Tag Archives financial inclusion

Cryptocurrencies and cypherpunks: leading a scientific rebellion against the mainstream economy

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Bitcoin and other cryptocurrencies are becoming increasingly popular, especially among young ‘digital natives’ who are living a significant part of their lives online. But besides helping smooth the transition to a physical-digital life, cryptocurrencies are also changing the world in a different way. This article, part of a two-article series on cryptocurrencies, shows how Bitcoin and blockchain technologies are rooted in a quest for social justice.

Bitcoin is increasingly seen as an alternative to fiat currencies owing to its ‘stable value’ (this can be refuted). At the start of this year, a single Bitcoin fetched more than $40,000, while it was worth $6,000 in March 2020, when the COVID-19 pandemic hit. In 2009, shortly after the currency was created, it was not worth a single dollar. This trend can be observed across the almost 5,000 cryptocurrencies that are flooding the market: in early January, total global trade in digital money reached one trillion USD, doubling since the start of the pandemic. 

It’s clear that cryptocurrencies are a big deal. Here’s why.

In his paper ‘A Peer-to-Peer Electronic Cash System’ (2008), Bitcoin’s founder, Satoshi Nakamoto, explained that the peer-to-peer version of purely digital money would allow online payments to be made directly from one party to another without going through a financial institution or a third party. As a system, Bitcoin is a type of software used for transacting objects of value (money), as well as for issuing forms of money with certain values. The digital currency, also called Bitcoin, is transacted via the Internet.

While Nakamoto did not link Bitcoin to blockchain technologies in his original paper, the term was coined by Hal Finney, a cryptographist from the United States who was also involved in providing input on the ‘Bitcoin system’ to Nakamoto, before the system was launched in early 2009. Blockchains are termed as such because collections of transactions are recorded in blocks that are linked or chained chronologically and secured cryptographically. They are considered very, very safe and very, very private.

The reasons for this financial tendency towards digitalised money include the uncertainty and depreciation of fiat money, high inflation, and high banking costs. But privacy was also a key concern driving the emergence of cryptocurrencies. Starting in 1992, hundreds of scholars with backgrounds in philosophy, mathematics, computer science, cryptography and political science have been joining hands with a multidisciplinary group of experts and activists calling themselves cypherpunks to seek alternatives to the mainstream economy and politics (Assange, 2016). Initial discussions were rooted in concerns about the increasing loss of privacy in the digital world, followed by other fundamental discussions that challenge both the establishment and the vulnerability of the financial system. One important question the discussion group sought an answer to, was how the epistemology of value is returned to each individual. Another was whether banks as custodians of valuable assets could be eliminated. After it was created in 2008, Bitcoin seemed to tick all of the boxes.

So here’s the good news about cryptocurrencies: they can be seen as one avenue of pursuing transformative change. We argue that blockchain, the ecosystem of cryptocurrencies, is essentially based on idealism, particularly the notion that individuals should not be subordinated and exploited by a system that does not work for them. Sovereignty is key. Moreover, the system is based on a sense of solidarity as opposed to individualism in the sense that those who buy and trade digital currencies are collectively opposing the mainstream economy and their position in it. 

Thus, cypherpunks – those seeking to enforce a return to greater privacy through digital technologies and cryptography – are leading a scientific rebellion. They are seeking the decentralisation of currencies, so that each individual becomes his or her own bank. They are seeking currencies where the exchange rate remains stable instead of depreciating. And they are seeking a fair world in which humans are not exploited by financial systems, but instead can participate freely in a financial system that promotes trust, stability, and accountability.

Are there real-world examples of how cryptocurrencies can be used for good? Intergovernmental organisations and INGOs are also interested in using cryptos for their transactions and donations. In October 2019, for example, UNICEF announced its Cryptocurrency Fund (CryptoFund) to enable donations worldwide through a singular digital currency. Save the Children was listed as the first NGO to receive and distribute digital money, and the Oxfam family and hundred of other NGOs across the world are following suit.

Yet blockchain technologies carry some risks, and its greatest benefit may also be its downfall. Bitcoin is not only being pursued by financial firms, corporations and hedge funds as yet another form of capital – cryptocurrencies have the potential to be misused by corrupt politicians, the mafia, and armed groups and terrorists because of the unrivaled privacy it enables to those using it (RAND, 2019).

It is also notable that countries with strong authoritarian tendencies are exploring cryptocurrencies. Zimbabwe recognised digital money as a possible alternative to fiat money following the collapse of the Zim dollar in 2008, and the collapse of the Venezuelan bolivar in 2018 led Venezuelan president Nicholas Maduro to create the Petro. Superpowers like Russia and China have created their own cryptocurrencies. These developments should be closely monitored to ensure that cryptocurrencies and blockchains do what they are intended to – serve individuals and promote fairness, freedom, and privacy.

Opinions do not necessarily reflect the views of the ISS or members of the Bliss team.

About the authors:

Saurlin Siagian holds an MA degree from the ISS (2007-2008) and is chairperson of HARI (The Institute for Forest and People Studies) in Indonesia.

Vinsensius Sitepu is chief editor of the website www.blockchainmedia.id

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Financial inclusion of urban street vendors in Kigali by Diane Irankunda and Peter van Bergeijk

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During the summer of 2017 we studied financial inclusion of street vendors in the Nyarugenge District (Kigali, Rwanda), a group of underprivileged that very often cannot be reached by traditional surveys or a census. Street vending is prohibited in the Kigali, Rwanda Nyarugenge District, and during the field work several raids by local security agencies were observed. Just a few weeks after the field work, street vending was officially forbidden.  Our fieldwork offers a unique and no longer existing opportunity to survey street vending as a truly informal activity in this area. The peer reviewed publication of our innovative multimethod field research appeared in Journal of African Business.

Policy makers need to focus on actual use

Having a financial account is an important policy issue for poverty reduction in Rwanda, where most of the small businesses (tailors, masons, vegetable sellers, welders, and so on) are in the informal sector and run by people with no or limited formal education. A recent Finscope survey finds that the government’s goal to accomplish 90% of ‘financial inclusion’ by 2020 is realistic and attainable.

The government’s target, however, relates to de jure financial inclusion, that is: formal financial account holdership. But simply having an account is not what matters for effective poverty reduction. In our sample the majority of financial account holders does not use the financial account frequently: 57% accessed it once or less a month (half of these accounts have been inactive over the past 12 months). Our findings point out the need for the government to reformulate its policy in terms of actual use (de facto inclusion) and our investigation indicates which tools could be useful to achieve that target.

Individual characteristics do matter for use of an account

We have collected several individual characteristics of the respondents to our survey including gender, age, marital status, and education in order to be able to test if individual characteristics matter for being formally and/or de facto financially included. In our analysis we also control for weekly sales and four types of products that were traded (edibles, clothes, shoes and cosmetics). Gender turned out to be the single most significant driver of de facto financial inclusion (Figure 1) and this was confirmed in our ordered probit model (a higher level of education is associated with a higher frequency of use, but not with formal financial inclusion). Policies supporting female financial inclusion would thus seem to be necessary to correct this imbalance.

Financial infrastructure is key

The presence of a financial institution in the home location of the street vendor is the most significant determinant identified by our research. From a policy perspective this underlines the importance of a good financial infrastructure: the economic geography of financial inclusion is important. Being close to a financial institution is associated with better financial inclusion. The importance of geography and location has also been established by earlier research on the differences between urban and rural areas, but our results are more specific. According to our findings the driver is the availability of a financial institution in the street vendor’s hometown, thus providing policy makers with a concrete tool to improve financial inclusion in Rwanda.

This blogpost was originally published on the INCLUDE platform.

About the authors:

DianeDiane Irankunda is a former student at the International Institute of Social Studies (ISS) in Economics of Development.

pag van bergeijkPeter van Bergeijk (www.petervanbergeijk.org) is Professor of International Economics and Macroeconomics at the ISS.

 

Title Image Credit: Adrien K on Flickr. The image has been cropped.