the challenges of emerging markets

If you are interested in blockchain technology, you will know that it has the potential to generate productivity gains in multiple sectors, whether financial markets, the energy market, supply chains or even in companies involved in the metaverse. You know, this virtual world whose ins and outs we don’t yet know and whose CEO of Meta, Mark Zuckerberg, praises it. Back to our breakthrough technology. Between the promise of disintermediation, improved transparency of transactions and reduction of transaction costs, among others, the adoption of blockchain has gone beyond the borders of developed countries. A look at the countries that have the most cryptocurrency holders, and therefore implicitly, the most users of the technology described above.

Share of respondents who indicated that they owned or used cryptocurrencies in 23 countries worldwide from 2019 to 2021.
Source: Statista

Methodology: Between 2,000 and 12,000 respondents per country (people aged 18 to 64)

Nigeria is far ahead in terms of cryptocurrency users with 42% of respondents reporting holding digital assets. In second position, we find Thailand with 31% and in third place the Philippines with 28%. I know what you are saying to yourself: “What about France?”. It is positioned 57th in the ranking with an adoption equivalent to 8% of those questioned while maintaining the methodology mentioned above.

As we can see from the previous graph, cryptocurrencies are particularly popular in emerging markets such as APAC (Asia-Pacific), Africa and Latin America. According to a study conducted by Toluna (company that produces market research), 75% of investors in emerging countries plan to increase their investment allocations in crypto-assets, compared to 57% in developed markets.

It is also mentioned in the study that:

“- 32% of consumers in emerging markets say they have confidence in cryptocurrency, compared to only 14% in developed markets

– 41% of consumers in emerging markets say they have invested in cryptocurrency, compared to 22% in developed markets”

But then what pushes the population of emerging countries more, in comparison with developed countries, to embark on the crypto-blockchain ecosystem?

Lower the costs

According to the report of The World Bank titled the “Remittance Flows Register Robust 7.3 Percent Growth in 2021“Remittances to low-income countries reached more than $580 billion (up 7.3% from 2020) in 2021. Overall, these remittances serve as a lifeline to support developing countries. household expenditure for their basic needs such as food, health but also for education. For example, these flows increased by 21.6% in Latin America and 9.7% in the Middle East and North Africa. Remittances are expected to continue growing by 2.6% in 2022 in line with global macroeconomic forecasts.

The cost of sending $200 across international borders is always very high. It represents on average 6.4% of the amount transferred according to the World Bank’s remittance price database. In this context, we understand why a large part of the population in emerging countries (with low incomes) is turning to blockchain solutions. For example, using the Bitcoin network we can send value anywhere in the world for less than $2 at the time of this writing.

Average fee per bitcoin transaction
Source: bitinfocharts

Depending on the number of users and transactions over a given period, fees can skyrocket and turnaround times increase. On the other hand, Bitcoin is a formidable alternative to the current banking system from a financial point of view. And the most skilled could use other blockchain networks to send value, such as the Solana network or that of Binance for example, in order to optimize transaction costs. You will say to me: “Yes, but these countries must not have very developed internet coverage?” A look at the number of Internet users in the world.

Number of Internet users per 100 inhabitants in 2019.
Source: Statista

The data is relatively difficult to estimate in certain regions of the globe when we talk about internet coverage. But as an example, in 2011, the coverage rate was 11% in Africa and now stands at 28% in 2019. We are not taking much risk in saying that this percentage will increase in the coming years. A factor that will be favorable to a greater adoption of crypto-blockchain services.

If the reduction of costs is a significant advantage for the populations in these countries, financial inclusion is just as important.

Financial inclusion

Also according to the World Bank, more than two billion people (25%) in the world are without a bank account. As you can imagine, there too, a large part of these people are in emerging countries. With various cryptographic services such as BitPesa in Africa, OkCoin in China, OkLink in India or in the Philippines, hundreds of millions of people have access to financial services via cryptocurrencies. These companies provide their services directly through mobile apps and allow users to source and trade cryptocurrency across the globe. In these countries having a computer remains on the margins, but owning a telephone is growing.

Top countries/markets by smartphone users in 2020.

In 2020, Nigeria had more than 40 million people owning a smartphone, or 20% of the total population. For its part, the smartphone market in Thailand has a penetration rate of 60% and in the Philippines 41%. For these smartphone owners, the alternative of cryptocurrencies to exchange value is not negligible. These users mainly adopt platforms Peer to peer (P2P) to exchange cryptocurrencies rather than traditional centralized platforms.

Market shares by continent for P2P traffic
Source: Chainanalysis

To exchange value, emerging countries are turning more to platforms Peer-to-Peer (P2P)). An explanation seems to me necessary to explain the functioning of P2P exchanges.

Traditional exchange platforms

You are most likely familiar with platforms such as Binance or Coinbase to obtain cryptocurrencies. Trade is carried out through an order book in order to bring buyers and sellers together on a digital asset trading market. In this system, neither the buyer nor the seller has any idea who the other party is, which provides a certain form of anonymity.

Peer-to-Peer Platform

Bitcoin was originally created to enable transactions peer to peer. Moreover, the document issued by the mysterious creator of the digital currency, Satoshi Nakamoto, had titled his document: Bitcoin A Peer-to-Peer Electronic Cash System

Simply put, peer-to-peer means a one-to-one relationship. In this transaction framework, you own relative data about the person or entity you are interacting with, rather than interacting with multiple different parties. The information you have about this person or entity may be a bitcoin wallet address as well as a location and an IP address.

For example, when you buy bitcoin from someone on Binance, it is unlikely to be from your neighbor because on this platform all the players are together through the order book. If you want to buy bitcoins from your neighbor, you could initiate a peer-to-peer transfer to be sure to trade with him. This time you will negotiate directly with him. A system that reduces transaction costs to almost 0.

Now that we understand a little better the difference between the two trading models, let’s get back to our emerging countries. We note that on the graph above, the bulk of the P2P volumes are made by the regions where the emerging countries are located. This data reflects the ease of exchanging values ​​between individuals via blockchain and cryptocurrencies. It is probably easier to send and receive value through crypto P2P applications than through an expensive banking system that some countries offer.

Eliminate corruption

Let us end with one of the major problems facing developing countries. Countries where the concentration of wealth is in the hands of a very small percentage of the population and where more than 70% of the population survives below the poverty line. Embezzlement and corruption are ubiquitous, particularly in Africa.

State of corruption in the world
Source: Statista

The countries most prone to corruption are mainly in emerging markets. State officials manage with an iron fist the funds allocated to the country without the slightest transparency to the spite of the population. We could easily imagine that the use of blockchain and digital currencies, especially smart contracts (to better understand these smart contracts: Episode 7: Web 3.0, is the smart contract a reality or a digital utopia?), could promote the transparency of transactions within these countries. Records on a public blockchain being accessible to all citizens would make it possible to transparently track how funds are allocated. Solutions which will be favorable for the population but perhaps, and even very surely, which will be more restrictive for the leaders of these countries with obscure intentions.

Here we have made an inventory of the crypto-blockchain environment in emerging countries. While we have seen many positives about the adoption of these solutions, questions remain about scalability, interoperability, security, transition costs, data privacy, and blockchain governance. Business leaders and policy makers will need to think long and hard about when and under what conditions a blockchain initiative can be justified. Issues specific to each country that cannot be generalized to all emerging countries. Count on me to present a focus on blockchain solutions and their impact in each region. To be found very quickly in the columns of Zonebourse

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