The impact of BLOCKCHAIN technologies on Emerging Economies.
The emerging countries such as India, Kenya, Ethiopia, Nigeria and others sub-Saharan countries are experiencing an increasing interest in Blockchain Technologies. It is providing a solution to the lack of transparency, reliability and the lack of information and data that they are facing in multiple sectors like insurance, financial services, taxes system, agriculture, land management etc. The technology has existed for 10 years now but does not have wide adoption. That is mainly due to the policies, the lack of education and infrastructures because the technology is evolving so quickly; Governments could not follow.
What is blockchain?
According to the Oxford Dictionary, a blockchain is “a system in which a record of transactions made in bitcoin or another cryptocurrency are maintained across several computers that are linked in a peer-to-peer network.” Watch this video to have a simple explanation.
The first application built on blockchain was cryptocurrencies. A Cryptocurrency is a decentralized digital currency meaning there is no central entity or intermediary and it is exchanged directly from one user to another. Every transaction is recorded on a blockchain and verified by network nodes through cryptography (just like your WhatsApp conversations). The first crypto ever released was Bitcoin by Satoshi Nakamoto back in 2007. Satoshi released a white paper explaining the essence behind bitcoin and he stated, “The root problem with conventional currencies is all the trust that’s required to make it work. The central Bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
Just like the internet or mobile phones, Blockchain is an emerging technology that has the potential to change the face of several fields. Since it is an open-source technology, meaning that any developer can use the protocol and build an app on it, its adoption is observed in different sectors. This technology has a great potential for users because of its ability to offer them a “secure channel to transfer value or real assets on the internet”. Blockchain challenges the need for a central entity and favors peer-to-peer transaction by eliminating intermediaries.
Blockchain and emerging economies.
Blockchain can solve many issues that emerging economies are facing. The most common issues would be land management, public records management, corruption, tax management and supply chain. Blockchain has shown multiple social advantages for emerging economies. The most common use of blockchain, for now, is cryptocurrencies. The countries that are experiencing a financial crisis and high inflation are the ones which have the highest number of crypto adopters. For example, as a response to the deepening economic crisis, Venezuelans adopted cryptocurrency with weekly transactions of 8 million dollars. The government also started using cryptocurrencies in global trade when Petromoneda launched in 2018.
India
India is the leader when it comes to blockchain compared to other emerging economies. One of the main issues that the population in India and most emerging economies are facing would be land management. ConsenSys is a tech company in India working exclusively on blockchain and has a venture named ConsenSys Ventures. They have a big project, that focuses on land titling in partnership with the Indian government. The objective is to digitize land titling records by recording them on the blockchain. Hence, the government will have the full history of land attribution and the records will be uncorrupted. Before this project, the government did not have a way to track land attribution, it was left to the buyer to do the background check before buying land and bribing was the quickest way to get a result.
ConsenSys is using Ethereum, which is the first blockchain/crypto to come with a smart contract.
A smart contract is, according to Investopedia,” a contract with terms of the agreement between buyer and seller being directly written into lines of code. With a smart contract, the transactions are traceable, transparent and irreversible.” Ethereum is mostly a token used to facilitate any type of transaction as a contract. (e.g., a lawyer’s contract, an exchange of ownership of property, and voting)
A smart contract is essentially a contract for financial transactions. Bitcoin and Ethereum are in many ways similar but the difference lies mainly in the purpose. Bitcoin was meant to replace fiat money by offering a digital alternative while Ethereum’s blockchain allows developers to build financial assets or applications on top of it.
Sub-Saharan Africa
Agriculture is the main economic activity in sub-Saharan Africa where 61% of the population are farmers and the majority are women who produce at least 80% of the continent’s food. The sector is facing a lot of issues such as, land titling, lack of data, lack of machinery, bare support from government, hard access to financing or funds, limited access to market, taxes are too high which severely impacts exportations. These past 10 years the continent witnessed the development of multiple startups that use blockchain to solve these issues. From data gathering to financing, to crop monitoring, many solutions are being brought by these startups. But the most common application would be digital records for land ownership. In 2017, the Kenyan startup LayBy uses Ethereum to create a shared ledger to record land transactions. By certifying the ownership of the land, the farmers can have access to loans from banks easily. In the same year, an Amsterdam based company Moyee Coffee worked with KrypC, a global blockchain company to create a “traceable coffee”. With that collaboration, the company gathers significant data about the coffee journey from the farm to the mug. That is beneficial to prevent diseases related to an infected crop even livestock and avoid catastrophes such as avian influenza as we are currently experiencing around the world.
Another problem that African farmers are facing is accessing market data. They do not necessarily have an idea of the prices on the markets or which market is more advantageous for them. Blockchain can act as a platform to connect farmers and vendors where they can sell or buy their product in a transparent and traceable way. Since the transactions are done from peer-to-peer, the cost of the intermediary is cancelled which helps improve the margin of the buyers. In addition, the prices reflect the real state of the market. TrusteeFarm is a startup based in Ghana and will launch this year. They offer an exchange platform based on blockchain for farmers and buyers and supply chain monitoring. Blockchain offers many solutions to emerging economies, but its wide adoption is limited by many factors.
The limits of adoption of blockchain technologies in emerging economies.
Blockchains are not well made for real-world application. It requires strong knowledge about finances and technology to be able to use it. The developers must think about a way to create a UX and UI that will simplify the usage of blockchain. Technological and financial education is required to facilitate the adoption of blockchain in Emerging Economies.
Emerging economies are already facing problems providing a sustainable energy system to their population and certain Blockchain solutions use a lot of energy. Whenever a new transaction is recorded on the blockchain, miners that are chains of computers work to deliver a proof of work to validate the transaction. That process consumes a lot of energy. In this case, renewable energies must be considered in order to benefit from the technology.
With the expansion of crypto usage especially during these hectic times of pandemics, the governments are considering more and more the adoption of policies regarding the use of cryptocurrencies and blockchain. Technologies evolve so quickly that the policies are unable to follow and that creates a huge gap. Governments have a hard time considering a new technology that does not require a central entity or intermediaries.
In February 2021, the central bank of Nigeria issued a statement “prohibiting financial institutions from dealing with local cryptocurrency exchanges and ordering the shutdown of crypto trader accounts.” Nigeria is a big player when it comes to crypto exchange. In the past 5 years, the equivalent of 588 million dollars were exchanged on the crypto market in Nigeria. The exchange platform does not have a financial license therefore, they were only allowed to accept deposits and facilitates exchange with fiat money with commercial banks. The Deputy Governor of the CBN said that this new policy should not be mistaken for a ban on crypto exchanges. He says, “What we have done was just to prohibit transactions on cryptocurrencies in the banking sector.” The reason behind this prohibition is linked to the value of the Nigerian currencies. If people start to abandon the local currency for cryptocurrencies, the value of money will degrade. The government should consider implementing policies that will guide the expansion of crypto use without being involved directly. Just like the internet, it is impossible to stop the growth of this technology.
About this article
This article has been written by a student on the Grenoble Ecole de Management’s Advanced Masters in Digital Strategy Management. As part of a content creation assignment, students are given the task of writing articles based on their digital interests and disseminate the articles online. Articles are marked but we make minimal changes to the content. Thanks for reading! James Barisic, Programme Director, MS DSM.
