Recently, the UNICEF Innovation Fund announced seven start-ups will receive equity-free investments in USD and/or cryptocurrency, as well as year-long mentorship with UNICEF. It is not surprising that all of them are working on developing open-source, blockchain-based solutions in order to fight for financial inclusion.
Now you might ask yourself, why are they all based on blockchain?
Blockchain is still not widely known and understood by large parts of the society. Only a few have heard about it and usually the ones who have heard about it, link blockchain to cryptocurrencies such as Bitcoin. But this is only one possible application. If we really want to embrace the power of blockchain as an emerging technology, we need to look at all its possible features. The key advantage of blockchain lies in its “decentralization” as it allows everyone, even at the micro-level, to directly engage and participate. And every move, any step within a blockchain application is traceable. That is why it generally can not only reduce corruption, but also provide access for individuals to participate at a digital economy.
This becomes even more interesting if we look at the severe issue of financial inclusion. In developing economies, there are still large parts of society that do not have access to a national bank account and/or digital savings account. For them, blockchain offers a huge potential to enter a digital and international economy in which they can easily exchange resources. By doing so, they can overcome national barriers that have prevented them from participating in the local financial system.
Just a hype – or ready for the future?
We continue to read about critical voices that believe blockchain is just a current hype and soon will be replaced by another new digital technology. If we look at the development of various cryptocurrencies such as EOS, Stellar, Celo and Bitcoin, we can see that they still face a rollercoaster – shaped by national governments’ announcements that do not accept cryptocurrencies. But why should we continue to close our eyes for the positive potential that blockchain applications have? Look at one of the selected startups: Kotanipay. They offer seamless cash-outs based on blockchain in Kenya, even to those who do not have access to the internet but only to a mobile phone. Kotanipay works with some NGOs as it provides easy, direct, and traceable payment of donations that are far cheaper than traditional bank transfers and other digital payment methods such as Paypal.
From my perspective, one crucial disadvantage that we need to face and we need to find solutions for is presented by the high energy consumption that blockchain applications require. This is not a severe challenge per se, but the fact is most of the cryptocurrency mining happens in China, where 60% of the energy is powered by coal. The high environmental impact of cryptocurrency mining is why Elon Musk, for instance, has announced that Tesla no longer accepts Bitcoin as payment due. However, there is already a new wave coming up of “eco-friendly cryptocurrencies” such as Nano.
I strongly believe that by integrating aspects of sustainability into the development of blockchain-based applications, we will greatly benefit from new start-ups that are able to increase financial inclusion.
This post gives the views of its author, not the position of ESCP Business School.