Emerging markets dominate the world’s crypto adoption index. Vietnam leads the way, partly because a) crypto offers an alternative to unstable local currencies, and b) large percentages of people are unbanked.
This crypto as a currency foundation opens the door for decentralized applications (Dapps) to enter and grow in markets such as Southeast Asia, Latin America, and Africa, especially in economies that are liberalizing and opening up to the world.
As Ray Dalio puts it in his new book, The Changing World Order, a prosperous economy and society depends on financial strength (or at least the absence of debt that can’t be repaid), innovation and productivity, education, and the absence of or acceptable levels of internal conflicts and external threats.
Crypto and web3 can help emerging markets address these factors, as follows.
1. Alternative and more stable legal tender
While the crypto markets have ebbed and flowed in 2022, for the most part top layer 1 tokens such as ETH and BTC have trended up over the past five years.
This trendline represents a departure from what people in many emerging markets are used to. For example, the Indonesian Rupiah and the Venezuela Bolivar have swung wildly against the US Dollar in the past half-decade. The latter has been decimated and left millions homeless.
Crypto offers an alternative and less volatile store of value for inhabitants of such nations. Recently, El Salvador made Bitcoin legal tender, partly because 70% of its people don’t have a bank account.
2. Deflationary legal tender
Bitcoin, and many other cryptocurrencies, are deflationary by design. The supply of tokens is limited, and over time mechanisms such as burning tokens (removing tokens from supply) as well as diminishing mining rewards, result in the value of a token increasing, thus increasing its purchasing power.
This also stands in stark contrast to emerging markets that for too long have had local currencies characterized by devastating inflation, or in the case of Zimbabwe, hyperinflation — famously leading to its central bank issuing a $100 trillion banknote.
3. Empowering people to earn AND own
Token economies give people all over the world more freedom to not only earn a living performing all kinds of tasks — many of them fulfilling creative ones as opposed to monotonous algorithmic ones that people typically associate with emerging markets — but also to own a piece of the projects they contribute to.
This is a key ethos that underpins web3, and means that contributors all over the world can influence decision-making, and also share in the upside of the projects they work for — something usually reserved for a small pool of investors and early employees based in the west.
This, like early-stage startup investing, can unlock real wealth for people as opposed to mere survival.
4. Access to global talent pools
Entrepreneurial thinkers in emerging markets might have access to the internet, but individual players don’t win championships — teams do.
Local talent pools might have been sparse, but with the advent of token economies and access to global capital pools (see 5), entrepreneurs in all parts of the world who are pursuing a worthwhile mission, who can sell a story, can arguably tap into the global talent pool and compete with projects in mature markets or solve local problems in a way that unlocks wealth that can be reinvested into the local economy.
5. Access to global capital pool
In addition to global talent, web3 represents a paradigm shift insofar as capital raising is concerned. Web3 empowers entrepreneurs everywhere to issue a native token or NFTs and sell them directly or on decentralized exchanges.
They no longer need to rely on high net wealth individuals or venture capitalists — who probably wouldn’t return their emails or calls — but can now raise capital from the crowd, who either a) believe in the mission and want to support it, b) are speculating on the longterm value of the token, or c) want to earn passive income by staking the token or yield minting.
6. Greater transparency and oversight of foreign aid distributions
Over US$13 billion in foreign aid was pledged to Haiti in the wake of the devastating earthquake that ravaged it in 2010. However, just where that money went is anyone’s guess. Little has changed in the country and it is almost certain that corrupt Government officials pocketed and distributed the funds to nefarious actors.
Crypto donations, on the other hand, are transparent on the blockchain. Every donation can be tracked from the donor right through to the recipient. This transparency makes it almost impossible to hide money flows and acts as a deterrent against corrupt government officials.
Not only that, but aid can be distributed directly to the wallets of people in need, instead of to corrupt and self-serving intermediaries. Ukraine DAO raised over US$11 million in a matter of days for the people of Ukraine in March 2011, the proceeds of which are transparent on the blockchain.
7. Removal of middlemen and transaction fees on funds transfers
As mentioned earlier, El Salvador recently made Bitcoin legal tender, right along the US Dollar.
A key reason for this is that about a fifth of its GDP is money sent from citizens who live abroad. But with transaction fees at middlemen like Western Union running high, citizens are looking to fee-free alternatives that ultimately mean more money back into the economy, and less into the hands of middlemen.
8. Less ability for government to block or seize wealth
A hallmark of flagging economies is Government-induced wealth transfers. This was true of the Soviet Union upon inception, and was true of the United States post-Great Depression.
When currencies are struggling it can result in a ‘run on the banks’ as people scurry to withdraw cash and put it into more stable assets, such as gold — that’s before withdrawals are inevitably blocked.
Crypto offers people an opportunity to safeguard their money against either being outright seized, exorbitantly taxed, or frozen. Recently, Bitcoin trading increased in Russia on the back of international sanctions, as people made an effort to preserve their wealth in the face of domestic volatility and a then flagging ruble.
9. Inability to censor or block activists or dissenting voices
The Arab Spring showed us the power of communities to rally against oppressors online, but in the years since we’ve seen such companies cancel and deplatform people with abandon, and that included the then President of the United States.
We saw Amazon Web Services ultimately deplatform the Parler social media network, and more recently GoFundMe blocked and returned millions in donations earmarked for the Canadian trucker convoy protestors.
Whatever you think about these entities or movements, the underlying point here is that content hosted on web2 platforms is susceptible to being censored and removed based on discretionary and questionable private and Government interests.
Web3, and decentralized storage solutions such as IPFS ensure that nobody can tamper with content — not the Government or a private or listed company — and that the people can continue to have a voice — something that is fundamental to a thriving democracy.
10. Blockchain-based government treasuries to fight corruption
Building on 6, a percentage or types of a Government’s treasury could be stored on-chain, as is the case with numerous DAOs today. This would again give everybody complete transparency into how much money there is, and where the money is going to keep elected officials accountable.
11. Blockchain-based polling systems
Finally, corruption can be further diminished with the aid of blockchain-based voting mechanisms that are immutable, ensuring that the people’s preferred representative is elected to power.
All of these factors combined should serve to increase domestic wealth, decrease internal conflict, and ultimately, improve the prosperity of emerging nations.