Meta Description: There are numerous ways blockchain systems are revolutionizing the world economy. Nevertheless, let’s closely examine the three main ways blockchain technologies connect some of the world’s poorest people with the global economy. Blockchain systems could really better the lives and open up new horizons for the world’s poorest.
Large corporations are using blockchain to fuel the financial transactions. But it’s not only the upper social class who can benefit from this new technology, rather every person.
Simply said, the blockchain is an affordable and transparent way to record transactions. Blockchain will enable people who have never met, and thus don’t trust each other to securely exchange money without fear of fraud or theft. Aid agencies, NGO’s and Startups are expanding blockchain technologies across the developing world to help poor people around the world get easier access to banks for loans or to secure their savings.
There are numerous ways blockchain systems are revolutionizing the world economy. Nevertheless, let’s closely examine the three main ways blockchain technologies connect some of the world’s poorest people with the global economy.
How does a blockchain work?
A blockchain is a trendy word for a decentralized, transaction-recording computer database that’s simultaneously stored in various servers. The most popular example of blockchain technology is the electronic cryptocurrency called bitcoin, but blockchain technology can be implemented in various other industries.
Don & Alex Tapscott from the Blockchain Research Institute explain, “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
The secure exchange of funds is provided by the following features of blockchain:
- Openness to writing and inspection,
- Computerized cryptography and redundant storage authentication
They can even involve what are called “smart contracts”, transactions that happen only if certain conditions are met – such as a life insurance policy that sends money to the beneficiary only if a specific doctor submits a digitally signed death certificate to the blockchain. There are also third party independent validators, oracles that find and verify real-world occurrences and submit this information to a blockchain to be used by smart contracts.
On the Zap oracle marketplace, anyone from an individual to large corporations can create or access oracles on their own terms. Decentralized application developers will be able to create a new generation of Dapps (Decentralized Applications) capable of integrating “real-world” data.
By making oracle creation simple, the Zap Project facilitates the next phase in mainstream adoption of smart contracts. The ZAP token distribution event contributed towards product development and innovation to streamline the smart contract ecosystem.
“The applications of ZAP-powered oracles are myriad,” said Nick Spanos, co-creator of the Zap Project and founder of Bitcoin Center NYC. “Decentralized derivatives, smart contracts tied to crop yield measurements, your car paying you to drive it, self-executable wills – ZAP not only makes all of this possible, it makes it easy.”
Right now, these sorts of services are available – even in the developed world – only because nations have strong regulations protecting the money people deposit in banks, and clear laws about obeying the terms of formal contracts. In the developing world, these rules often don’t exist at all – so the services that depend on them don’t either, or are so expensive that most people can’t use them. For instance, to open a checking account in some parts of Africa, banks require enormous minimum deposits, sometimes more money than an average person earns in a year.
A blockchain system inherently enforces rules about authentication and transaction security. The latter makes it safe and affordable for a person to store any amount of money securely and confidently. While that’s still in the future, blockchain-based systems are already helping people in the developing world in very real ways.
How Foreign Remittance Flows will be affected by Blockchain?
The foreign remittance flows in 2016 amounted to US$442 billion. The well-being of families and societies in developing nations greatly depends on the global foreign remittance flows. Nevertheless, the money sending and receiving processes can be complicated and very expensive.
For example, a US employer making transfer (via MoneyGram) of $40 to South Africa, will end up paying $10 in transfer fees, therefore, the migrant’s family would receive only $30.
It is difficult to explain why migrants remit. However among the main reasons are the following:
- Concern for family members in home country and need of financial support,
- An agreement between relatives that the latter cover the costs of migrant’s migration, which then will transfer the payments to the relatives left in the origin country, who have paid for them.
Temporary migrants transfer the largest proportion of remittances, since permanent migrants are migrating with their families, thus, have no incentive to transfer money back to the home country. The higher percentage remittances are mostly sent by workers with lower qualifications, since highly skilled workers tend to live in the host country with their spouses, children, etc.
Nevertheless, remittances are the most significant type of financial flows to developing countries. However their influence on recipient country’s economy is controversial, but the positive impact outweighs negative ones in short-term. The most important advantage of remittances over other financial flows is that they are not given to the government or other authorities; rather they directly go to households and individual families, consequently increasing their income and living standard.
According to World Bank, globally, sending remittances costs an average of 7.13 percent of the amount sent. The companies justify such high costs by the reliable and convenient services.
Hong Kong’s Bitspark blockchain business offers extremely low transaction costs, most specifically, it charges a flat HK$15 for remittances of less than HK$1,200 (about $2 in U.S. currency for transactions less than $150) and 1 percent for larger amounts. The blockchain system enables the company to bypass existing banking networks and traditional remittance systems.
Similar blockchain services helping people transfer money to the Philippines, Ghana, Zimbabwe, Uganda, Sierra Leone and Rwanda also charge a fraction of the current banking rates.
How can the Insurance Industry benefit from Blockchain?
The insurance industry will benefit greatly from smart contracts. The ZAP project’s data marketplace will provide insurance companies with an opportunity to provide self-actuating insurance, that automatically pays customers eligible for a payout. With smart contracts, insurance payouts can be predetermined, streamlining the process for insurers and consumers alike. In this scenario, doctors in a decentralized insurance network would use their private key to sign the smart contract, releasing the funds in order to pay for their service. The latter is an example of humans acting as oracles.
Most people in the developing world either don’t have or have very limited access to health and life insurance, primarily because it’s so expensive in relation to their income. Some of that is because of high administrative costs:
In relation to every dollar of insurance premium, administrative costs totaled $0.28 in Brazil, $0.54 in Costa Rica, $0.47 in Mexico and $1.80 in the Philippines. Given the fact that many people earn less than a dollar a day, they neither have the ability to get any insurance nor will any company be willing to offer them affordable services. People in South Asia pay comparatively higher health care costs in relation to people in high-income industrialized countries.
Since blockchain systems are online and include verification of transactions, therefore, it enables to easily identify the fraud, thus, drastically reducing the insurers’ costs.
A blockchain-based microinsurance service, Consuelo (backed by Mexican mobile payments company Saldo.mx) enables customers to pay small fees for health and life insurance; in addition, the claims are verified electronically and paid quickly.
How Can Blockchain facilitate Humanitarian aid?
Blockchain technology can significantly facilitate the humanitarian assistance. The money that should be directed towards poverty reduction, improved education and healthcare is blocked by fraud, corruption, discrimination, and mismanagement.
U.N. World Food Program launched an early stage blockchain project, what it calls ‘Building Blocks’ in Sindh province, Pakistan, (January 2017). Most specifically, WFP tested the ability of blockchains to authenticate, record, and facilitate cash and food assistance transactions to food vendors, ensuring the recipients got aid, the merchants received payments and the agency didn’t lose track of its money.
WFP’s expects that this pilot project will reduce the overhead costs from 3.5 percent to less than 1 percent. The latter can also quicken aid to remote or disaster-prone areas, where ATMs might not be available or banks are not functioning normally. Blockchain currency can even replace the hyperinflated and/or scarce local currency, allowing aid organizations, residents, and merchants to make money exchange transactions electronically.
Moreover, blockchains can further enhance the beneficiaries’ aid efforts overseas. Usizo is a blockchain platform, based in South Africa, which grants anybody a chance to assist in payment of utility bills for group schools. Benefactors can track how much electricity a school is utilizing, estimate how much power their aid will buy and directly make these transactions through bitcoins.
What Does the Future Hold for Blockchain?
In the future, blockchain-based ventures can offer assistance to individuals and governments in many other ways. 1.5 billion or 20% of the world’s population lacks any official documents that can verify their identity. The latter not only hinders their ability to use banking services, but also their access to basic human rights, i.e. voting, healthcare services, education and traveling.
Some companies are launching blockchain-powered digital identity programs, therefore, helping create and validate individuals’ identities. Most specifically, through an internet-connected smartphone, a person could be photographed and recorded on video making particular facial expressions and speaking, reading an on-screen text. Afterward, the data is recorded on a blockchain and is easily accessible to anyone interested in verifying specific persons’ identities.
Have you ever thought that blockchain could be the only possibility to prove the identity of the world’s poor people, who don’t have access to emails, phones, passports or even birth certificates? These could really better the lives and open up new horizons for the world’s poorest.