile phones. (Haig, S.)
What does a smartphone have to do with financial inclusion?
Access to smartphones allow people to manage their money without having a bank account.
With blockchain technology, services have evolved that allow transactions (for example related to remittances) to be securely exchanged with a significant lower fee and way faster (with just a phone needed). Check out this article by Hamilton, D. that further describes these processes, including some blockchain solutions like Abra:
https://coincentral.com/blockchain-remittance/
African companies are also tackling this opportunity, by developing mobile money solutions, for example Kenya’s Safaricom and Nigeria’s XendBit, which are developing a blockchain-based financial services platform. (Onibudo, B)
Don Tapscott raised some interesting questions at his TED talk “How the blockchain is changing money and business”:
Rather than re-distributing wealth, could we pre-distribute it? Could we democratize the way that wealth gets created in the first place?
What are your thoughts? Comment below!
Don’t forget to check out our other articles:
Privacy, identity & data — including blockchain use cases: https://medium.com/@chainworkhub/identity-privacy-real-world-challenges-and-blockchain-use-cases-25e2816eec2b
The sharing economy and blockchain use cases: https://medium.com/@chainworkhub/the-sharing-economy-real-world-challenges-and-blockchain-use-cases-24e44a58832
References:
Nimfuehr, M. Blockchain: Banking the unbanked. Accessed on: 20.01.19 Available at: https://medium.com/coinmonks/blockchain-banking-the-unbanked-b6ae40539bd6
Küfner, R. Blockchain and the Unbanked. Accessed on: 19.01.19. Available at: https://medium.com/nakamo-to/blockchain-and-the-unbanked-7e44e4c5d711
Haig, S. Indonesian Unicorn Go-Jek Acquires Majority Stake in Filipino Crypto Wallet. Accessed on: 20.01.19. Available at: https://news.bitcoin.com/indonesian-unicorn-go-jek-acquires-majority-stake-in-filipino-crypto-wallet/
Hamilton, D. Blockchain Remittance: The Future of International Money. Accessed on: 20.01.19. Available at: https://coincentral.com/blockchain-remittance/
Tapscott, D. How blockchain is changing money and business. Accessed on: 18.01.19. Available at: https://www.ted.com/talks/don_tapscott_how_the_blockchain_is_changing_money_and_business
Onibudo, B. Can Blockchain Help Bank The Unbanked in Sub-Saharan Africa? Acessed on: 20.01.19. Available at: https://www.fintechnews.org/can-blockchain-help-bank-the-unbanked-in-sub-saharan-africa/
Disclaimer:
This article is not intended to be a source or advice of investment, financial, technical, tax, or legal. All of this content is for informational purposes only.
