If bitcoin is the great leveller, then why is it still mostly driven by people who are young, white, tech-savvy, and with full access to banking services?
This month, the Bitcoin Foundation has been quietly setting up a committee for Financial Inclusion. The aim, says committee head Andreas Antonopoulos, is to increase awareness and education about bitcoin’s potential role in that area.
Around 2.5bn people in the world don’t use formal or semi-formal banking or financial services, according to the World Bank. But Antonopoulos – a luminary in the bitcoin space, and the chief security officer of Blockchain.info – points out that many of those that are ‘banked’ are not given access to full financial services such as stock markets and trading exchanges, and (relatively) easily transferrable money.
“There is a vast gap between that and the privileged, international liquid banking that only a billion enjoy,” he says.
He wants to help everyone outside that category, which he describes as “the other six billion”. But he’s starting with a smaller target group.
“I’m under no illusion that we will address extreme poverty. There are a large number of people who find themselves outside the privileged banked, but they are still part of the 2bn people on the internet,” he says. “They can be helped. Immediately.”
Bitcoin could be a big part of that, he says. The lack of centralized control means that the conventional barriers – the high prices, and the slow processes – disappear.
Antopoulos sees applications in key areas that could bring immediate benefits to large communities. The biggest is remittances. Today, it costs large amounts of money for migrant works to send home their $414bn in annual earnings to developing countries. “That situation is incredibly unbalanced. The poorest places in the world have the highest fees,” he laments.
The second is microfinancing, where small amounts of money (by western standards) are given to local entrepreneurs. Conventional payment systems make that difficult, Antopoulos says. “Between the lenders and the borrowers, there is an enormous amount of overhead that is the aggregation and distribution and management of the funds over international borders.”
A bitcoin-enabled microfinance economy could help with that, by forcing out centralized payment systems that can lead to corruption, reducing the social impact of the capital.
Not there yet
So, how far has bitcoin come so far in solving these problems?
“It’s an underdeveloped market,” says Ben Jones, founder of the blog Bitcoin Microfinance, and a member of the team at the Bitcoins Berlin startup incubator and consulting firm. He argues that remittances will happen first.
“We have seen some other charity projects. It would be cool if a micro lending platform like Kiva would do bitcoin. We will definitely see some companies moving into the remittance space,” Jones believes.
The technology for cheap mobile remittances is already there. Safaricom has experienced huge success with M-Pesa, its mobile money movement system, which works well using low-cost phones. 43% of Kenya’s GDP is handled that way, say reports.
The problem with M-Pesa is that a centralized system, privately controlled, without the ability to easily transfer money abroad, points out Jones. But it’s still significant, as an example of a solution that came from outside the traditional technology community in the developed world.
“M-Pesa was an exception and it was because people really needed a solution. There wasn’t any room to dramatically improve the hardware,” says Jones.
That’s another problem for bitcoin. Most wallets need smartphones to work, and there’s a dearth of those in developing markets. That’s one reason why Pelle Braendgaard developed Kipochi Wallet. This wallet is HTML5-based, making it lightweight, and it can run on pretty much any phone with a web browser, including some feature phones, he says.
More importantly, it lets you send and receive bitcoin simply using a phone number, mimicking (and integrating with) M-Pesa, but allowing for international payments.
Braendgaard sees other challenges for bitcoin among the unbanked, though, and one of the biggest is regulatory, particularly in South Africa.
“Banks are fairly open, but they’re still a little bit nervous about what the government is saying,” he says, speaking to CoinDesk from a Johannesburg banking conference where he was promoting bitcoin.
The other challenge is liquidity. It has to be easy to transfer bitcoin into something usable at a local level (at least until everyone in a village is using bitcoin).
Africa is a good example of underdevelopment here. There are hardly any exchanges there, and more must be developed to help the currency grow.
However, those exchanges that do run will have a tough time hitting the unbanked target market in that region because of tough anti-money laundering laws, Braendgaard muses.
There are of course other areas with large numbers of unbanked or ‘semi-banked’ people, where bitcoin is needed. 65% of Latin America’s adult population has no banking, while 67% of those in the middle east and 58% of southern Asians are unbanked.
In some of these countries, though, governments have taken a hard line in some of these places, too. India, for example, has millions of unbanked, and a government that has frowned on the cryptocurrency in the past.
One of the other challenges to bitcoin’s development is its origin. As bitcoin activity grew, it was seized by a familiar crowd: younger people, from the developed world, with easy access to and familiarity with technology. There will be outliers, of course. But just look at the average bitcoin conference: speakers are mostly from the developed world, with the same kinds of access.
This is a common issue, says Andrea Castillo of the Mercatus Center at George Mason University, who co-authored a primer on bitcoin for policymakers.
“Individuals who share these hobby interests often—but not always—have other things in common: background, education, gender, etc. This is generally how the Bitcoin experiment grew,” Castillo says.
But it doesn’t have to be that way forever. “We can’t change the past. But we can affect the future through outreach and open innovation,” she adds. “The Bitcoin community, for its part, welcomes all who wish take part in this peaceful experiment. This attitude is very helpful, and I believe it will continue to drive successful outreach to new demographics going forward.”
Antonopoulos and his as-yet-unnamed team will be a good example of that. But their work to educate and provide access to bitcoin must be matched by grassroots activity among the “other six billion”. Where will that come from?
Developments such as M-Pesa show that it is already happening, as developing markets like Africa leapfrog payment systems in the west with these first-generation mobile payment systems.
The follow-up grassroots activity is likely to come from the same kinds of tech-driven communities, only in developing markets. In Kenya, for example, bitcoin users fit a certain demographic, according to Braendgaard. “Not necessarily rich, but maybe someone who’s a 22 year-old Kenyan computer nerd. You get a lot of them, and most of the users of the service fits in the 20-30 year-old category, but African,” he says.
The same is true in China, another highly-regulated space where there is a strong demand for bitcoin, says Singapore-based Calvin Soh, co-founder at alt coin marketing firm Humint.
“The data from China is it’s 95% male, from tertiary education levels up. They all tend to be professionals, 25 to 45 and savvy enough to understand the current financial system,” he says. “These are the new early adopters, with the knowledge who see the potential or are comfortable with the risks. That is the psychographic mindset.”
Those are the people with the most potential to kickstart bitcoin services in the developing world that could bring new financial power to those without it.
In subsaharan Africa, where eight in ten people are unbanked, Pelle is already trying to find services that will enable Africans to bootstrap their own exchanges.
Significantly, he has had many enquiries from Somalia, where there isn’t much regulation. The Somalis have been international money transfer for hundreds if not thousands of years via Hawala, a network of traders who relay money on behalf of their clients.
These traders have already been digital for a long time, using various channels from SWIFT transfers through to M-Pesa. It’s an example of how communities outside bitcoin’s traditional sphere are already doing things for themselves.
Pelle adds that these kinds of innovative communities will jump on bitcoin or a variation thereof, as it surfaces more in these large, unbanked communities. “I half joked that the minute the Somali money traders in Eastleigh (Nairobi’s Somali neighbourhood) learn how this works, they’ll be having bitcoin sitting next to dollar bills there,” he says.
Tech-savvy leaders in unbanked communities are already using bitcoin and other related services. For that to expand, regulations have to allow it, and technology access has to improve. But Antonopoulos, as is fashionable these days, likens the early era of bitcoin to the first years of the Internet.
“The Internet started as a white male military project,” he says. “But I don’t think that any of the Egyptian bloggers who used it to start a revolution are particularly worried that DARPA built it.”
That will take a while to unfold, but if and when it does, the cryptocurrency will become – in practice, rather than just in theory – more than a revolutionary financial tool for a bunch of young white guys.
Image: Andreas Antonopoulos
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