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.


What Is Money?

The need for money comes from the idea that we live on a planet with finite resources. Human desire is not limited, yet resources vary by scarcity and availability. Therefore, it is necessary to have a medium to exchange those resources which are not perfectly abundant. This medium must be generally accepted to be useful as money.

A unit of exchange is necessary to allocate scarce resources among a population with theoretically limitless desire. Money itself is neither good nor evil, but rather a necessary tool in a properly functioning economy.

Money is a unit which can be used as a:

  1. Medium of Exchange
  2. Store of Value
  3. Unit of Account

Aristotle, the Greek philosopher, defined the characteristics of a valid currency comprising of four core aspects:

  1. Durability
  2. Money must remain in the same state it was originally created in. It cannot change or be destroyed by the forces which use it.

  3. Portability
  4. Money must be able to be moved easily.

  5. Divisibility
  6. Money must be able to be divided into smaller units.

  7. Fungibility
  8. All units of money in circulation must be identical.

Trust that the money supply will be accepted makes up the most important factor when it comes to its survival. When this trust erodes, the tender is in danger of being debased. There are many reasons why money loses its trust among its user base. Money could then be described as a collective agreement.

When there are enough people who settle on what holds their trust, that which they agree upon becomes secondary. History has provided us of countless examples of this being true. Whether it be cigarettes among a prison society, animals among farmers, precious metals among kings, and now computer code, money remains a collective agreement established by its user base.

Money is a proxy for labour. Think of money as a bearer instrument with which you can redeem services from society. It is essentially stored labour product, and therefore, can be seen as stored energy.

The entire money supply, and the financial system it operates within, is a vast network of information on who owns and owes what to whom.