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January 5, 2019

Cryptocurrency Can Revitalize Micro-Business in Underdeveloped Economies

A New Source of Capital for Micro-Business

Developing nations compose some of the poorest, rural, and economically distressed regions of the world. Economic inequality is far more prevalent in these countries than in first-world countries. An amalgam of political instability, corruption, and inflation results in the wealth being controlled by the bourgeois. Those living in poverty thus face a steep uphill battle towards economic inclusion and prosperity.

Micro-businesses such as chicken farming, irrigation harvesting, and potting, have a difficult time accessing the vital capital to jump start their businesses. The reason? These business inevitably rely on fiat money – money controlled by a central bank. Corruption in financial institutions results in both manipulated and inflated currency, causing a shrunken pathway to credit for those outside the economically elite bubble.

The future is bright for these micro-businesses, however, with the rise of cryptocurrency platforms both globally and in these nations. These platforms can create a powerful, inclusive, and status-blind global economy by giving micro-businesses a viable alternative to accessing capital.

Enhanced Financial Inclusion

Micro-businesses in these countries suffer at the hands of underdeveloped banking systems. Even adequately capitalized Nigerian micro-businesses, for example, face a difficult time obtaining credit. Granting micro-businesses access to micro-credit through cryptocurrency platforms would eliminate their reliance on credit from a centralized institution.

Since cryptocurrencies operate on a virtual platform, arming these individuals with access to a virtual blockchain platform is a priority. Mobile phones and mobile banking present a solution to this issue. Kenya demonstrates how much mobile banking has increased in East Africa over the past decade.

In 2007, a mobile money transfer and payment system named M-PESA began to serve banking demand across East Africa. Today, M-PESA serves approximately 17 million clients in Africa, with approximately 40,000 served in Kenya alone. To register, mobile banks only require their users have proof of national identification and a mobile phone number. Users are subsequently granted easier access to the transfer of funds, differing vastly from this type of access through a bank account. Bank accounts in these countries require a physical address, employment paperwork, and family paperwork.

According to the World Bank’s Global Financial Inclusion Database, 94% of adults in countries deemed high-income by the Organization for Economic Co-operation and Development (OECD) reported having a bank account in 2014, while only 54% of those in developing countries had bank accounts.

This may be due to adults lacking the financial capability to maintain a bank account. Banks in these economically depressed countries are constructed in rural areas, where overhead costs, such as electricity, are exorbitantly high. These banks then charge their patrons both high account maintenance fees and require maintaining high minimum balances to ensure that the bank stays afloat.

These high costs, along with notoriously corrupt banking institutions, preclude those with bank accounts from having high-grade banking services.

Both citizens and micro-businesses in these countries face being either unbanked or swindled, as they lack access to their respective countries’ capital markets. By creating a low-cost method of financial independence using mobile technology and cryptocurrency, the unbanked have access to capital unlike ever before.

Reduced Corruption

Cryptocurrency platforms would effectively pose a threat to the institutional control of currency, as cryptocurrencies based on smart protocols, like Ethereum, would enhance the transparency in private commercial agreements between individuals. The blockchain would allow micro-entrepreneurs, and investors, to monitor how the cryptocurrency assets of their businesses are used in commerce. By eliminating financial intermediaries, micro-businesses would thus have greater transparency to offer investors when seeking foundational seed capital.

Avoiding Inflation Related to Centralized Currency

Cryptocurrencies may be highly volatile in their economic value, but they are also self-regulating. Central banks print money, making national currencies prone to inflation. Cryptocurrencies, however, rely on labor-intensive mechanisms, such as token mining, to introduce a new token into crypto-circulation – these mechanisms preclude central banks from manipulating the currency.

Eliminating manipulation and inflation would provide micro-businesses with a purchasing power corollary to the true value of the currency itself, not a value predicated on economic legislation and corruption. Political instability, corruption, economic mismanagement, and financial manipulation are myriad factors that inflate the value of a printed money.

A decentralized currency would insulate these factors from affecting both the utility and the monetary value of this type of capital.

There are still many challenges to obtaining this type of underdeveloped and potentially high-volume, free-market. The beauty of these hurdles, however, is that they are surmountable – with the proper resources, ideas, and execution we, as a civilization, are one step closer to global economic prosperity.

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