Credit: TLC Jonhson via Flickr Creative Commons

Can Cryptocurrency Accelerate Global Development?

Some of the most innovative cryptocurrency projects today are being built in the developing world — and Sub-Saharan Africa in particular —  to address real-world obstacles to economic development and achieving the Sustainable Development Goals.

These projects are pretty far off the radar of the global development community. But that may soon change as more and more of these cryptocurrency powered blockchain projects come online.

The pace of technological advancement in cryptocurrency suggests that aid agencies, the United Nations, philanthropies, NGOs and governments may need to confront the implications of crypto and blockchain to their work — and probably sooner than they think.

Podcast guest Garry Golden demystifies the world of crypto and explains the implications of this emerging technology for emerging economies and the business of global development. This episode kicks off with some easily accessible definitions of key crypto terms-of-art and briefly discusses the history of this technology before having a broader conversation about the implications of recent technological advances in cryptocurrency to global development.

 

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This is a free episode of the new Cryptocurrency and Global Development podcast series and newsletter from Global Dispatches, which profiles crypto projects built to address common global development challenges. 

Future episodes in this special series will be exclusively available to paying subscribers to the Cryptocurrency and Global Development podcast series and newsletter. 

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[Transcript edited for clarity]

What Do We Even Mean By “Blockchain” and “Cryptocurrency?”

Garry Golden: [00:06:28] The simplest definition of a blockchain is that it is a distributed database — so that that’s the definition, and whenever I give that definition, I like to compare it to trying to understand mthe internet by defining it in 1993. We may have said, “Oh, the internet is networked computers” and a person would understand the definition, but not really be able to imagine Google, Facebook, Uber, Airbnb based on that definition. [00:06:56][28.3]

Garry Golden: [00:06:57] So by definition, a blockchain is a decentralized or a distributed database. The question is what can’t we imagine will come from such a simple definition? [00:07:07][9.4]

Mark Leon Goldberg: [00:07:08] So what is the relationship, therefore, between cryptocurrency and blockchain? [00:07:11][3.2]

Garry Golden: [00:07:12] Sure. So a blockchain is a decentralized database, and cryptocurrencies are digital currencies where transactions are verified and records are maintained on that decentralized database. So in many ways, cryptocurrency and blockchain are coupled together, but it is possible to have a non-cryptocurrency blockchain application, though the two really are just kind of their wedded together from now and forever forward. [00:07:49][36.6]

A Brief History of Cryptocurrency

Mark Leon Goldberg: [00:07:50] Well, let’s kind of maybe go back to the history of of this technology and where we where it all began. I presume the story sort of starts at the advent of bitcoin. Can you kind of take us back to that? [00:08:05][14.7]

Garry Golden: [00:08:05] Yeah. So there there were numbers of of attempts to create a kind of digital gold and digital currencies through the 80s and 90s. The seminal moment was the release of of what is referred to as the “Bitcoin White Paper 2008” and it described its version of this kind of digital currency that would be secured through this peer to peer ledger, which would hold the ownership asset records and the transaction transaction records on a peer to peer managed network. That creation of bitcoin was the beginning of what we would call kind of the modern cryptocurrency movement. It was the solution that stuck and gained the widest support. [00:08:57][51.3]

Mark Leon Goldberg: [00:08:58] Bitcoin is the first thing people think about when they think about cryptocurrency. But my understanding is that Bitcoin — as compared to other newer cryptocurrencies and to newer iterations of this technology — has rather limited utility, right? The ledger that maintains bitcoin can be used to record transactions and those transactions can only really involve sending or receiving bitcoin. But a couple of years ago, you’ve had the advent of newer technologies, which can layer applications on top of a blockchain. [00:09:42][44.0]

Garry Golden: [00:09:44] Correct. So, Bitcoin really as it is banking without a bank. You can send a form of value and receive it directly from another person without a third party, and that is revolutionary. But the ability to run, as you say, applications — so something that is a distributed health care record or a distributed identity record that is not something that we would ever really be able to do at scale on bitcoin. [00:10:13][28.8]

Garry Golden: [00:10:14] So in recent years, we’ve seen the emergence of of kind of next generation blockchain cryptocurrency projects like Ethereum and Cardano, and these are platforms and communities that are trying to think a little bit more broadly in terms of what does the world need in terms of decentralization. And and that is moving not just around value of a cryptocurrency, but around things like identity and governance. How do we decentralize those facets of society? So where we’re really at the very beginning of blockchain and cryptocurrencies, bitcoin is likely to continue to be the the dominant gold equivalent kind of this store of value. But the most exciting and likely effective and impactful platforms are going to go far beyond, a digital gold paradigm. [00:11:14][60.4]

What Do We Mean By “Decentralized Finance” or “DeFi?”

Mark Leon Goldberg: [00:11:15] And it is these next generation technologies that allow applications layered on top of the of the blockchain — and that is commonly referred to as DeFi decentralized finance. Can you just maybe describe that term briefly? [00:11:31][15.2]

Garry Golden: [00:11:31] Sure. So DeFi, or decentralized finance, is is basically the ability to do all the things that we would typically do through some sort of a bank or a financial service provider. So an insurance contract, a loan, collateralizing an asset, finding out somebody’s risk profile — all those services that we would find in traditional financial institutions can be managed through open protocols and these decentralized networks of people that make up that particular system. So, so DeFi is is trying to expand into a full service offering, not just trading coins back and forth, but taking out a mortgage, and who’s providing you with the contract? And who’s providing you with the the funding? Where’s the liquidity come from? It comes from the network, not the bank. So DeFi shifts from institutions like banks and it pushes us towards a world where the network itself of individuals becomes the source of financing. [00:12:48][77.1]

How Might Cryptocurrency Impact Global Development Through Remittances?

Mark Leon Goldberg: [00:12:50] And it is in this realm that these emerging technologies around cryptocurrency and blockchain have real potential to impact the business of global development and also outcomes in global development. The people who listen to this podcast, they are not of the crypto community, they are of the global development community. And it’s my intention with this conversation to try to bridge the two a little bit. So, I would love chat with you through some potential opportunities or scenarios for how cryptocurrency might impact global development. [00:13:33][43.4]

Mark Leon Goldberg: [00:13:34] To me, the lowest hanging fruit seems to be in the transfer of remittances. As I think many of my listeners will know, remittances are orders of magnitude greater than what is given in official development assistance from one country to another. Something like $700 billion are sent in remittances every year, from wealthier countries to poorer countries, compared to about $160 billion in official development assistance. Yet so much of this money is trapped in high fees associated with sending money across the border to the degree that the Sustainable Development Goals even include targets to reduce transaction costs associated with remittances to under three percent by 2030. One thing that’s, I think, just absolutely fascinating about cryptocurrencies is how cheap it is to send money across borders. And I’m curious to get your impressions on the potential of cryptocurrencies to reduce transaction costs, but also become like a sort of a meaningful platform for remittances? [00:14:53][78.7]

Garry Golden: [00:14:54] Yeah. So remittances, they’re widely discussed as as that great use case. In order to do that, you need a few things to come into alignment. One is the availability and the adoption of what are referred to as stablecoins. So with with typical cryptocurrencies like Bitcoin, Ethereum, Cardano’s, ADA and a number of others, the value of those coins goes up and down. It will make large movements up and down. And really, you know, the value of those those platforms is really much more as a liquidity pool than a than a company. So we don’t need to worry about the volatility because it’s it’s early stages and it’s volatile. Stablecoins are pegged against either traditional fiat currencies or a portfolio of other cryptocurrencies, or their algorithmically managed to always be the same value. So stablecoins are in the early stages of development, but they are receiving, I would say, an out weighted amount of attention from regulators because they represent a pragmatic way to do remittances. That gives you all the benefits of cryptocurrency: the instant settlement and the assurance that it’s going from this person to this person, without the volatility of the prices going up and down. [00:16:27][93.4]

Mark Leon Goldberg: [00:16:28] And the low fees. It’s like a fraction of a percent compared to, say, like eight percent in to send remittances places in sub-Saharan Africa. [00:16:38][10.7]

Garry Golden: [00:16:38] Yeah. So in order to do that, we need to address the regulatory barriers in terms of the know your customer KYC and the anti money laundering (AML) processes that are currently followed by the folks that that handle remittances today. And then you would also need some sort of agreement within that home country that recognizes stablecoins will be coming in as an inflow and individuals within that society then have a choice to convert those stablecoins into the local national currency, or maybe they use those stablecoins to purchase things as they would through any digital currency. So you need all sorts of things to align. And for me, the you know, the big thing here is identity and the ability to link identity to these types of payments is going to be the critical enabling force. [00:17:40][61.5]

Mark Leon Goldberg: [00:17:41] Can you can you flesh that out a little bit? [00:17:42][1.6]

Garry Golden: [00:17:43] So the the people that launched bitcoin and kind of the cryptocurrency movement tend to have a strong kind of libertarian ideology that kind of drives their pursuit right now. [00:17:56][12.6]

Mark Leon Goldberg: [00:17:56] I should say: I do not. [00:17:57][0.9]

Garry Golden: [00:17:59] [Laughs] I sit on the side and I watch, right? But they they they are — and they are not interested in empowering governments or empowering banks or empowering institutions. So privacy and the ability for someone to do a transaction and not have to link their identity has been paramount. Now that’s that’s the early wave adopters. When we go into the early mainstream adopters, those are likely to be individuals that value identity that say, “I do want certainty that this money belongs to me, and I want to leak my identity to it.” Or this is the person that sent me the money, or this is the person that I’m sending money to. So it really is just about the transition from early adopter to early mainstream users of cryptocurrencies as kind of the milestone to watch. [00:18:54][54.8]

Can Cryptocurrency and DeFi help to bank the unbanked?

Mark Leon Goldberg: [00:18:55] And this sort of leads into like a next set of questions, particularly we’re talking about the developing world, there has been this goal among the global development community for as long as I’ve been covering this stuff since, since like 2005 to bank the unbanked. The potential of many of these technologies to provide some financial identity to people who currently lack it seems profound — and potentially very impactful in places where it is hard to get a bank account. [00:19:33][38.0]

Garry Golden: [00:19:34] Yeah. And this this is the the other large group that you see within the cryptocurrency world. Outside of the kind of libertarian bent are individuals that have a strong social mission orientation and that this idea of banking the unbanked is what drives everything. Now how do we do that is the big question? And again, I would argue that there are two things that you need to accomplish this. First is connectivity: individuals need to be able to connect to the internet. They need to be able to connect to digital infrastructure. And in our world today, that is primarily through Wi-Fi and [or generally to a phone]. So there are now organizations such as World Mobile that are looking to connect the unconnected in order to bring these DeFi and crypto banking solutions to those populations. That’s the first piece. [00:20:40][65.6]

Garry Golden: [00:20:40] And then the second piece is again, economic identity — that individuals are able to prove who they are and only show aspects of their identity that is needed in order to engage in some sort of financial contract. So I control my identity. I don’t need to reveal everything about my world to you. I am only going to reveal the information that you need in order to trust and move forward in this transaction. And that idea of economic identity is now starting to take hold. A major use case for blockchain and cryptocurrency is around supply chains and being able to provide economic identity to small farmers that can then prove that they own a certain amount of land or they can prove they have certain animals grazing or crop yielding agricultural practices that they prove and that they can then collateralize. They can take a loan against it. And that idea of economic identity baked into supply chains is where I expect the real momentum to pick up in the years ahead. [00:22:05][84.6]

Mark Leon Goldberg: [00:22:05] Well, can you can you maybe run through a few other examples of that and how that may work in the coming years, particularly as it applies to the developing world? [00:22:14][8.8]

Garry Golden: [00:22:15] So one of the ideas that you hear again within this kind of social, mission oriented strain of the crypto community is this idea of kind of a decentralized kiva, right? So Kiva is kind of a classic microloan kind of a peer to peer platform where I seend somebody two hundred dollars to buy something that they will then produce income from. And I give them ten dollars and we get a bunch of other people and they give $10 a small amount and they fund the project, and that loan is then repaid over time. So that model of Kiva works and scales to a certain degree. [00:22:53][37.9]

Mark Leon Goldberg: [00:22:54] I’ve had the founder of Kiva on this show in the past! [00:22:56][2.0]

Garry Golden: [00:22:56] So what if we are able to really expand that model and to overcome some of the barriers associated with that type of individual individual giving? And the first one is verification of identity — that I trust that the picture of the woman that’s on the the profile page of this loan is the person that’s going to receive it. And that type of decentralization of identity and risk modeling would come from the blockchain world and would help lower that barrier to someone giving. And then blockchain cryptocurrency, as you said earlier, with remittances, it reduces all the friction of the transaction. Ten dollars and know, that. Nine dollars and fifty cents made it to the person, and neither of us got stuck with fees. So how do we decentralize that idea of of individual to individual giving? And if we do, could we imagine a great transfer of wealth and relationships between individuals across the world? [00:24:19][82.5]

Can Crypto and DeFi Unlock Access to Capital for Small and Medium Enterprises in the Developing World?

Mark Leon Goldberg: [00:24:20] Beyond just individual-to-individual giving, that micro lending model, it seems that the great white whale in all of this is unlocking access to capital for small and medium enterprises. These are companies, corporations, sometimes formal, sometimes informal, that make up most of the economic activity in emerging economies, particularly in sub-Saharan Africa. It’s like something like 40-50 percent of the GDP of sub-Saharan Africa comes from small and medium enterprises. [00:24:52][31.9]

Mark Leon Goldberg: [00:24:54] I was reading a World Bank report the other day saying that there is an unmet need for capital amounting to over five trillion dollars for Small and Medium Enterprises in the developing world. And the fact of the matter is it’s just very hard in many cases for small and medium enterprises to get traditional loans. And if they are able to get traditional loans, the fees are the interest rates are usually extremely, extremely high. So could you foresee a situation or a future in which hese enterprises have access to capital through decentralized finance and through these decentralized banking systems that cryptocurrency enables? [00:25:39][44.8]

Garry Golden: [00:25:40] Absolutely. For me, that would be stage two, right? Stage one is that it feels good. It’s the again, the decentralized keep a model peer-to-peer, and that can really change lives. But stage two is large, institutional money that wants to find yield that wants to find growth can now say, “Look, we haven’t been operating in certain regions of the world because the cost of kind of customer acquisition is so high. We can’t verify that this person that has a small business actually owns the land that they own, the equipment that they that their books are valid.” The cost of that acquisition is very high. It will take time, but it is so clear to me that stage two is the decentralization of larger loans, larger financial solutions. So I would see the SME financing coming not from individuals, but from larger bank traditional banks that are seeking growth in these regions. [00:26:50][70.0]

Mark Leon Goldberg: [00:26:52] This is enabled because of the verification that the technology provides, you mentioned land titles, presumably, land titles or some things that could be digitized and verified across blockchain. [00:27:06][14.2]

Garry Golden: [00:27:09] Yeah, and this is this is a current focus of different communities and particularly in Africa to be able to empower individuals to verify that they own their property, which again allows them to then take out loans that allows them to prove that property is a major use case and focal point right now. [00:27:34][25.1]

Mapping the World of Crypto and Global Development — as it currency exists

Mark Leon Goldberg: [00:27:35] What’s happening in in this space as you describe it — particularly in terms of entities or organizations that are actively trying to harness this technology for global development? I saw the head of the third largest cryptocurrency by market cap tweeted out that he’s traveling through Africa to meet with various heads of state in Burundi and Kenya and Egypt. So, it seems there are people that are focused on this. Can you map that world briefly? [00:28:16][41.5]

Garry Golden: [00:28:17] Yeah. So, well, big picture what I think is happening. We’re still stuck in the first phase where we think that the wealth creation in cryptocurrency is going to come from owning the coins, having the coins go up in value and selling the coins. [00:28:33][15.8]

Mark Leon Goldberg: [00:28:34] Speculation. [00:28:34][0.0]

Mark Leon Goldberg: [00:28:35] Speculation vs. the social wealth that is going to be created in cryptocurrencies will be because cryptocurrencies and DeFi and decentralized identity exist. And the analog for people that are kind of like “what does that mean?” Remember the dot com bubble of the late 1990s when the internet came out? Everyone thought that this internet was so cool, so fascinating, and they thought the way to make money with the internet was buying the stocks — the dot com stocks. It turned out 15 years later that the wealth is created because we have things like YouTube that allow us to have our own video publishing platform. We have payment solutions, we have access to delivery networks. So the wealth was created not from the dot com stocks, but by having the internet itself. [00:29:27][52.9]

Garry Golden: [00:29:28] And we’re still stuck in that first stage. People don’t see that having decentralized identity and finance is going to generate wealth. We’re still stuck on, you know, on the coin, make the money off the coin! So that’s kind of my my big picture take. [00:29:45][16.6]

How are governments in the developing world using this technology?  Is there potential that a government may issue a cryptocurrency based sovereign bond?

Garry Golden: [00:29:46] Where do I see things happening right now at the leading edge? It is around this idea of empowering governments. So you know that the the project that you’re referring to is working with governments across Africa to not necessarily bring cryptocurrency solutions – like they’re not trying to go in there and say, we’re going to bring in a digital currency to replace whatever you’ve got. They’re coming in there and they’re saying, we’re going to bring identity solutions. We’re going to bring identity solutions that allow your high school and college students to take their classes, get their great degrees, have their credentials verified on a blockchain. And then when that person wants to get a job for a company within your country or beyond those boundaries they they can use those verified educational records when they’re talking with potential employers and improve their lightning likely to get that job. [00:30:47][61.3]

Mark Leon Goldberg: [00:30:48] And you’re referring specifically to a project in Ethiopia that was recently rolled out. [00:30:52][4.3]

Garry Golden: [00:30:53] Yeah, yeah. So this is a project between Cardano, which is a cryptocurrency platform, and the Ministry of Education in Ethiopia. [00:31:00][7.3]

Garry Golden: [00:31:01] And then the other big one is the this idea of again working with governments of issuance of sovereign bonds. So. If you go out two to three years, maybe five (if I’m being a little bit optimistic) you can imagine that a nation-state will use a blockchain cryptocurrency stablecoin to issue their own bonds. So they want to raise, you know, U.S. dollar equivalent to $200 million to build some roads or universities or health care system rather than going to a traditional Wall Street, London, or Paris based financial giant to issue those bonds. They can do it themselves. And when they issue those bonds, they can know the identity of who owns those bonds. And they can assure people outside the country that these bonds are owned by legitimate individuals and that the transparency and accountability associated with that sovereign debt issuance will exceed what I think exists anywhere else in the world. So like, what’s what’s the big prize for me? It’s this notion of of sovereign debt issuance over a blockchain. When that happens, we’ll be in a new era. [00:32:25][83.8]

Mark Leon Goldberg: [00:32:26] So what barriers do you see from here to that era? I mean, this is a very deeply unregulated space. There is a lot of to a large degree deserved reputational damage associated with bitcoin and cryptocurrencies in general. So what are some of the barriers to that web’s widespread adoption that you’re you’re referring to? [00:32:54][27.6]

Garry Golden: [00:32:56] Well, I think, you know, the the biggest barrier is just regulatory uncertainty. So we are at a point where the technology itself is is good enough that these solutions can be rolled out over the next one to three years. There’s there’s no longer a question of can these blockchain networks scale? Can they handle hundreds of billions of dollars of transactions? Yes, they do. They can. Can they do it without, you know, ever going down and being, you know, hacked? Yes, they can. So it’s not a technology barrier. It really is about regulatory certainty. And that is coming. It’s coming from different nation states. And I would expect that the the next two to three years will be an era of the first wave of regulations that allow governments around the world to use blockchain and cryptocurrencies and allow institutions to integrate these systems into their services. So I don’t really worry about the individual that’s trying to buy and sell crypto. I really am more concerned about when will governments and enterprise have the regulatory certainty to join in? And I think that’s about two to three years away. [00:34:22][85.9]

What do We Mean by “Web3?”

Mark Leon Goldberg: [00:34:22] You know, I am of the development community, not of the crypto community, is there any other sort of technologies on the horizon that could be potentially impactful for global development. [00:34:29][6.7]

Garry Golden: [00:34:35] So there is this idea of kind of Web3 — Web 3.0. So Web Web Web 1.0 was just like a publishing model, right? We we had publishers that created websites and pushed out. It was like a read only web, and then Web 2.0 was more about interaction. You know, this idea of user generated content, a social network? Right? The platforms emerged and they controlled the code. They made the money. And now out of this blockchain crypto world, we’re seeing this call for Web 3.0. It’s easy to catch your eye and and see it as a buzz word. But there is something about Web 3.0 which moves us to to a new way of thinking about ownership. And the shift is from platform platforms owning the content and monetizing that content or their relationships to a world where these protocols, these crypto protocols are open to anybody and allow individuals or governments or companies to create, produce and profit from the content. [00:35:49][73.4]

Mark Leon Goldberg: [00:35:50] And they would be like an example of something like that? I’m having a hard time visualizing. I live through a web one. I’ve had a blog since late 2005, an on Twitter and stuff like, what’s this third iteration? [00:36:01][11.2]

Garry Golden: [00:36:02] So it’s basicallY like a Facebook without Facebook, right? Just take the transitionf from Web1 to Web2. If you were a major media company and you just built this big website and then someone comes along from the Facebook team and they’re 28 years old and they’re like, “We just built this platform and people are going to take your content and we want to bring it into our feed and they’re going to like it and share it and comment on it.” And you’re the big media company, you’re thinking. “No. I just spent all this money on my website. I’m not going to give you access to this content so people can like it and share it. That seems ridiculous.”. [00:36:39][37.0]

[00:36:40] So that happened, right? And now what we’re saying is creators, when anyone creates content, they are going to manage the monetization of that content. So, you know, the big mental shift is people aren’t just going to, you know, manage their social. Media profile. They’re going to be managing their lives as a business in this Web3 era. They’re not going to get a check from YouTube, right? The money is going to come from the users and the viewers directly, so it cuts out that platform. It’s a world where we have media networks that are not controlled by a central company. Who knows what it’s going to look like, but it’s it’s essentially kind of a YouTube without YouTube, Facebook without Facebook. [00:37:35][54.9]

Mark Leon Goldberg: [00:37:38] Well, Gary, thank you so much for your time. You’ve given me a lot to think about. I appreciate it. You know, I really do see potential for this technology to be impactful in emerging economies in the developing world for many of the reasons you cite, which is why I wanted to have this conversation — and I really kind of consider this to be like the start of a conversation between people of the crypto world and of the global development community to get them to talk and to learn from each other a little more and a little more deliberately as well because of the potential use cases that you cited and more that we haven’t even sort of thought of yet. So thank you. [00:38:17][39.9]

Garry Golden: [00:38:18] Yeah, absolutely. Can I throw one more out there just for folks to go down the rabbit hole? There’s a project called Empowa. And this is not an endorsement as much as it is just an illustration. It is a DeFi property platform. So imagine being able to create new sources of funding and distributed sources of again risk, you know, risk profiles, et cetera, to allow people to buy and own their own houses. So Empower is a DeFi kind of affordable housing effort based right now in Africa. [00:38:59][40.9]

[00:38:59] Hmm. And you could imagine something like that could be transported from the developing world to the developed world as well, which anywhere is really interesting. And you know, it’s like Mpesa. You know, you think about that as like the the classic example of the developing world innovating due to constraints within their economies and that being sort of transported abroad as well. [00:39:21][21.1]

Garry Golden: [00:39:22] So it’s fascinating times. [00:39:23][0.9]

Mark Leon Goldberg: [00:39:24] All right. Well, thank you so much, Gary. [00:39:25][1.5]

Mark Leon Goldberg: [00:39:26] Thank you very much. [00:39:26][0.0]

[2293.3]

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