Mobile phones as an example of leapfrogging.
In modern economics, the term leapfrogging means building brand new infrastructure and adopting the latest technology because of not having any infrastructure at all. This is exactly what happened in the developing world with mobile coverage and cellphones.
Most of the people in the developing countries could not afford a desktop computer or a laptop when the computers began to become a part of life in the Western countries in the 1980s, 1990s and 2000s. Both desktops and laptops have simply been too expensive. To this day, products like iPhones that cost around $1,000 are too expensive for the developing world. However, the picture started to change when companies started to introduce much cheaper smartphones to the market. People may not have been able to afford $1,000 devices, but they are able to afford $50-$100 devices. For this reason, many people in the developing countries have first used the Internet not from a desktop or a laptop, but from a smartphone. This is critically important for the future of cryptocurrencies in such countries because people are able to use cryptocurrency wallets on their mobile devices and transact between each other without having to rely on unreliable governments.
Because mobile technologies have been becoming cheaper and cheaper, in many countries, including Kenya and South Africa, governments and businesses chose to build brand new mobile networks from scratch instead of trying to lay cables.
One of the early examples of leapfrogging in the twentieth century was Japan. The country has been in ruins after the World War II, yet it embraced latest manufacturing technologies. This resulted in world-class quality control and world-class products coming out of Japan, with companies such as Toyota, Canon, Panasonic, Sony and others to this day being known for the high quality of their products. It took American and European companies decades to catch up, even though one of the main developers of the concepts that help Japan leapfrog was W. Edwards Deming, an American who received his education from University of Wyoming, University of Colorado, and Yale.
Smartphone ownership around the world
According to an article from the Pew Research Center from February 22, 2016, the number of people who use the Internet and the smartphones globally keeps growing. There is still a divide between developed and developing countries, but the developing countries are quickly catching up.
In 2013, 45% of people globally said that they were using smartphones and the Internet at least occasionally. By 2015, this number went up by 9%, to 54%, with countries such as China and Brazil responsible for the majority of the increase included in these 9%. In the developed countries, 87% of residents have responded positively to the question about at least occasionally using the Internet and a smartphone. In 2015, the gap between the developing countries and the developed countries when it comes to smartphone ownership was 31%.
Mobile networks in Kenya and South Africa
Kenya and South Africa are great examples leapfrogging from having very few computers in a country to very wide mobile penetration.
Kenya is a country in East Africa. Its population is a little over 48 million people. According to a report by the Communications Authority of the country, in 2015 Kenya had 38 million people who had active mobile services subscriptions. Most of the subscriptions, about 36.5 million, have been pre-paid. The number of Internet users in the country in 2015 has been 21.5 million.
In South Africa, the government estimates that by 2019 about 80% of the population in the country will have smartphones and will be using the Internet on a regular basis.
Smartphones, Internet connection, and banking
While more and more people in the developing world are getting smartphones, the numbers of smartphones are much larger than the numbers of bank accounts, which represents a huge opportunity for crypto currencies. The imbalance between smartphone ownership and absence of centralized banking services has presented a great opportunity for what became known as “mobile money.” Mobile money transfers did not exist in 1990s and were a novelty in the beginning of 2000s, yet today they exist and are popular in over seventy countries all over the world. In many developing countries, the number of stores where residents can open an account with a mobile money transfer service far outweigh the number of traditional bank branches. For people in developing countries who do have smartphones but do not have bank accounts, mobile transfer services are a way to significantly increase the quality of life and become a part of the financial system of the country.
One of the implications of the popularity of mobile phones is the network effect in such countries. A network effect is when a service or a product becomes more valuable as the number of users increases. This is exactly what is happening with mobile phones and mobile payments in the developing countries.
As the number of people who own and use smartphones and mobile money services increases, it provides an incentive to join for those who have not yet joined. The same effect would happen when instead or in addition to mobile payments people start using crypto currencies, mobile crypto currency wallets and ATMs.