Bitcoin is regularly presented as a speculative asset, an asset to be held and traded for profit. Yet in most emerging markets, Bitcoin has real, transformative use cases far beyond speculation. Based in such regions, individuals and businesses deal with something different, for instance, unstable national currencies and limited access to conventional banking. Bitcoin is a decentralized and borderless currency, and its solutions are changing how we save, spend, and protect our money.
Before understanding what drives the utility of Bitcoin in emerging markets, it’s important to understand what Bitcoin is and how it works. Bitcoin is a digital currency that runs on a decentralized, open, peer-to-peer network, which allows participants to send funds regardless of the distance to anyone without the need for any intermediaries such as banks. Bitcoin is frequently dubbed “digital gold” because of its limited supply the reason that it can act as a hedge against inflation and keep its value.
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1. A Hedge Against Inflation and Currency Devaluation
A hedge against inflation and currency devaluation in emerging markets is one of Bitcoin’s most compelling use cases. Hyperinflation in countries such as Venezuela, Argentina and Zimbabwe has made local currencies almost worthless, forcing people to protect their savings. National currency is becoming financially crippling when prices are skyrocketing every day.
An alternative is Bitcoin. It’s inherently deflationary as it has a limited supply of 21 million coins. This is a feature that helps citizens in inflation bitten countries store value outside of the traditional financial system. Bitcoin, too, is volatile but often provides better long term stability than many national currencies. For those considering diversifying their holdings, monitoring the USD to BTC exchange rate can provide valuable insights into market trends and potential conversion opportunities. As an example, Argentines have increasingly sought protective refuge in Bitcoin as an inflation resistant asset, using it to protect their purchasing power and keep themselves out of the way of the Peso’s fall.
2. The Unbanked and Underbanked Empowered
Millions of people in emerging markets without access to traditional banking are also empowered by Bitcoin. According to the World Bank, almost 1.4 billion people are unbanked, and the highest density of that population is in emerging economies. But many people in those regions don’t have the necessary documentation or resources to open a bank account, meaning it’s hard to save money, make payments, or get a loan, and thus making financial decisions almost impossible to make.
With Bitcoin, you have a global financial system anyone with a smartphone and a connection to the internet can participate in. Bitcoin has taken root in Nigeria, for instance, among the unbanked and underbanked. Bitcoin wallets allow people to use digital currency without a bank in order to save and transfer money, engage in the economy, buy goods, and even set up small businesses. Bitcoin is also often used to enable micro-transactions, enabling people to make and receive small payments for a lower cost than that incurred through the traditional banking system.
3. Strategies to Lower Fees for Facilitating Remittances
An important use of Bitcoin in emerging markets is also for remittances. Cross border money transmission is often costly with fees sometimes as high as 10% of the money being transmitted. For people sending small amounts back to their family members in their home countries, Bitcoin is a better option because it is more affordable.
For example, in Kenya, remittances are a lifeline, but Western Union and MoneyGram are expensive. With Bitcoin, Kenyans can move funds much faster and much cheaper, which maximizes the amount of money their family members get to keep. Along with others like the African company BitPesa, they help convert Bitcoin into local currency, making it easier for families to get hold of the funds without the need for a middleman. In communities where every dollar counts, this reduction in fees can make a big difference.
4. E-commerce and International Trade Unlocked
Bitcoin allows entrepreneurs in emerging markets to trade internationally and expand their e-commerce opportunities. They have found it challenging to reach international markets as the regulations are tight, the fees to transact are high and payment options are limited. These barriers are simplified by Bitcoin, allowing entrepreneurs to do business anywhere in the world without having to maintain a regular bank account or a credit card processor.
In places like India where small businesses are not able to take the leap and go international, Bitcoin is an alternative to international payments. With Bitcoin, a business owner can accept payment in Bitcoin without worrying about local banking restrictions or currency conversion fees and reach global customers. Small businesses are now able to accept Bitcoin as a means of payment alongside traditional currencies because of the rise of Bitcoin payment gateways.
5. The Future of DeFi and Driving Innovation
A decentralized finance (DeFi) revolution has also been launched by bitcoin in regions where traditional financial services are either scarce or inaccessible, in addition. DeFi is a suite of financial services that includes lending, borrowing, saving, but it is built on blockchain. According to DeFi platforms, high interest loans and inaccessible credit markets in emerging markets are an alternative to such services. DeFi allows people to earn interest on their Bitcoin, borrow against it, or utilize insurance products, often at lower cost than traditional institutions.
DeFi adoption is growing fast in Latin America. In countries like Brazil and Colombia, people are using DeFi protocols to borrow against their Bitcoin holdings, get peer-to-peer loans and earn interest on their savings. By being free of banks, DeFi is providing a way for people in these markets to create wealth building opportunities for themselves, giving millions their chance at financial freedom.
Final Thoughts: Big Issues Facing Emerging Markets And How Bitcoin Can Help
Bitcoin’s use in emerging markets has many useful practical applications. Bitcoin acts as a tool for financial empowerment, e.g., to overcome currency instability, to allow access to global financial systems, to reduce remittance costs, as well as to open new trade channels.
While Bitcoin is not immune to risks and volatility, its future in emerging markets suggests that it may facilitate financial inclusion and innovation. The more that Bitcoin is adopted and its infrastructure expands, the more we will see the more practical uses of Bitcoin beyond simply as a speculation vehicle, especially in areas where traditional financial services aren’t readily available.
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