Whilst we all may think about money pretty consistently for one reason or another, we rarely give a thought to our daily interaction with it. Our pay comes in to our bank accounts and we spend it, most commonly in a digital format (i.e. bypassing actual physical cash), using debit cards and tapping mobile phones. We can get credit at any time by using credit cards or going to a lender. Even if we do want cash, it’s readily available and accepted by everyone in our country anywhere, anytime. Oh, the convenience.
Now imagine that you can’t get a bank account. Perhaps there’s just no facilities, or you’re not considered profitable enough for a banking giant to consider you. You are one of the ‘unbanked’.
Now imagine debit cards are not widely available and even if you were one of the few who had one, vendors are unlikely to accept them due to trust or infrastructure issues. Worse, even your native currency in cash form is not accepted by locals who prefer dollars, pounds, euros or other ‘hard’ currencies to make the transaction. You may have to pay a significant percentage of your hard earned money, which you almost certainly would have received in cash, to exchange it for the currency your chosen vendor will accept.
It’s a fraught, stressful experience, and one we can’t really understand in our comfortable lives. Yet this is an everyday occurrence in developing markets around the world.
At the same time, many emerging markets are a strange contradiction. Even where literary rates are low, smart phone and internet usage is high, in relative terms anyway. In practice this means that even people who cannot read or write their own language, let alone English, can still use apps like Facebook simply because those platforms have been designed to be totally intuitive to the user. The result is a disproportionate amount of users to literary level.
That fact alone is astonishing. In countries where there is barely any infrastructure or financial system, or where crime and corruption is rampant, people still have the ability to share and like photos, finding ways to be connected in an otherwise difficult environment. Such is the power of certain technologies, a perfect example of their ability to leapfrog certain other (arguably more important) needs to service a whole new desire that was previously unknown to the very people who now use it.
It is also interesting to note that many of the countries where there is genuine lack of confidence in the sovereign currency, there is often higher than average interaction with Bitcoin.
This makes sense because if your country is flooded with alternative ‘hard’ currencies in physical paper form as a preferred alternative there’s no reason why Bitcoin could not be one of them. After all, all you need is a smartphone, an internet connection of any sort and a little bit of knowledge on what you’re doing. Bitcoin is portable, border-less, totally secure and easily divisible — ideally suited for currency transactions, exactly as Satoshi Nakamoto outlined in his original white paper.
The data that exists doesn’t entirely prove this is the case, but it would certainly support the hypothesis. Data collected earlier this year from LocalBitcoins shows that the volume of Bitcoin traded from emerging markets now exceeds the volume coming from the developed world.
I’m slightly skeptical of that statement on its own because it’s likely that part of this comes from the fact that people in developed countries may well use other on/off ramps for Bitcoin. LocalBitcoins carries a higher premium than other exchanges and people in developed countries simply have a greater choice in the ones they use.
In emerging markets however, LocalBitcoins can sometimes be the only real option for a whole myriad of reasons, but usually due to ‘crypto-unfriendly’ governments trying to retain control on the money flow and refusing to allow centralised exchanges to exist.
Even so, there can be no question that certain countries produce more volume than others and five in particular account for 80% of all trade through this platform (as of July 2019): Russia, China, Nigeria, Venezuela and Columbia.
Venezuela is of particular interest. The Bolivar has all but collapsed, currently running at at 39,000% inflation rate, and the corrupt regime that runs the country is also subject to sanctions. When the money in your pocket is losing value by the second and access to foreign hard currencies is hard, what do you do? Bitcoin is the obvious choice.
Even so, those Venezuelans who bought Bitcoin at the very peak of its price, around $20,000, and rode it all the way down to the $7,500 it’s currently at, are infinitely better off than they would have been if they’d left it in Bolivars. For the first time in history, the people themselves have been able to protect their personal worth against the foolhardy decisions made by their own governments.
I’ve seen the same in Nigeria, Columbia and, more recently, Argentina, where the recent explosion in inflation (currently sitting at 50%) has driven new highs in LocalBitcoin trade in just the last month.
It should be clear, however, that the amounts in question are still quite small — a few million dollars here and few more there — meaning that the actual number of people who have been able to preserve their wealth overall is not significant. This is surprising given the stark options faced by many in these situations. Why is this?
The reality is that Bitcoin, globally, is still tiny. It’s true a new record high of Bitcoin addresses was achieved just last week, but this was still only 28.39 million, a ridiculously small number when compared to the population of the earth, any of whom, at least theoretically, could hold some. In numbers terms that’s just 0.4%. And it’s taken ten years to achieve that.
All of this leads me to several key points about the current state of Bitcoin in emerging markets:
- It’s clear that in situations where people are forced into difficult financial situations through no fault of their own, Bitcoin is a real, genuine choice, although it may be seen as an asset of ‘last resort’ initially.
- Data from LocalBitcoins show that volume in other ‘emerging’ countries has been consistently rising in the last few months, especially in Chile, Columbia, Egypt, Kenya, Mexico and Peru, all of which have economic or political issues that are likely driving it.
- The current levels of acquisition are most likely commensurate with knowledge levels of Bitcoin itself. Whilst it may appear that we hear about Bitcoin all the time, the truth is that global awareness is still minuscule.
If this is true then the obvious conclusion is that in time — and perhaps sooner than we think — adoption in these areas will grow at a faster pace than it will in First World countries, i.e. in places where we already have a viable system and may not currently see the need for it beyond speculation in our day to day lives.
This could, theoretically speaking, ultimately create an interesting scenario where the world’s smaller or emerging economies suddenly find themselves owning disproportionate amounts of Bitcoin if any form of global adoption does occur, even on the smallest level.
If that’s the case, then it’s entirely possible that there would be a shift in wealth from the first world economies to the emerging ones, almost by accident and all initially driven by necessity.
And I find even that mere possibility — something that could not have occurred at any other point in history so far — absolutely fascinating.