The way in which Bitcoin typically gets portrayed, it often conjures up images of rich techies, American libertarians, and European depositors preparing for the worst. But this focus on Bitcoin as a first-world project ignores the enormous potential it holds as a tool for economic development. The world's poorest have unique challenges when it comes to financial services, and Bitcoin has the potential to meet at least some of these challenges more quickly and at less cost than any other tool currently available.
Basic financial services can be hard to come by in the developing world. Many regions simply don't have the abundance of branch banks found in more developed countries and this lack of financial infrastructure is a major impediment to economic growth. While advances in mobile banking have provided easier ways to send and receive payment, Bitcoin could majorly expand on existing services and do so in a way that directly integrates users with the global economy.
In the mobile payment sector, M-Pesa is the dominant player. The service was launched as a development tool in Kenya and allows individuals to store balances, make payments, and send money all through their cell phones. Customers can take cash to an M-Pesa agent who then credits it to their account; getting cash back works the same way but in reverse. Individuals can send and receive payments to any other M-Pesa customer in about the time it takes to send a text.
This technology has hugely impacted the lives of Kenyans, Tanzanians, Indians, and Afghans who otherwise would not have access to any commercial banking services at all. It's also familiarized these populations with a tool that, at least on the user end, functions similarly to Bitcoin.
Already comfortable with mobile technology, developing countries like those above might be particularly well suited to adopting Bitcoin. But where M-Pesa is a closed payment system, Bitcoin constitutes a globally available payment network. Bitcoin's global reach means it could economically connect people on a level previously unheard of and at tremendous cost savings compared to existing options.
Bitcoin could positively impact development in another way as well.
Funds sent back home by migrant workers are a major source of financial aid to the global poor. In 2012 alone, migrant workers sent $372 billion back to their home countries, an amount that outstrips even total foreign direct investment for the same year. But the costs of sending money home can run as high as 20% of the actual remittance due to the expense of existing services. But because Bitcoins can be sent from practically anywhere to anywhere at almost no cost, it could substantially increase the funds being put directly into the hands of the poor.
Workers in the developed world might use Bitcoin more as a means of transferring funds than as money per se. For example, funds earned in the U.S. could be exchanged for Bitcoin and then sent to the recipient, who then changes them back into whatever currency is most appropriate for his or her local market ... all in potentially less than an hour. On the volatility side, exchanging in and out of Bitcoin in such a short time frame shields users from most major price swings.
The same process could be used by entrepreneurs to do business with partners formerly well beyond their reach; again, the focus here is on Bitcoin's value purely as a payment platform, not as a replacement for any existing monetary system.
For the time being, the population of Bitcoin users will probably remain residents of the developed world, although middle-income countries like Argentina may soon expand out the user base. But if and when Bitcoin grows to the point of truly international acceptance, it may be the world's poorest that stand to gain the most.
This article is part two of a four part series exploring the political, economic, and social implications of Bitcoin. Part four will be a live blog of "Bitcoin 2013: The Future of Payments" in San Jose, Caifornia, May 17-19.