Opinion: Here's what needs to happen to scale blockchain in developing countries

By Jane Thomason 21 August 2017
A “physical” bitcoin. Photo by: BTC Keychain / CC BY

Blockchain has the potential to transform development and improve the lives of people in developing countries around the world. Promising cases have already presented themselves in the realms of financial inclusion, remittances, identity, land titling, supply change, renewable energy and provenance.  

There are several things, however, that will be required for blockchain to scale in developing countries. Here are six steps that need to happen before it can be scaled.

1. People need to know about blockchain.

Too few governments and international development practitioners are familiar with blockchain and its potential. In order to diffuse, blockchain technology needs to be socialized, and the use cases implemented to show how it applies to real world problems in emerging economies.

2. Governments need to get on the bus.

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The role and uptake of governments will be important, both from an adoption perspective, as well as the creation and enablement of the policy and regulations environment. Government support for financing is also key, as the process of developing bankable projects has high upfront costs, often difficult for small local entities and communities. Public intervention will be needed to develop the cost model for “last mile” users and to overcome impediments of scale (such as setting up pooled finance facilities) so that private investments can be fully mobilized. Resistance from institutions (such as banks) and actors (such as corrupt officials), is to be expected, as they will be disrupted by this technology. Middle men will be disintermediated and will resist the implementation of blockchain, as will those who benefit from the lack of transparency in financial flows.

3. Those using blockchain need to overcome operational and regulatory barriers.

There are a few blockchain platforms in use and under development, and all have challenges that must be overcome in order to scale. Based on a recent technical review of blockchain platforms, The Blockchain: A Comparison of Platforms and Their Uses Beyond Bitcoin, the Ethereum platform is the best in terms of documentation, support, development and scalability. Other platforms in operation and under development include IBM’s open-sourced Open Blockchain project, which is part of the Linux Foundation’s new blockchain project; and Eris, a blockchain platform aimed at enterprise applications. For all platforms, there remain regulatory and operational barriers, such as the high-energy consumption of blockchain processes, transaction speed, interoperability and the governance of personal data. Infrastructural barriers persist as well, such as low power settings, poor internet, and in some developing areas, low penetration of mobile phones.

4. We need to work on our payment models.

This is a new technology and there is limited funding to support the commercial scaling of prototypes. Taking successful use cases to scale will likely require new forms of financial and institutional partnerships. Entrepreneurs in emerging markets will face an enormous challenge in accessing capital as the ability to mobilize capital for these sectors will increasingly depend on the involvement of local financial institutions. These institutions have to provide capital to local entrepreneurs, as well as emerging international companies in the blockchain space. The mobilization of capital to support businesses in blockchain will require the expansion of a variety of investment vehicles, modernization and innovation on the part of local financial institutions, rapid evolution in the sophistication and capabilities of local entrepreneurs, and a change in the approach to regulation on the part of governments.

International banks, investors and development finance institutions can play a role in expanding the reach of blockchain into emerging markets. While many have done so, their reach is constrained by their need to make investments and issue loans on a scale that is far larger than what businesses require, and typically not in local currencies. Local financial institutions will need help to identify investment opportunities in blockchain applications, and supporting them in the development of new financial products and services to channel capital to the most attractive segments of the blockchain space.

Blockchain enables new forms of finance, including crowdfunding and dynamic funding mechanisms from private finance markets. Tax mechanisms and incentives allow blockchain to encourage the private sector to invest in blockchain, for example, through tax credit schemes where credit flows back to investors. More funding is needed in venture capital to support the development and testing of new technologies for development that have longer time horizons and lower financial returns — but higher social returns financing.  

An alternative new method of financing is blockchain-based cryptocurrencies, with initial coin offerings (or ICOs), token sales and crowdfunding rapidly growing in popularity and scale. More than $327 million was raised via ICOs in 2017. Startups are raising funds by creating their own cryptocurrencies and offering discounted rates on digital assets before they are released on the cryptocurrency exchanges. Some of the ICOs are focusing on social value, which presents potential for raising finance for clean energy, as an example. The blockchain community is experimenting with ideas around tokenizing social value — so it is likely that this phenomenon may be a means of raising more development finance in the future.

5. The talent pool needs to deepen.

There are simply not enough coders who know how to work with blockchains. In his book The Business Blockchain, William Mougayar notes “getting more developers proficient on Blockchain technology is key, and part of its successful evolution. We can't avoid not having a critical mass of knowledgeable software engineers that know how to program Blockchains and develop Blockchain applications. Whereas it might take a few weeks of effort today to get a seasoned developer up to speed on Blockchains, it might eventually take only two days.” Mougayar believes that efforts to address the prevailing blockchain developer shortage include certification programs, such as the CryptoCurrency Certification Consortium program, and formal education programs specializing in this field, such as the master of science in digital currency at the University of Nicosia in Cyprus.  

6. The ecosystem needs to get up and running — and be refined.

The blockchain for social impact ecosystem remains nascent. There is a need to unite the blockchain systems and developers in advanced economies with the people that work with the intractable problems of poverty and inequality in emerging markets. This means connecting developers, platforms and people who understand the problems, government and finance — such as venture capital, impact investing, local finance donors and ICOs.  

The international development community needs to start thinking about the ways blockchain technology can transform how we do our work. Abt Associates and other blockchain evangelists are beginning to capitalize on the technology and are building communities focused on solving some of the world’s most pressing problems such as poverty and inequality.

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