Blockchains. The issue of trust in the developing world.
There have been much said about how blockchain technology can transform various industries, but what is not any less important is that blockchain can help both developed and developing countries. For developing countries, the technology could be even more important than it is for the developed world because it can help the developing countries “leapfrog” to the next level.
What is blockchain?
Blockchain technology is a secure and immutable way to store data. In essence, blockchains are databases that exist as decentralized networks. On a blockchain network, the computers that have a full copy of the blockchain database are all equal and are called nodes. For example, here you can see the nodes for the Bitcoin blockchain: https://bitnodes.earn.com/
Having multiple nodes on a blockchain network is extremely important because it makes the network very secure. A blockchain network can restore itself to the original condition even if there’s just one node left, meaning that to shut down a network completely somebody would need to shut down all the computers on the network. When the computers are located all over the world or all over a country, this is virtually impossible, which is why people trust blockchain networks so much.
Trust in different parts of the world
This trust is actually more important in the developing countries because in developing countries people typically trust their authorities less than they do in the developed world. In the developed world, people vote in honest and open elections and can replace a government official fairly quickly, typically in a matter of years.
In the developing world, officials may stay in power much longer. For example, Kin John-Un has been in power in North Korea since 2011. Alexander Lukashenko of Belarus has been the President of the country since 1994. Vladimir Putin first became President of Russia in 2000. Robert Mugabe of Zimbabwe ruled the country from 1980 to 2017. In many of these instances, the countries go through inflation and changes that people of a country do not support, but they can’t do anything about it. The central authority is the one that is making the decisions. The power of blockchain is that blockchain networks do not have a central authority, meaning that regardless of who is ruling the country, people can still securely transact using blockchain networks. This is one of the reasons why the prospects of cryptocurrency ATMs from the demand perspective are much better in the developing countries than they are in the developed world. In the developed world, most people are quite comfortable with the currencies that they are using and many do not see a need to invest in cryptocurrencies.
How a cryptocurrency could become the main currency in a country
In a country like Zimbabwe, where in the recent history the inflation reached thousands percent a month and the country even had a $100 trillion (that’s trillion with a “T”) Zimbabwe dollar bill, the picture is completely different and both blockchain technology and cryptocurrency ATMs could become very popular. It is also very possible that eventually there would be a country in the world that would switch to using a cryptocurrency as the main currency.
The scenario will be likely to Zimbabwe scenario where the inflation became so high that the country first stopped even publishing the inflation numbers and eventually stopped issuing its own currency altogether and started using currencies of other countries, mainly the United States dollar.
The period of hyperinflation in Zimbabwe started in 1990s, when the government decided to take the land away from the farmers and redistribute the land. The people that the government gave the land to, had very little experience running farms, which is why the economy of the country started to go down. Experts estimate that the highest inflation month in the history of the country was November of 2008, when the inflation has reached 80 billion percent.
Devaluation of the Russian Ruble
A similar scenario has occurred in Russia, where the national currency, the Russian Ruble, lost over 50% of its value between the summer of 2014 and summer of 2016.
Practically speaking, what happened is very simple. Imagine that you have $10 and you can buy a cup of coffee for $3, a loaf of bread for $2 and fruits and vegetables for $5. Then, the prices of everything you can buy start gradually going up, yet you still have that same $10 bill that you had before. A 50% loss of value would mean that in less than two years, the price of a cup of coffee goes up to $6, a loaf of bread now costs $4 instead of $2 and fruits and vegetables cost $10 instead of $5, yet the amount of money you have has not increased and you still have $10, it is just that you can buy roughly 50% of what you were able to buy before. Typically, things like these happen gradually. First, the price goes up by 10-20%, then by another 20%, and so on, which is why people in a country don’t feel pain right away. It is only after some time passes, they realize what their government has done, but by then it is too late to do anything if they were keeping their money in the currency of the country.