Big Wall Street companies are using a complicated Technology called blockchain to further increase the already lightning-fast speed of international finance. But it’s not just the upper crust of high finance who can benefit from this new technology.
Most simply, a blockchain is an inexpensive and transparent way to record transactions. People who don’t know each other – and therefore may not trust each other – can securely exchange money without fear of fraud or theft. Major aid agencies, nonprofits and startup companies are working to extend blockchain systems across the developing world to help poor people around the world get easier access to banks for loans or to protect their savings.
In my work as a scholar of business and technology focusing on the impact of blockchain and other modern technologies such as cloud computing, big data and the Internet of Things on poor people, I see four main ways blockchain systems are already beginning to connect some of the world’s poorest people with the global economy.
A blockchain is a fancy word for a transaction-recording computer database that’s stored in lots of different places at once. The best-known example of blockchain technology is the electronic cryptocurrency called bitcoin, but the concept can be applied in lots of different ways.
One way to think about a blockchain is as a public bulletin board to which anyone can post a transaction record. Those posts have to be digitally signed in a particular way, and once posted, a record can never be changed or deleted. The data are stored on many different computers around the Internet, and even around the world.
Together, these features – openness to writing and inspection, authentication through computerized cryptography and redundant storage – provide a mechanism for secure exchange of funds. They can even involve what are called “smart contracts,” transactions that happen only if certain conditions are met – such as a life insurance policy that sends money to the beneficiary only if a specific doctor submits a digitally signed death certificate to the blockchain.
Right now, these sorts of services are available – even in the developed world – only because nations have strong regulations protecting the money people deposit in banks, and clear laws about obeying the terms of formal contracts. In the developing world, these rules often don’t exist at all – so the services that depend on them don’t either, or are so expensive that most people can’t use them. For instance, to open a checking account in some parts of Africa, banks require enormous minimum deposits, sometimes more money than an average person earns in a year.
A blockchain system, though, inherently enforces rules about authentication and transaction security. That makes it safe and affordable for a person to store any amount of money securely and confidently. While that’s still in the future, blockchain-based systems are already helping people in the developing world in very real ways.
In 2016, emigrants working abroad sent an estimated US$442 billion to their families in their home countries. This global flow of cash is a significant factor in the financial well-being of families and societies in developing nations. But the process of sending money can be extremely expensive.
Using MoneyGram, for example, a worker in the U.S. with US$50 to send to Ghana might have to pay $10 in fees, meaning her family would receive only $40. In 2015, transaction costs and commission rates averaged 10.96 percent for remittances sent from banks and 6.36 percent for sending money through money transfer operators. Companies justify their costs by saying they reflect the price of providing reliable and convenient services.
By contrast, Hong Kong’s blockchain-enabled Bitspark has transaction costs so low it charges a flat HK$15 for remittances of less than HK$1,200 (about $2 in U.S. currency for transactions less than $150) and 1 percent for larger amounts.
