Major Role of Blockchain in Development Economics
We have all seen the unimaginable get unlocked by blockchain technology. I mean, from the overnight millionaires of crypto trading to virtual assets, NFTs, selling for millions of shillings on auctions. Blockchain technology finds use cases in almost all industries and always makes remarkable impacts. At first, the focus was on the financial sector, but it’s now evident that the world’s future is blockchain. So today, let’s see what blockchain technology has for development economics.
Understanding Development Economics
Economics is a broad topic. In general, it is much concerned with the material prosperity of a particular region or a group. Development economics is simply a branch of economics concerned with the betterment of the developing countries’ economic and social aspects. Development economics studies evaluate the transformations of emerging countries into more prosperous nations.
Blockchain in Development Economics
As a revolutionary technology, blockchain has direct relevance and potential in development economics. World Bank reports indicate that about 3.5 billion people cannot meet the basic needs in life, and blockchain technology can be the ultimate solution for such individuals in developing countries. The technology can be monumental in improving economic and social conditions and attaining sustainable development goals. Its contributions are already manifesting in the agricultural, financial, commerce, and manufacturing sectors.
Agriculture provides the basic ingredients to all populations. It is the backbone of an economy, and evidence from developed economies proves that agricultural prosperity contributes considerably to economic development. Eradication of hunger remains the United Nation’s sustainable development goal number two, focusing on promoting sustainable agriculture and small-scale farmers.
Blockchain technology can be a significant contributor to sustainable agriculture through its numerous capabilities. For example, farmers can use blockchain technology to track down weather patterns and their impacts on crops. Information on different weather aspects can be obtained from weather stations and recorded on the blockchain to help the agricultural sector make informed decisions.
Blockchain can also be used in agricultural produce supply chain optimization for efficient management and minimize waste. In addition, the traceability of farm products throughout the supply chain creates an environment of trust and increases output altogether, enhancing food security.
Financial Stability and Freedom
Eradication of poverty is the first sustainable development goal of the United Nations, aiming at total poverty eradication by 2030. Blockchain technology can make a noteworthy contribution through the creation of financial freedom and stability in developing economies. For instance, blockchain provides financial inclusion worldwide, with about 1.7 billion unbanked adults. It makes financial services accessible to all populations, and at the same time, makes financial services cheaper. Eradication of intermediaries in banking means cheaper financial services such as low financial transaction fees and interest on loans. Financial inclusion and freedom empower the masses to contribute towards their economic growth and development.
Additionally, blockchain can guarantee the stability of an economy through the non-inflationary currency, cryptocurrency. Inflation is one of the greatest economic instabilities experienced in developing countries whose economies run under inflationary fiat currencies. The supply of cryptocurrencies remains fixed and keeps digital currencies safe from inflationary effects.
Blockchain in Commerce
Blockchain focuses on the elimination of intermediaries and creates transparency in the financial sector. The aspect can be quite impactful when leveraged in commerce. The technology supports peer-to-peer transactions, thereby making cross-border transactions cheaper and fast. In the conventional business world, international transactions take up to a week to process and are associated with high transaction fees. The process is hurtful to merchants and undermines merchant activities necessary for the eradication of poverty.
Also, blockchain can store essential data on goods and allow merchants to track their merchandise at different levels. Further, merchants have higher access to capital to start or boost their business activities.
Supporting Foreign Aid
Many developing economies receive foreign aid from developed countries, although the full effect of the donations does not get to the grass root. The systems in most developing countries are characterized by high-level inefficiency arising from corrupt officials and unnecessary third parties.
However, blockchain technology can substantially reduce the number of third parties handling donations and bring transparency in the management of donor funds. Donations directly end in the hands of the intended populations, which in return incentivizes the donors.
Blockchain in Resource Management
Many developing economies are endowed with natural resources, including precious metals and oil. However, societies never get to benefit from these resources. Governments lack proper resource management systems, so the proceeds end up in the pockets of a few corrupt individuals.
Blockchain technology provides a solution to resource management, and many government entities already embraced the technology. Transparency is enhanced, and it becomes possible to track down the quantities extracted and the proceeds from these resources. Information stored on the ledgers is not subject to manipulation, so corrupt officials have no chance of exploiting a country’s resources.
There is a lot to be done to improve the socio-economic conditions of a country. Blockchain technology provides a host of solutions to some of the problems facing developing countries and use-cases that could significantly boost their growth. However, there are still challenges that still make it difficult to embrace technology fully. For instance, most developing countries do not understand blockchain technology, so the absorption rates are still quite low. Governments also fear the impacts of blockchain’s digital currencies on their monetary authority. Consequently, they do not incentivize citizens towards blockchain and cryptocurrency adoption.