The real reasons crypto hasn’t taken off in high-inflation countries — yet.
It’s well-known that there’s outsized demand for cryptocurrency in markets plagued by high inflation, volatile fiat currencies, and capital controls. I’ve been studying financial behavior and technology use in low-income countries since 2011 with organizations like BFA Global and Facebook’s mobile financial services and Calibra efforts. Through this work, I’ve observed people in Venezuela, Argentina, Nigeria, Zimbabwe, and other places watch their hard-earned savings inflate away. It is understandable that those facing significant hassle and logistical challenges to buy everyday goods are eager for alternatives.
With characteristic optimism, the crypto community has asserted that digital currencies will be the solution to failed monetary policies around the world. We’ve seen arguments that Dash, Bitcoin, and others will save Venezuela and revolutionize Africa for some time now. And action is following rhetoric: Brian Armstrong’s GiveCrypto foundation launched in 2018 with the mission to “distribute cryptocurrency to people living in poverty”, whether it seems, they can use it or not. Going beyond currency, RippleWorks has compiled the master list of blockchain projects in international development. With nearly 250 projects on the list, there are high hopes for all that distributed ledgers can do for people in less-developed countries.
Although cryptocurrency is present in these markets, especially Venezuela, per capita exchange volumes do not come close to those in developed countries. And while crypto is used for remittances and investment in high-inflation countries, there is little evidence of significant consumer or business payments yet. Venezuelan Cointelegraph reporter Javier Bastrado explained that use of crypto is more limited that proponents like to think. But given the demand and need, why haven’t we seen massive adoption of cryptocurrencies in emerging markets, especially those with high inflation?
Based on my experience researching mobile money and technology adoption in developing countries, I see two main reasons for the limited adoption of crypto in high-inflation countries that have so far been under-appreciated by the industry.
1. Infrastructure and reliability challenges
Mobile data networks and electrical power grids in many countries simply are not reliable enough to consistently bear the load of payment transactions and deliver a reliable customer experience. I’m not talking about mining here, but simply completing a payment.
Network downtime and power outages
In much of the world, mobile and data networks are overtaxed and slow, making even basic communication unreliable. Power outages are frequent. Large parts of these populations may get 2G or 3G coverage at best, as shown below for Nigeria.
The Helix Institute’s research finds that mobile money agents in many countries are regularly unable to complete transactions because of network outages. For example, 57% of mobile money agents surveyed in Bangladesh in 2016 and 50% in Indonesia in 2017 report being unable to complete payment transactions due to network downtime. As data from Afrobarometer show, some places with wide electricity coverage still deal with poor quality. Although most people technically have electricity in Nigeria, only 18% of connections working most or all of the time. In 2019, Venezuela was plagued with large national blackouts in March and July, with smaller outages and rationing power throughout the year.
In practice, this means digital transactions fail often. This undermines trust in digital payment systems. When someone hands over physical cash, it is clear that the payment has been completed. But network downtime creates an opportunity for fraud and scams.
I met customers in Colombia who trusted a bill pay center and left cash with the clerk, even when the “system was down”. He paid their bills when the mobile network was back up. But one night after collecting money for bills that he promised to pay when connectivity returned, the shop owner emptied his shop and vanished. The community lost its payments in a fleecing brought to you by network downtime.
Government internet shutdowns
According to Top10VPN, there were 122 government internet shutdowns in 21 countries in 2019, costing the global economy an estimated US$ 8 billion. In Uganda, a surprise shutdown around the 2016 election left the 35% of the country that uses mobile money without access to their funds. Airtel, a prominent mobile operator in the county, lost profits on an estimated US$ 36 million that would have been transacted over their platform in a four-day period.
It’s well known that some governments have banned cryptocurrency, but weak states with weak currencies are also weak at enforcing crypto bans. More than regulation, the government’s most powerful hammer to use against cryptocurrency may be disrupting the internet itself.
Older phones, slower operating systems
Tech products that want to grow globally with frontier customers need to build more inclusively for older and lower-cost devices. In late 2019, GiveCrypto ran its pilot to jump-start the crypto ecosystem with Zcash in the Venezuelan city of Santa Elena de Uairen. Armstrong reflected that building for old Android versions was major learning from the effort:
“We had to build a new version of @CoinbaseWallet that runs on Android 4.x since 75%+ of recipients in Venezuela are still running this version of Android from 2012.
The intermittent power outages we did not anticipate. Crypto still needs internet and electricity to function, although there are some potential relay type solutions in low connectivity environments that we could try in the future.”
2. Trust and fear of taking phones out in public
Unlike in most parts of the US, it can be extremely dangerous to pay with your phone at a point of sale in countries with high crime rates. Nigeria is known for its massive markets of stolen phones. It’s been estimated that 110,000 phones are stolen every month in Venezuela. The New York Times detailed the extraordinary lengths people go to to avoid being robbed in Venezuela, including carrying a decoy phone or always varying the route taken for daily errands.
Remittances are largely spared this problem, with receivers using platforms like Localbitcoins to transfer Bitcoin to fiat usually immediately. But as there is no verification on protection on these sites, they are also rife with scammers.
Given the risk of phone theft when paying in person, home delivery of purchases has grown, but also requires trust. Adroit merchants like FamilyBox have taken the transaction out of Venezuela entirely, having relatives outside the country pay directly to the merchant’s crypto or foreign bank account.
Reflecting on trust and decentralized currencies
Crypto often appeals to people who distrust traditional institutions like central banks. But the ability to trust in complex systems like a permissionless blockchain is not a given for many people in emerging markets. In my interviews, I’ve found living with low-functioning institutions prompts people to shift the balance of trust towards people they know personally and face-to-face transactions, rather than towards anonymous systems on the internet. This s especially true when these systems lack the payment reversal or buyer protection models that made early PayPal successful, for example.
How we can do better
The challenges of building for emerging markets can be daunting — it’s tempting to give up and build for people like us. But it is precisely in these challenging countries where cryptocurrencies can have the most impact. The solutions usually aren’t that technically hard, they just require shifts in how we think and what we optimize for, for example:
- Be data sensitive. Customers tend to be highly price sensitive to the amount of mobile data apps use. Consider whether key steps can be taken on wifi before traveling to a point of sale.
- Keep app size small. If downloading a coin wallet app means a user will have to uninstall their favorite apps because limited phone storage, sustained use is not likely.
- Design for multiple users sharing one phone. Is it easy for users to sign in and out while protecting their privacy?
- Design for offline. Communicate offline states and progress with visualizations. Here are some ideas.
- Build USSD. USSD technology is enabling mobile money to thrive in Africa and parts of Asia despite poor mobile infrastructure and low-end phones. Check out Hover to enable USSD fro Android.
- Test with older folks. In the case of Venezuela, 4.5 million migrants, mostly the young and better educated, have left. The population remaining is older and less tech savvy. Although the opposite is true in high-inflation countries Africa where populations skew younger.
It’s also worth supporting organizations working to improve connectivity and electrification in emerging markets, and those fighting against government internet shutdowns. And who knows, with China contributing the most to improving connectivity in Africa, perhaps it will be the Chinese coin that cracks the code and transforms emerging markets.
