How Can Cryptocurrency and Blockchain Technology Play a Role in Building Social and Solidarity Finance?
In a new paper, Brett Scott examines whether Bitcoin can be harnessed to empower marginalized communities and build new means of solidarity-based finance.
Providing (financial) services
He first identifies the three areas where cryptocurrencies can empower the poor.
- Making remittances easier and cheaper. The economist estimated that Western Union’s margins on transfers to its biggest markets was 28%.
- Providing banking services to the “unbanked” – those without access to traditional bank-provided financial services
- Creating the foundation for complex financial services, such as insurance contracts
These all should sound familiar to anyone tracking the intersections of bitcoin and social needs. BitPesa provides a remittances platform and liquid market for bitcoin in Africa, just as Rebit and coins.ph does in the Philippines. Bitsoko, which got $100,000 from the Bill and Melinda Gates Foundation, offers mobile money services in Kenya, Zimbabwe, and neighboring countries. Bitnation aims to fully replicate government services. There are many other companies in this space.
What is surprising is the bearish approach the author has. He has several criticisms of these aspirations.
First, there are precious few working examples and certainly no data on their scale or impact. Second, he argues that the overall approach smacks of “techno-solutionism” – a top-down prescription of a technology to overcome the deficiencies of local institutions. Both of these seem unfair. For a technology so nascent even in mainstream applications, a lack of examples and data can be forgiven. The criticism of “techno-solutionism” seems like an ideological disagreement.
It is the third argument that is most interesting.
The Role of Institutions: The Last Mile of Legitimacy
Third, making bitcoin operational ultimately requires some formal recognition of bitcoin as a source of information: wealth, land titles, contracts, etc. In many countries, this requires recognition by some form of institution which can exchange wealth, approve land titles, and enforce contracts. These are often the same institutions being circumvented or in some cases undermined by cryptocurrency enterprises. He writes, “Blockchain technology is potentially most useful in situations where there are weak institutions and parties who cannot easily trust each other…but such countries are also often in the weakest position to effectively implement such technology.”
“Blockchain technology is potentially most useful in situations where there are weak institutions and parties who cannot easily trust each other…but such countries are also often in the weakest position to effectively implement such technology.”
This is especially true because truly reaching everyone will mean scaling up in some way to serve everyone. Bitcoin is relatively difficult to understand and use everywhere. In country, the poor are not a homogenous group in either education, ability, or access to resources. They call social services a ‘safety net’ because they’re designed to catch everyone, not just those who are positioned to understand it. Bitcoin will serve the more educated and connected until enough other services – whether formal institutions or organizations that provide similar services – can broaden their reach.
The author is not alone in these thoughts. John Biggs had a similar line of criticism in a January TechCrunch article, though Brett Scott has more room to develop the argument. Motherboard ran an in-depth critique on the actual adoption of bitcoin in Kenya. Spoiler: it’s low.
Ultimately, the paper asks some deep questions about how money relates to social institutions and whether the innovations in cryptocurrency truly address that relationship. In parts, it casts Bitcoin as neo-colonialism, and it has sections on the differences between right-leaning and left-leaning libertarianism that might distract a less theoretically-minded reader.
It nonetheless ends on a hopeful note, saying there are initiatives such as FairCoin and blockchain 2.0 projects which aim to enable or recreate social institutions upon which value exchange depends. The paper is worth reading for anyone interested in how bitcoin can (or not) empower those in poverty.