"This [Bitcoin] is a good development for the poor of the world. Those who do not have access to banking services, who do not have access to financial services of various kinds, are now gaining access through mobile payments. We are obviously in a period of disruptive innovation, and it is early in this revolutionary period, so we are kind of in the ‘let a thousand flowers bloom’ period." -- Al Gore
In what is being called "the most valuable tweet in history" by news media, an anonymous benefactor donated more than $11,000 to a charity: water campaign organized by the Dogecoin Foundation in March 2014. He did so at a cost of approximately $0.008 and, together with more than 4,000 other donors, raised over $30,000 to build water wells in the Tana River Basin in Kenya. Had these funds been donated via conventional means, total fees would have ranged from roughly $300 to more than $3,000.
This stark differential in transaction costs becomes even more apparent when one considers remittance by immigrants in the United States and the European Union, a $500 billion market, which is subject to fees which are regularly in excess of 10 percent and can reach as high as 50 percent. These charges, which amount to an almost $2 billion “super tax” for payments to citizens of African nations in 2013 alone, hurt those who need money the most: the poor who do not have access to formal financial institutions. These billions of dollars, which are absorbed by payment processors, could pay for the education of millions of children, provide clean water, and access to medication to many. In 2013, more than 2.5 billion people, most of them in sub-Saharan Africa and eastern Asia, remain without access to elementary financial services.
Electronic money has made significant progress possible in countries such as Tanzania and Kenya, but the way it is handled is still reminiscent of—and, in some ways, constricted by—a design that considers it an afterthought to physical currency.
We propose that cryptographic currencies, of which Bitcoin is the most prominent example, are the next generation of electronic money and provide a technological preview of a payment network that was developed within the logic of the digital age, instead of adapting earlier models to it. The decentralized and distributed nature of cryptographic currencies enabled the donations mentioned previously as well as the low associated transaction costs. While some enthusiasts see Bitcoin as a replacement to classical government-issued currency, we would suggest that it is much more prudent to consider it a payment network, similar to VISA, PayPal, or Western Union, but without the significant infrastructure requirements and regulatory overhead that these have traditionally required.
General economic empowerment, a global partnership in trade and industry, and the sharing of technology were part of the Millennium Development Goals and it cannot be denied that the overall program has been one of the most substantial and successful endeavors for the reduction of poverty and suffering in the world. At the same time, though, it has become apparent that the conventional approaches advocated by the program, especially as it concerns MDG8, while absolutely necessary, are unlikely to be sufficient to achieve the best results possible. The informal and non-normative way in which the goal cluster on global partnership was formulated and the lack of objective benchmarks and targets, coupled with its largely donor-centric perspective, underestimated the amount of progress the developing nations could make on their own if given access to technology on an equal footing. It has also held back progress in financial inclusion, which is one of the most important aspects to be addressed in any Post-MDG strategy. In this context, it will also be imperative to address the concerns of experts and scholars on Global Justice such as Thomas Pogge and organizations such as Academic Stand Against Poverty.
One of the most powerful pieces of evidence for the success of comprehensive financial inclusion can be found by considering the effects of microfinancing, spearheaded by Muhammad Yunus’ Grameen Bank for over three decades. Strategies that wish to build upon the fertile ground laid by the work towards the Millennium Development Goals should be cognizant of this evidence and appreciate the role empowerment can play in underdeveloped and rural communities with women and families bettering their lot and communities collectively working to improve the lives of their members.
The unique technological advantages of cryptographic payment networks, modeled after Bitcoin’s example, can overcome the limitations of their current implementations and be adapted to the specific needs of local and global partnerships between developing and developed nations, as well as communities. They may then facilitate efficient innovations in financial services, which can be built upon existing low-technology infrastructure while leveraging the security and sophistication that high-technology cryptographic networks ensure. In this way, they empower the individual by easing access to financial instruments, while at the same time decreasing the need for intermediaries with associated infrastructure and regulatory overhead.
Jens Wiechers and Manouchehr Shamsrizi are Executive Directors of Kryptos, an international interdisciplinary think tank based in Germany, affiliated with the World Economic Forum’s Global Shapers, the Grameen Creative Lab and Sandbox Network, which advises policymakers, NPOs and Philanthropists on the opportunities and threats associated with cryptographic currencies and related technologies.
This articles was originally published in the Diplomatic Courier's July/August 2014 print edition.
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The Potential of Peer-2-Peer Payment Solutions for post-MDG Financial Innovation and Inclusion
July 25, 2014
"This [Bitcoin] is a good development for the poor of the world. Those who do not have access to banking services, who do not have access to financial services of various kinds, are now gaining access through mobile payments. We are obviously in a period of disruptive innovation, and it is early in this revolutionary period, so we are kind of in the ‘let a thousand flowers bloom’ period." -- Al Gore
In what is being called "the most valuable tweet in history" by news media, an anonymous benefactor donated more than $11,000 to a charity: water campaign organized by the Dogecoin Foundation in March 2014. He did so at a cost of approximately $0.008 and, together with more than 4,000 other donors, raised over $30,000 to build water wells in the Tana River Basin in Kenya. Had these funds been donated via conventional means, total fees would have ranged from roughly $300 to more than $3,000.
This stark differential in transaction costs becomes even more apparent when one considers remittance by immigrants in the United States and the European Union, a $500 billion market, which is subject to fees which are regularly in excess of 10 percent and can reach as high as 50 percent. These charges, which amount to an almost $2 billion “super tax” for payments to citizens of African nations in 2013 alone, hurt those who need money the most: the poor who do not have access to formal financial institutions. These billions of dollars, which are absorbed by payment processors, could pay for the education of millions of children, provide clean water, and access to medication to many. In 2013, more than 2.5 billion people, most of them in sub-Saharan Africa and eastern Asia, remain without access to elementary financial services.
Electronic money has made significant progress possible in countries such as Tanzania and Kenya, but the way it is handled is still reminiscent of—and, in some ways, constricted by—a design that considers it an afterthought to physical currency.
We propose that cryptographic currencies, of which Bitcoin is the most prominent example, are the next generation of electronic money and provide a technological preview of a payment network that was developed within the logic of the digital age, instead of adapting earlier models to it. The decentralized and distributed nature of cryptographic currencies enabled the donations mentioned previously as well as the low associated transaction costs. While some enthusiasts see Bitcoin as a replacement to classical government-issued currency, we would suggest that it is much more prudent to consider it a payment network, similar to VISA, PayPal, or Western Union, but without the significant infrastructure requirements and regulatory overhead that these have traditionally required.
General economic empowerment, a global partnership in trade and industry, and the sharing of technology were part of the Millennium Development Goals and it cannot be denied that the overall program has been one of the most substantial and successful endeavors for the reduction of poverty and suffering in the world. At the same time, though, it has become apparent that the conventional approaches advocated by the program, especially as it concerns MDG8, while absolutely necessary, are unlikely to be sufficient to achieve the best results possible. The informal and non-normative way in which the goal cluster on global partnership was formulated and the lack of objective benchmarks and targets, coupled with its largely donor-centric perspective, underestimated the amount of progress the developing nations could make on their own if given access to technology on an equal footing. It has also held back progress in financial inclusion, which is one of the most important aspects to be addressed in any Post-MDG strategy. In this context, it will also be imperative to address the concerns of experts and scholars on Global Justice such as Thomas Pogge and organizations such as Academic Stand Against Poverty.
One of the most powerful pieces of evidence for the success of comprehensive financial inclusion can be found by considering the effects of microfinancing, spearheaded by Muhammad Yunus’ Grameen Bank for over three decades. Strategies that wish to build upon the fertile ground laid by the work towards the Millennium Development Goals should be cognizant of this evidence and appreciate the role empowerment can play in underdeveloped and rural communities with women and families bettering their lot and communities collectively working to improve the lives of their members.
The unique technological advantages of cryptographic payment networks, modeled after Bitcoin’s example, can overcome the limitations of their current implementations and be adapted to the specific needs of local and global partnerships between developing and developed nations, as well as communities. They may then facilitate efficient innovations in financial services, which can be built upon existing low-technology infrastructure while leveraging the security and sophistication that high-technology cryptographic networks ensure. In this way, they empower the individual by easing access to financial instruments, while at the same time decreasing the need for intermediaries with associated infrastructure and regulatory overhead.
Jens Wiechers and Manouchehr Shamsrizi are Executive Directors of Kryptos, an international interdisciplinary think tank based in Germany, affiliated with the World Economic Forum’s Global Shapers, the Grameen Creative Lab and Sandbox Network, which advises policymakers, NPOs and Philanthropists on the opportunities and threats associated with cryptographic currencies and related technologies.
This articles was originally published in the Diplomatic Courier's July/August 2014 print edition.
