It is often said that emerging markets stand to gain the most from the application of blockchain. The opportunities for developing economies to leapfrog ahead of the curve to meet their true growth potentials. Reducing the gaps between poor and rich in these economies is essential for human development. Blockchain may ensure that the imminent growth in these economies are enjoyed by as many participants in the economy, not just a few.
Leapfrogging is one of the many examples by which emerging economies have used their lack of infrastructure as opportunities for the creation or use of innovative methods of achieving the same or similar advancements to those of economies with developed infrastructure. An example being the countries like Kenya and South Africa which have utilised near-universal telephone access using 3G networks instead of laying down copper cables.
Harvard Business Review highlights the incredible work of Hernando de Soto, who has worked for decades on finding solutions to the formal economy for the world’s poorest people. Hernando outlines the reasons for the lack of access to the formal economy:
- Unreliable record-keeping systems in developing world countries.
- Lack of trust in government’s collecting information about transactions and individuals
Among other salient points, the International Finance Corporation highlights various challenges of blockchain application in emerging economies. In order to benefit from a distributed system, some form of commonalities between standards of different blockchains may need to be achieved. It is important to establish consortia initiatives in different industries to achieve harmony in the application of blockchain for market participants. Lack of trust between competition caused by rivalry may need to be solved in order to achieve this. While this is not a widespread issue across emerging economies, it remains, nonetheless an issue in a number of emerging economies.
Additionally, the rapid development in blockchain has outpaced developments in regulations that could be used to bolster the progress of blockchain start-ups and propagators in emerging economies. This is a challenge which unfortunately, could lead to lack of recognition of digital assets in emerging economies, thus onboarding of blockchain may be deterred.
The significantly high costs of implementing blockchain technology may serve as one of the greatest challenges to the adoption of blockchain in emerging economies. Issues of integration with legacy systems as well as relatively few skilled personnel who may be able to ensure that blockchain projects are successful.
Organisations such as Ripple are making significant efforts to increase their influence in emerging markets. In a statement, Patrick Griffin stated ““Whether it’s a teacher in the U.S. sending money home to his family in Brazil or a small business owner in India trying to move money to open up a second store in another country, it’s imperative that we connect the world’s financial institutions into a payments system that works for their customers, not against them.”
The organization has partnered with over 100 financial institutions including those in emerging markets to improve financial transactions across different regions across the globe. It plans to partner with over half of the world’s financial institutions, many of which will be in emerging economies. This could provide the impetus for cashless societies in the long-run for these emerging economies, thus serving as encouragement for more individuals to joint the formal economy.
As emerging economies continue to grow, adoption of blockchain may change the dynamics of microeconomics in ways which other economies have not experienced before. The relatively small size of cryptocurrencies and blockchain in relation to the size of more conventional financial institutions may, however, be a reason that the effects of blockchain in emerging economies may be different from anticipated.