Why Cryptocurrencies Can Help Bring Billions of People into the Global Economy

Okay. So as some of you may know, I love cryptocurrencies. I love most everything about them actually, I mean once you get past the scammy ones. I love the fact that there’s no central bank to regulate them. I love the fact that a bank cannot print them out of thin air, and then go around and devalue them by printing more. I love the fact that it’s controlled by a decentralized free market, and thus the free market determines its value. I love the fact that they’re a throwback to the gold standard, where one dollar was backed by an ACTUAL unit equivalent of gold. Mostly though, I just love the fact that it has the potential to pre-distribute wealth and further democratizes the process of wealth-creation throughout the world economy.

Now, what do I mean by that you might ask? Well, I’m referring to the current 2 billion people worldwide without access to a traditional bank account or banking services. People who are geographically secluded or make so little money day-to-day that it’s not financially feasible for banking institutions to offer them services. The following data table from Business Insider documents what areas of the world are severely underbanked.

Screenshot 2018-04-30 09.48.03

These are hard-working people with no secure way to store what little money they have. Farmers with no access to a line of credit and can’t receive a small loan, perhaps only a few dollars, to buy enough grain or seed to plant in their fields to feed their family. People who have no way to participate in the global economy, because they were born in the wrong place at the wrong time. Now that, to me, doesn’t seem right. Just because I happened to have won the geographical lottery and was born in the US, where we take access to bank accounts, credit cards and the ability to conduct business with damn near anyone with an Internet connection, as nonchalantly as your morning cup of coffee, doesn’t mean that everyone gets that privilege.

It’s an incredible time we live in and innovation is happening all around us. It seems like every day I read about a new AI robot being developed, or another self-driving car being tested, or another toaster being connected to the Internet so you can set the toastiness of your toast from anywhere in the world. And now there’s Bitcoin and these cryptocurrencies.

One of my favorite books and a must-read for anyone in business or going into business is, “The Innovator’s Dilemma” by Clayton Christensen. One of the big points he makes in the book is that there are two main types of innovation; sustaining innovation and disruptive innovation. Most innovation we see on a day-to-day basis is of the sustaining variety. Sustaining innovation is improving a current product or service to make it more appealing or useful for their current customers. Every improvement of the product is built on the backs of previous successes and the successes before that. Disruptive innovation is a whole other animal. More often than not, the first people to benefit from these disruptive innovations are the fringe customers. Customers with lower margins and have lower product expectations. These are people from way the heck out in left field. These products, almost always, don’t work as well as the thing they’re trying to disrupt, at least at first. A great example of this would be the invention of the automobile.  First developed by Henry Ford, the automobile was trying to disrupt the horse and carriage industry. The Ford Model T was expensive, prone to breaking down often, getting stuck in the muddy roads and having to be refueled constantly. Putting it kindly, when comparing the Model T to the horse as a means of transport, the horse shit on the Model T. It was only when the right infrastructure (aka paved roads) were put in place and people began to realize the full potential of the automobile did it really become a disruptive innovation.

Bitcoin as means of payment or as a speculative investment vehicle doesn’t really matter in the grand scheme of things. Nobody knows if a Bitcoin will be worth $1,000,000 ten years from now, or $0 and if anyone tries to tell you otherwise, don’t believe them. Bitcoin is really just one application and one use-case of the technology behind it. What does matter is that the technology behind Bitcoin, called blockchain, has disruption written all over it and has the potential to change the global economy as profoundly as the Internet has. Don’t believe me? Just google financial institutions investing in blockchain technology. Or maybe blockchain in the healthcare industry. Or blockchain in supply chain management. Or possibly governments adopting blockchain. You’d be hardpressed to find one industry out there that isn’t at least exploring the potential of it. The point is, there’s a lot of excitement in the space and the people and businesses willing to take the risk on this new, unproven technology will be able to reap the rewards….. or crash and burn in a blaze of glory. I certainly believe it to be the former, and here’s why.

Prior to the invention of Bitcoin in 2009, there was no way to send value over the Internet peer-to-peer without having a third party verify the transaction. For example, if I wanted to send my brother $10 online (just because I’m a nice guy), I would request the money to be sent from my bank account and deposited into my brothers. Simple process right? I mean, it’s just numbers on a computer screen and there’s no actual physical transfer of cash between banks. Well, that’s where you’d be mistaken because it’s not that simple. What should look like this:

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Ends up looking a lot more like this:

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It’s called a rube Goldberg machine, or something that is made super complicated to accomplish a simple task, like tipping over a domino….. or maybe sending money to my brother online. Modern day financial institutions are like rube Goldberg machines. Unnecessarily complicated processes to accomplish the simple task of changing a few numbers on a computer screen. The process goes a little something like this: so when I request the $10 be sent from my bank account to my brothers’ bank account, a debit to my account is made. The bank must verify that the money is leaving my account and being sent elsewhere. After the money leaves my account, a third-party institution verifies that the transaction is being sent on and perhaps somebody else verifies that the transaction is being sent to my brothers’ account and then my brothers’ bank must verify that they’ve received the funds and then finally a credit is made to his account. And this process gets infinitely more costly and time-consuming when you factor in sending money across borders and in various different currencies. That is why a system of credits and debits, or double-entry bookkeeping, was created. To keep track of this whole, complicated process. They’re also required to do this because it is critically important that when I send or spend my money somewhere, that I can’t turn around and spend that same money again. This is known as the double-spend problem and it’s why we have to have this whole complicated process of checks and balances within our financial institutions to ensure that everyone is playing by the rules and not creating money out of nowhere (with the exception of the Federal Reserve). I argue that we can do better. What if there was a technology that allowed anyone in the world with access to the Internet to be able to send anything of value to anyone else in the world and have it be done Peer-to-peer with no third parties having to verify the transaction? And this would all be done in a fully transparent, virtually unhackable way. Sort of like being able to conduct a physical cash transaction with anyone in the entire world with access to the Internet. Enter Blockchain.

So where is the Internet stored? Who owns the Internet?

One could answer these questions by saying that the Internet is stored on the hard drives of web servers throughout the world and that domain name ownership is probably the closest one could get to “owning” the Internet. I think a better answer, however, would be that the Internet is distributed everywhere and that nobody owns it, but rather everyone contributes to it because it’s open source and available to everyone with the right means to access it. The blockchain is similar in concept to the Internet, in that it’s open source, readily accessible to the masses, can connect people on nearly every corner of the globe and is above all, really hard to explain. The Internet provided a platform to connect people and allow them to share any information P2P on a global scale but we still had to rely on old infrastructure to establish trust and send anything of value, like money, between people or businesses or institutions. This is where blockchain aims to change the game.

So imagine if you and I were sitting on a park bench. I have one apple and you have nothing. I decide, because once again I’m a super nice guy, that I want to give you my apple. I hand you my apple so now you have the one apple and I have nothing. Simple transaction right? A third party wouldn’t have to verify the transaction because you have the apple now and I obviously do not. A physical cash transaction is much the same process. Nobody has to verify that I handed the Starbucks barista $5 in cash for my morning cup of coffee because it’s obvious that they have the money now and I do not. Where it gets tricky now is when we get into digital transactions. So imagine if this apple from the previous example is a digital apple. Now, if I wanted to give you my digital apple, the same rules wouldn’t apply because there would be no way to verify whether you or I duplicated the apple. Hell, I could be freaking Johnny Appleseed and duplicated my apple thousands of times. Not something you want to have when you’re sending anything valuable, like money, over the Internet. That’s why we have financial institutions, like banks, to ensure that double spending doesn’t happen and that nobody cheats the system and duplicates their apples. They are and have been, a necessary evil, up till just a few years ago.

Now this double-spend problem, as I described above, is a problem that computer-scientists and super-duper smart people have been trying to solve for decades. How can I give you my digital apples online without having to have an independent third-party verify the transaction? In 2009, an unknown person or persons by the name of Satoshi Nakamoto solved the double-spend problem with the invention of Bitcoin and the blockchain technology running it. In order to effectively eliminate the need for a third-party to verify any online transaction, the idea behind Bitcoin was that every transaction (or exchange of digital apples) be posted on to the Bitcoin Blockchain. So in a nutshell, all blockchain really is is a database. A way to keep track of information and data. Now in the case of the bitcoin blockchain, it keeps track of financial transactions or how much bitcoin someone owns. Since there is a total of 21 million bitcoins that can ever be created, something that is hard-wired into bitcoins code, people value them based on their scarcity.

As of this writing, 17,018,425 bitcoin have been mined, which means that there is less than 4 million left to be mined. Now right now you may be asking, “how the hell do you mine a bitcoin?” The best way to explain this would be to think about traditional gold-mining. We all know that there’s a limited amount of gold in the world. It’s relative scarcity, mixed with its various uses in utilities, makes it worthwhile for people to mine for it. The people with the biggest pickaxes and best mining equipment are rewarded with more of it. Now bringing this example back to bitcoin, instead of pickaxes being used to mine them, it’s computers and instead of digging in the dirt, the first computer, or node as they’re called, to mathematically prove that the last “block” of transactions is correct, is rewarded with one bitcoin. On average, each one of these “blocks” takes about 10 minutes to mine and be permanently imprinted on the blockchain. Each one of these “blocks” contains transactional information as to where and to whom bitcoin is being sent. And the most recent block is linked to the block before that and the block before that, all the way till the first block was created in 2009. And all of this information is readily accessible on any computer participating in the bitcoin network. Sort of like how you or I can access the Internet anywhere, so can anyone who wants access to the bitcoin blockchain. Every transaction ever conducted with bitcoin can be readily seen by anyone in the world and not only that but because every block is linked to the previous block and the block before that, the network is essentially unhackable. If someone wanted to hack the bitcoin blockchain, they would have to hack every computer in the network simultaneously, change the data from all 17 million+ blocks mined before that, and do so in the span of minutes. Yeah, not gonna happen. Kind of a nice thought when you think about all of the major hacks that have been happening recently (I’m looking at you Facebook and Equifax).

And the potential of blockchain technology doesn’t stop at being able to send money anywhere you want in the world instantly and with minimum costs. No. When you combine the blockchain characteristics of it being a distributed/ decentralized database (anyone with Internet access can see it), immutable (information on the blockchain is permanent) and the ability to transfer value P2P to anyone in the world instantly, blockchain technology will disrupt so much more than just “money.”

Supply chain Management (ex. tracking goods from farm to table), currently a very segmented and broken process, blockchain will disrupt by adding a level of transparency and product trackability that hadn’t been possible up until recently. The worlds largest retailer, Walmart is actually already using blockchain in their business.

Digital Identity. People will be able to verify they are who they say they are from anywhere in the world with their identity on the blockchain, no need to carry around a license or passport. And better yet, you would be able to control your identity by choosing who has permission to see it and what parts you want to reveal. For example, in the US, turning 21 is kind of a big deal. For most of us, it’s the first time getting to legally drink in a bar. You get to the bouncer and hand over your ID. They scour over everything; see where you live, how much you weigh, if you want to give your kidneys away if you happen to kick the bucket that night… all to verify that you’re of legal age to drink. The only information that the bouncer really needed to know was whether you were of age to legally drink in the bar. None of the other information mattered, but they still saw it nonetheless. With your ID on the blockchain, you would only need to provide the identification necessary for the situation, like your age.

Healthcare. You hold the information to your sensitive health history, and only you. Instead of having to rely on hospitals or healthcare providers to keep track of that information on their centralized servers, something that time and time again have been hacked, you control your own data. You choose the people and businesses who you want to provide access to it via the blockchain. Nobody can take advantage of it without your permission.

Land Registry. Most of us in the developed world don’t give this area a second thought. We buy some property, fill out some paperwork and boom, the land is ours. We know that nobody is going to take try and claim this land as theirs because the paperwork we filled out has the full backing of our government, and most people in developed countries, trust their government. As such, our property is one of the most valuable assets that we ever own in our lives, so it’s important that we have the proper documentation and legal backing stating it’s ours. That way we can take out loans against it, have the right to sell it and whatever else we wish to do with it, because it’s legally verifiable that it is ours. Well, what happens when you can’t trust your government? What happens when there’s nobody to confirm and verify that your property does indeed belong to you? No way to borrow against it, no way to sell it and no way to verify what should be your most valuable asset? This has been one of the biggest, if not THE biggest issues facing third world countries with corrupt governments. There has been no way for these people to actually verify that their land belongs to them, whether due to government corruption, lack of a verifiable database to store their records or whatever other reason there may be. These issues could, by and large, all be solved if they had access to a global, immutable database that recorded this information permanently, such as a blockchain.

Which brings us full circle to why I believe cryptocurrencies and blockchain technology can help bring billions of people into the world economy. If you look at many of these unbanked or underbanked people in the world, a lot of them have access to the Internet. Many of these small villages in Africa have a smartphone or a computer the village uses, usually to contact the next village over. Out of these 2 billion unbanked or underbanked people, there are well over a billion with access to the internet but still no access to online banking. No way to store their money in a safe manner, no way to take out a small micro-loan to buy grain for their farm and no way to participate in a global economy. Blockchain makes all of this possible. Blockchain makes it possible to open a bank account when you only make pennies a day through the use of a cryptocurrency wallet. Blockchain makes it feasibly possible to take out a small micro-loan to buy grain to farm with, due to its low-cost, P2P nature. Above all else, blockchain makes it possible for EVERYONE to participate in the global economy in a meaningful way and this is why I’m so passionate about it.

**Editors Note- I wanted to create this blog to showcase two areas of my life that I’m super passionate about, travel and blockchain technology. My goal here is not to convince people of anything or tell anyone how to live their life, but rather to show people the amazing things happening in the blockchain/ cryptocurrency space.

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crypto nomad

Cameron GrandPre

Cameron GrandPre is a freelance writer focused on decentralized finance, cryptocurrencies and other fintech innovations. He's passionate about small business adoption of bitcoin and stablecoin assets, like Facebook's Libra project.

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