Bitcoin was one of the key buzzwords of 2016, a development that’s right on the brink of becoming mainstream. The open source cryptocurrency uses cryptography, a form of encryption based on mathematical and computer science theory, to regulate its creation and management.
Starting off as a peer to peer plaything, the currency gained ground and publicity when WikiLeaks began accepting bitcoins for donations. Between January and November 2013, Bitcoin value surged from $13.36 to $1124.76. This rise of around 8316.9% made millionaires out of a scattering of experimental early investors (not least former Facebook litigants the Winklevoss twins, who harvested around $11 million).
Still, few of us are turning our mortgages into Bitcoin just yet. In the western world, Bitcoin is still definitely an experiment.
But for those entrepreneurs with an interest in developing economies, like our founder, tech entrepreneur Tej Kohli (net worth around $6 billion), it’s much more than that. Mr Kohli focusses his philanthropic efforts in his native country of India and adopted country of Costa Rica – not just because of his personal ties to these countries, but because of the enormous wealth of untapped human potential that can benefit from the advent of new technologies.
Bitcoin in developing countries
New financial technologies in general are used to greatest effect in developing countries. There are a wide variety of factors behind this dynamic:
- Rapid industrialization. Standards of life – including access to electricity and stable infrastructures – are increasing very fast for billions of people across the globe. This means that those infrastructures are often under a good deal of strain, and there’s more space for alternatives than there are in a more static economy.
- Unfamiliarity with conventional finance. For people who have never had a bank account (for instance, 47% of the population of Nigeria, the world’s 20th largest economy), there’s no particular reason to opt for a mainstream bank rather than a cryptocurrency. For people in western countries, Bitcoin is a strange unknown factor, but if you’ve never used either a brick and mortar bank or a cryptocurrency before, you judge both purely on what they can offer you. And starting a bank account or credit card calls for much more commitment than using Bitcoin.
- High mobile penetration. Smartphones are the most transformative technology of our time. Studies show that as soon as an individual can afford a smartphone, he or she buys one – before a home internet connection, “dumb” phone, or financial products. There will be 6.1 billion smartphone subscriptions globally by 2020.
- Rural living. In quickly developing economies, families often split themselves between country and city living. Many people move to the nearest big city to take advantage of new work opportunities, aiming to send money back to their families – but that isn’t so easy when those families don’t have banks. Bitcoin organizations like Stellar and Oradian allow micro-finance institutions serving rural populations to transfer money within their network: from city to country, vice versa, or even across borders.
2016’s new finance customers are 2026’s mainstream consumers. With a worldwide financial generation introduced to the finance sector via bitcoin, it will be interesting to see whether they feel compelled to switch over to traditional finance products eventually – or whether Bitcoin is truly the future of money.