Blockchain can be catalyst for a more inclusive world (as published in South China Morning Post on May 18, 2019)

South China Morning Post
Blockchain can be a catalyst for a more inclusive world

By Emir Hrnjic and Nikodem Tomczak
May 18, 2019

A lack of financial inclusion is a significant cause of social inequality in the world. The World Bank considers access to useful and affordable financial products key to reducing extreme poverty and the Group of 20 economies recently committed to efforts aimed at advancing financial inclusion worldwide.

But while 2 billion people in the world are unbanked and lack access to financial services, two-thirds of them have access to a mobile phone with internet connection. This enables access to blockchain technologies, which may in turn provide some unique and promising solutions to creating a more inclusive world.

Blockchain is an open and decentralised technology that enables electronic transfers of value without intermediaries and is, by design, transparent, inclusive and censorship-resistant.

In fact, blockchain has the potential to eliminate traditional divisions across societies, age and gender, whilst also erasing geographical, cultural and jurisdictional restrictions and strengthening economic resilience.

A lack of proper personal identification and documented property rights remains one of the main reasons for financial exclusion.

However, blockchain technology can overcome this by holding tamper-proof information about individuals, thus unlocking access to financial services. Furthermore, the ability to register and retrieve property rights in developing countries should increase social mobility and improve living standards.

On a global level, blockchain technologies should increase transparency and fraud detection, while reducing corruption and poor management of resources in developing economies.

This will be of even greater importance in the era of global projects such as the China-led Belt and Road Initiative that spans dozens of underdeveloped countries. Such projects demand improved coordination of economic activities.

In these contexts, promoting accountability and transparency can reduce problems with trade disputes while lowering barriers to entry for parties from many different countries.

Many developing nations have near-universal access to 3G mobile networks. Coupled with high mobile phone ownership rates, this offers the potential to enable many people to interact with blockchain technology and boost financial participation.

Since the cost of traditional money transfers can be as high as 20 per cent, bypassing the banking system significantly reduces transaction costs.

An example of this is Kenya’s M-Pesa mobile payment system, which has opened access to banking and financial services to anyone with a mobile phone.

This access to mobile money has had a profound impact, helping to lift almost 200,000 Kenyan households out of extreme poverty.

However, the impact of blockchain on financial inclusion is not without potential pitfalls.

Running the decentralised blockchain can be very costly, demanding resources, such as dedicated equipment and high electricity consumption to secure the network.

Furthermore, a full understanding of how the technology works may be necessary to build up a true trust-based relationship, which can be built through education. However, this presents an obstacle to financial inclusion as underprivileged and underserved communities usually experience the largest educational gaps.
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Finally, if blockchain is to become a vehicle for financial inclusion, there is a need for internationally agreed regulations.