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Bitcoin Cypherpunk Forecasting

Africa May Leapfrog Traditional Banking

If bitcoin acceptance reaches a critical mass where necessities of food, shelter, and clothing can be bought with it, it could reach a tipping point where it challenges the dominance of national currencies in many developing countries.

In this scenario, many areas of the world may leapfrog banking infrastructure and traditional money wire transfers. Most notably, the financial landscape in developing economies such as Africa is well positioned to leapfrog traditional banking and move directly to a bitcoin-enabled financial paradigm.

Bitcoin Leapfrogging Banks

Leapfrogging is described as a theory of economic development which skips inferior or obsolete technologies in order to move directly to advanced ones. Take, for example, phone coverage in African countries. Landline grids for household use were never fully developed because by the time Africa came into market view, mobile phones were the new paradigm of telecommunications. The entire infrastructure for household landlines was leapfrogged by cellular technology.

Similar to cellular technology, bitcoin could empower Africa to leapfrog the banking infrastructure of western countries and go directly to a new financial paradigm. The preeminent requirement on behalf of African citizens is a mobile device with internet connectivity. Many citizens of Africa are already well-versed in making mobile payments with cellular devices.

Mobile Payments

The potential to provide financial services worldwide is echoed by the adoption of mobile payment technologies such as M-Pesa, a mobile-phone based money transfer and microfinancing service for Safaricom and Vodacom. M-Pesa is estimated to have a near 70% market share in Kenya and is becoming more accepted in surrounding countries.

According to Mobile Payments Today, in 2002, only 3% of people on the entire continent of Africa had mobile phones. That number exploded to 48% by 2010. In 2014, 70% of the continent’s population had a mobile phone as the market continues to adopt cellular devices.

Banking the Unbanked

World Unbanked Population
World Unbanked Population (ALBERTO CHAIA, 2010)

Worldwide, approximately 2.5 billion people lack a formal account at a financial institution. Access to affordable financial services is linked to overcoming poverty, reducing income disparities, and increasing economic growth.

If one third of adults lack access to formal banking systems, a bank account stored in cyberspace may prove to be a catalyst of growth for developing markets.

Bitcoin will benefit Africa more than any other region in the world due to the massive business opportunity which presents itself as an unbanked, yet mobile-friendly market. Such a leapfrogging effect would serve to pull struggling African economies out of stagnation and onto the global stage in a very big way.

The combination of ubiquitous internet-connected mobile devices and digital currency presents a tremendous opportunity to radically expand access to financial services on a worldwide basis.

– Jeremy Allaire, Circle Internet Financial, 2013 US hearing on digital currencies

Currency Mismanagement

Beyond just mobile payments and access to banking infrastructure, several African economies are the product of mismanaged currency policy. Zimbabwe’s legacy of collapsed currency, with inflation reaching 231,000,000% in 2008, is a prime example of such disastrous government intervention. The hyperinflation that crippled Zimbabwe was largely caused by currency being too liberally printed, a swollen stock of money chasing a diminished supply of goods.

Advantage Africa

Bitcoin may not be the definitive answer for the masses that remain unbanked, but it is certainly a step towards a brighter future.

Governments in Africa will have diminished options for instituting thoughtless policies once bitcoin is adopted by the populous. The hotspots for adoption will be most apparent in geographies which have a very unreliable currency and lack mature financial infrastructure. Out of all the regions on Earth, African countries stand to benefit the most from financial technology such as bitcoin.

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Bitcoin Cybereconomy

Bitcoin Introduces Digital Scarcity

Scarcity, the idea that some one thing is finite, has been thus far not applicable to the digital realm. Until the arrival of bitcoin, nearly anything that was of digital nature could be duplicated without recourse. Due to the ease of reproducing computer code, the problem of double-spending was the unsolved mystery of viable digital money. However, the innovation of the blockchain ledger has added a potent economic function to the equation of online exchange: digital scarcity.

The Introduction of Digital Scarcity

Beyond the realm of money supply, bitcoin has enabled everything from informational products, media, art, and more to be delivered in a manner where ownership is mathematically verified. Because digital ownership can now be determined, it proliferates a scarce quantity of goods. Digital scarcity marks the emergence of a new cohort of potential business models.

“Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value.”

– Eric Schmidt, CEO of Google

The attribute of scarcity in bitcoin is not necessarily derived from the actual file information itself, but the method in which the information is stored. The difficulty in reworking the cryptographic proof-of-work which has hashed and timestamped the property with the creator’s digital signature represents the construct of scarcity. The difficulty of reworking this cryptographic chain then, is directly correlated with the difficulty of duplication (double-spending), as more hash power would be required to retroactively alter the information’s assigned ownership. Information hashed at the very beginning of the blockchain for example (such as the genesis block), could be viewed as nearly unforgeable in comparison to information hashed in the last 10 minute block because it would take magnitudes more computational power to rework that section of the chain.

The Digital Economy’s Missing Layer

Scarcity is a fundamental layer of any economic system. Without scarcity, there be no need for money. In a perfectly abundant world, resources would be limitless and money would serve no need because exchange would be entirely unnecessary.

Bitcoin introducing digital scarcity represents a milestone in the development of a totally digital economy, one which has the capacity to stand independent of national economies. In the years ahead, it is likely we will see new business models arise from the potent characteristic of digital scarcity.