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Thursday, April 30, 2015

Bitcoin Is Freeing the Developing World

The crypto-revolution will start with those who need it most

Bitcoin is supposed to be the latest disruptive technology. But whenever you hear someone use the buzzword “disruptive,” turn on your B.S. detector. Sure, technologies can be vaguely transformative, and that’s fine as far as it goes.

But the original concept of disruptive innovation is narrower. This term of art came from Harvard Business School guru Clayton Christensen, who meant something very specific.

“Disruptive innovation,” according to Christensen, “describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up-market, eventually displacing established competitors.”

Remember, that’s the “bottom” of a market, and by that, Christensen means not wealthy. (This distinguishes a disruptive tech from other transformative innovations, like computers and cell phones, which started at the top.) And the not-wealthy can sometimes be desperate to escape to a better system.

When it comes to Bitcoin, even the New York Times Magazine has figured this out:

Bitcoin proponents like to say that the currency first became popular in the places that needed it least, like Europe and the United States, given how smoothly the currencies and financial services work there.

It makes sense that a place like Argentina would be fertile ground for a virtual currency. Inflation is constant: At the end of 2014, for example, the peso was worth 25 percent less than it was at the beginning of the year. And that adversity pales in comparison with past bouts of hyperinflation, defaults on national debts and currency revaluations.

Less than half of the population use Argentine banks and credit cards. Even wealthy Argentines fear keeping their money in the country’s banks.

And the disruption is already happening: “Argentina has been quietly gaining renown in technology circles as the first, and almost only, place where Bitcoins are being regularly used by ordinary people for real commercial transactions.”

That satisfies the bottom of the market criterion. Whether it’s Argentines struggling with hyperinflation, or sub-Saharan Africans living under dictators and warlords, the developing world is likely to embrace bitcoin simply because it’s so much better than the failed banking and currency systems they’ve been locked in for so long.

“There are an estimated 2 billion ‘unbanked’ in the world,” says Bitnation CEO Susanne Tarkowski Templehof, “who don’t have access to global financial markets. To set up a bank account is difficult and expensive. Just like the developing world have leapfrogged in many other technologies, like mobile, etc., they’re likely to leapfrog in when it comes to financial technologies, as well — why shouldn’t they?”

Why shouldn’t they, indeed?

The beauty of the market process is that its gales of creative destruction almost always leave the world better off. And nowhere is it more important than for the people of the world who are longing for a chance at the freedom to build a better life for themselves.

  • Max Borders is author of The Social Singularity. He is also the founder and Executive Director of Social Evolution—a non-profit organization dedicated to liberating humanity through innovation. Max is also co-founder of the Voice & Exit event and former editor at the Foundation for Economic Education (FEE). Max is a futurist, a theorist, a published author and an entrepreneur.