ou would be forgiven for looking at the recent history of the digital asset economy and concluding that the underlying technology is too risky to help ameliorate a perennial challenge: empowering billions of people historically left on the sidelines of the global financial system. But this view would also be short-sighted.
Many Web3 companies are generating front-page headlines for the wrong reasons. A once high-flying synthetic crypto derivative, TerraUSD-LUNA, melted in dramatic fashion. Embattled crypto companies are filing for bankruptcy. And the value of the overall digital asset economy has halved in just a few months.
At the same time, sky-high inflation in certain parts of the world is making it even harder for the marginalized to participate in the financial system. Those who try often see their hard-earned money eaten up by fees. For example, 1 in 5 people in developing economies paid higher fees than expected just to get the money they earned, according to the World Bank. For those trying to send their money internationally to support their families, the costs are persistently high—about 6%.
Leaders in the traditional financial system are trying to solve these problems and have been for years. But, despite their best efforts, these problems persist. Why? There’s no simple answer, but one reason is because the traditional financial system relies on mostly closed, proprietary payment networks, and established institutions are less likely to embrace change and new technologies.
These networks come with high barriers to entry, thereby allowing entrenched entities to control the costs of participation. This is why sending money from Washington, DC to Puerto Rico, a U.S. territory, is so difficult and costly but sending an email, or hundreds of emails, between the two locations is so easy and cheap.
The internet solved the global communications challenge, but not the global financial challenge. It still costs too much to send money internationally, and there are local barriers in developed economies that make moving even small amounts of value difficult. Say two friends want to split a bill for a $20 pizza: One has Cash App and the other Venmo. Unless one of them decides to download the same app as their friend, they cannot do it. But even friends with different email clients (say, Gmail and Outlook) can talk to each other because harmonized email protocols have made universal messaging possible.
Upgrading protocols to enable the frictionless exchange of financial value will do for the movement of money what the internet did for the exchange of information. Hence the importance of blockchains. If the same two friends had digital wallets connected to an open, public blockchain, and a trusted fiat-backed payment stablecoin, they could split a bill instantly because the payment network (in this case the blockchain), has low barriers to entry. That is why anyone dedicated to tackling United Nations Sustainable Development Goals 9 (building resilient infrastructure) and 10 (reducing inequality) should consider turning to novel Web3 technologies.
Fortunately, some groups and end users are already taking advantage of these technologies, as the following examples demonstrate.
The United Nations World Food Programme has been supporting more than 1 million people—monthly—in Pakistan and Jordan using a humanitarian blockchain network. By using Web3 technology, end users can access the aid they need without providing sensitive information and, what is more, they can use the assistance they get as they see fit. The initiative has to date supported $325 million worth of cash transfers to refugees and saved more than $2.5 million in bank fees, according to the World Food Program.
Refugees in particular can benefit from the “brain wallets” made possible with Web3 technology. If a refugee flees Syria with all of their financial value in a local bank, they leave knowing their life savings will also be left behind. But, if they can transfer that value into a digital wallet—and remember their password—they can emerge in another country, download a digital wallet and access all the value they previously had. Why? Because the open-source, public ledger has inherent disaster proofing and global recovery as a native feature.
Another example is GiveDirectly, which said last year 17% of its operating budget came from the crypto community. They accept donations in traditional cash but also Bitcoin and Ethereum, which then gets converted into dollars.
Web3 technology also played a role in helping medical professionals fight COVID-19 in Venezuela. When Venezuela’s authoritarian leader, Nicolás Maduro, clamped down on the country’s financial system, opponents of his regime turned to blockchain technology. They joined forces with the U.S. Department of the Treasury and several companies to send USD Coin (USDC) payments to medical professionals so they could purchase much-needed protective equipment. All told, more than $18 million was sent and helped more than 60,000 medical professionals with corruption-resistant instant payments.
That is not to say blockchain technology is a panacea. It is not. Some 40% of the world has not adopted mobile phone technology, meaning digital wallets remain inaccessible for many. Industry leaders and governments globally are partnering to increase mobile phone adoption, with the GSM Association projecting that 70% of the population will have mobile internet subscriptions by 2025.
There is still the last-mile problem: If you have a digital asset or fiat-backed digital currency, where can you spend it? Blockchain foundations, issuers of fiat-backed digital currencies, and traditional financial institutions are trying to solve this. MoneyGram, for example, has partnered with the Stellar Development Foundation, a non-profit that supports the Stellar blockchain, to launch an on and off-ramp for digital wallets holding USDC. This partnership is powering remittances in multiple countries by allowing people to cash-out their USDC at MoneyGram locations.
These examples offer a glimpse at what is possible with Web3 technology. These technologies are here to stay and should be part of any discussion for how to solve perennial economic challenges.
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Don’t Discount Web3 Technologies When Trying to Tackle Perennial Challenges
Photo by Midjourney.
September 21, 2022
Many people see the digital asset economy as too risky, but this is a short-sighted view. Web3 technologies such as blockchain are here to stay and should be part of any discussion for how to solve perennial economic challenges, writes Circle’s Jared A. Favole.
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ou would be forgiven for looking at the recent history of the digital asset economy and concluding that the underlying technology is too risky to help ameliorate a perennial challenge: empowering billions of people historically left on the sidelines of the global financial system. But this view would also be short-sighted.
Many Web3 companies are generating front-page headlines for the wrong reasons. A once high-flying synthetic crypto derivative, TerraUSD-LUNA, melted in dramatic fashion. Embattled crypto companies are filing for bankruptcy. And the value of the overall digital asset economy has halved in just a few months.
At the same time, sky-high inflation in certain parts of the world is making it even harder for the marginalized to participate in the financial system. Those who try often see their hard-earned money eaten up by fees. For example, 1 in 5 people in developing economies paid higher fees than expected just to get the money they earned, according to the World Bank. For those trying to send their money internationally to support their families, the costs are persistently high—about 6%.
Leaders in the traditional financial system are trying to solve these problems and have been for years. But, despite their best efforts, these problems persist. Why? There’s no simple answer, but one reason is because the traditional financial system relies on mostly closed, proprietary payment networks, and established institutions are less likely to embrace change and new technologies.
These networks come with high barriers to entry, thereby allowing entrenched entities to control the costs of participation. This is why sending money from Washington, DC to Puerto Rico, a U.S. territory, is so difficult and costly but sending an email, or hundreds of emails, between the two locations is so easy and cheap.
The internet solved the global communications challenge, but not the global financial challenge. It still costs too much to send money internationally, and there are local barriers in developed economies that make moving even small amounts of value difficult. Say two friends want to split a bill for a $20 pizza: One has Cash App and the other Venmo. Unless one of them decides to download the same app as their friend, they cannot do it. But even friends with different email clients (say, Gmail and Outlook) can talk to each other because harmonized email protocols have made universal messaging possible.
Upgrading protocols to enable the frictionless exchange of financial value will do for the movement of money what the internet did for the exchange of information. Hence the importance of blockchains. If the same two friends had digital wallets connected to an open, public blockchain, and a trusted fiat-backed payment stablecoin, they could split a bill instantly because the payment network (in this case the blockchain), has low barriers to entry. That is why anyone dedicated to tackling United Nations Sustainable Development Goals 9 (building resilient infrastructure) and 10 (reducing inequality) should consider turning to novel Web3 technologies.
Fortunately, some groups and end users are already taking advantage of these technologies, as the following examples demonstrate.
The United Nations World Food Programme has been supporting more than 1 million people—monthly—in Pakistan and Jordan using a humanitarian blockchain network. By using Web3 technology, end users can access the aid they need without providing sensitive information and, what is more, they can use the assistance they get as they see fit. The initiative has to date supported $325 million worth of cash transfers to refugees and saved more than $2.5 million in bank fees, according to the World Food Program.
Refugees in particular can benefit from the “brain wallets” made possible with Web3 technology. If a refugee flees Syria with all of their financial value in a local bank, they leave knowing their life savings will also be left behind. But, if they can transfer that value into a digital wallet—and remember their password—they can emerge in another country, download a digital wallet and access all the value they previously had. Why? Because the open-source, public ledger has inherent disaster proofing and global recovery as a native feature.
Another example is GiveDirectly, which said last year 17% of its operating budget came from the crypto community. They accept donations in traditional cash but also Bitcoin and Ethereum, which then gets converted into dollars.
Web3 technology also played a role in helping medical professionals fight COVID-19 in Venezuela. When Venezuela’s authoritarian leader, Nicolás Maduro, clamped down on the country’s financial system, opponents of his regime turned to blockchain technology. They joined forces with the U.S. Department of the Treasury and several companies to send USD Coin (USDC) payments to medical professionals so they could purchase much-needed protective equipment. All told, more than $18 million was sent and helped more than 60,000 medical professionals with corruption-resistant instant payments.
That is not to say blockchain technology is a panacea. It is not. Some 40% of the world has not adopted mobile phone technology, meaning digital wallets remain inaccessible for many. Industry leaders and governments globally are partnering to increase mobile phone adoption, with the GSM Association projecting that 70% of the population will have mobile internet subscriptions by 2025.
There is still the last-mile problem: If you have a digital asset or fiat-backed digital currency, where can you spend it? Blockchain foundations, issuers of fiat-backed digital currencies, and traditional financial institutions are trying to solve this. MoneyGram, for example, has partnered with the Stellar Development Foundation, a non-profit that supports the Stellar blockchain, to launch an on and off-ramp for digital wallets holding USDC. This partnership is powering remittances in multiple countries by allowing people to cash-out their USDC at MoneyGram locations.
These examples offer a glimpse at what is possible with Web3 technology. These technologies are here to stay and should be part of any discussion for how to solve perennial economic challenges.
