Contributoria

Article The changing value of money

Bitcoin & the third world: Two billion unbanked

Roughly half the world’s population does not have — and is unable to get — a bank account. The unbanked are limited in their ability to rise from poverty. They are forced to engage in small-scale local commerce, and are unable to grow beyond those limitations. This is often by design. In many parts of the world (some would argue all), the oligarchies that run the banks want to keep the masses down, under control, in their place.

Bitcoin changes all that. Now anyone with a cheap mobile phone can send and receive micro-payments for pennies per transaction. No longer are the unbanked constrained by limitations of distance — a grandmother knitting in Timbuctu can sell her wares online and receive instant payment from a buyer in London. No middleman. No banks. No painful fees for international transactions.

Bitcoin is a blessing for the world’s poor. By permitting individuals to “be their own bank,” the cryptocurrency redistributes economic and political power that, since the rise of fiat currency, has rested almost entirely in the hands of governments and central banks.

Complaints about fiat currency are Bitcoin proponents’s strongest arguments. Unlike silver or gold, which has inherent value—value which the government cannot destroy without debasing the currency with some cheaper metal—fiat currency is backed by no more than the “faith and credit” of the world’s government.

That faith and credit, as we have seen in the twentieth century, is not worth much. Fiat currency has concentrated power into increasingly fewer hands—and that power corrupts. The government’s power to print money (“quantitative easing”) whenever it happens to be convenient destroys the value of every dollar (or pound sterling, or Euro) in existence. This is worse than debasing silver coinage, because at least pre-debased coins continued to contain the old percentage of silver. “Money-printing” is impossible in a truly decentralized cryptocurrency like Bitcoin, where mathematics and cryptography prevent such an occurrence.

(As an aside, it is worth noting that Bitcoin is currently having a mild crisis, due to threat of a 51% attack. Mining pool Ghash.io now controls slightly more than 50% of all Bitcoin transactions. Such a scenario makes Bitcoin no longer a truly decentralized cryptocurrency, since in theory Ghash could accept or reject transaction on a whim, or as a result of a government court order. However, moves are afoot to change the Bitcoin code to prevent such large mining pools from existing and threatening the Bitcoin ecosystem.)

So let’s assume Bitcoin evolves to overcome this current challenge. How can poor people making micro-transaction use Bitcoin to improve their lives?

Well, let’s look at a Bitcoin-like monetary system currently in use in East Africa: M-PESA.

The basics are encouraging: “One study found that in rural Kenyan households that adopted M-PESA, incomes increased by 5-30%,” reports The Economist. Indeed, one of the principal motivators for the creation of M-PESA was to make it easy for urban workers to send money home to their families in the country.

Imagine what would happen if you could do the same thing, only instead of on a domestic scale, on a truly international scale. Every year, half a trillion dollars changes hands around the world in the form of remittances. And agents like Western Union and MoneyGram are taking an average of 9% to 25% of that money, according to Alan Safahi, CEO of ZipZap.

At this point critics inevitably start talking about “money laundering” and “terrorism,” which basically means “We the Corporate Oligarchy Don’t Want You to Control Your Own Money.” One is rather reminded of the Four Horsemen of the Infocalypse. Political liberty for innocent people requires tolerating a certain amount of undesirable mayhem. A country without a little bit of dirty money or naughty people doing things with bombs would not deserve the monicker “liberty.”

So what kind of liberty does Bitcoin enable?

Super-cheap international remittances? Check.

What about plugging the unbanked into the Internet? What about the entrepreneurs who suddenly have access to a global marketplace, access previously denied them by the banks, the government, and the oligarchs (but I repeat myself)? How will they use this newfound liberty?

Well hopefully, to make money. The Third World is full of hardworking people trying to get ahead, but who through no fault of their own are unable to do so. Plug them into the global economy and watch them innovate themselves, their families, and their countries out of poverty.

This, in turn, will have a cascading effect on the political organization in their countries (as indeed Bitcoin proponents hope it will have in wealthy countries). Once the banks and the government no longer have a stranglehold on the majority of the population, and money can be sent anywhere in the world without their being able to prevent it, they will find it difficult to impose tyrannical policies.

Why? At the end of the day, governments exist because the people support them. Oh—and because the people pay taxes. And while the NSA may know—probably does know, in fact—who owns most of the Bitcoins in the world—the same cannot be said of most countries in Africa or South-East Asia. Don’t like your government? Don’t feel like paying tax? Make a silent protest. Don’t tell the government about your Bitcoin. How is anyone going to know?

And if the government decides it wants to print money for whatever reason (yachts *cough* mansions *cough*), it will find a populace increasingly disinterested in their funky paper fiat money, except perhaps as a last resort when the toilet paper runs out.

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