November 29, 2016

Virtual currencies create pathways for people in emerging economies

Written by Paul Nelson

This article originally appeared on TechCrunch.

Immense hype surrounds virtual currencies and distributed ledgers these days. Maybe this is inevitable if you combine an inscrutable, cutting-edge technology, its enigmatic origins, and a flow of $1 billion in venture funding thus far. But will these technologies create pathways for people in emerging economies to access and use financial services that meet their needs?

Definitions vary, but for our purposes, a “virtual currency” is a non-government-backed digital representation of value. Many virtual currencies rely on cryptography and distributed computing to facilitate transactions.

These transactions are documented on a “distributed ledger,” a database shared among network participants who collectively validate transactions accordingly to an established protocol. Bitcoin and Stellar are two examples of virtual currency systems, and the blockchain that underpins Bitcoin is one type of distributed ledger.

We often hear how these technologies boast capabilities we care about in financial inclusion: efficiency, transparency, security and cost-effectiveness. Yet few applications of these technologies have demonstrated as much in scaled, real-world contexts, especially in communities without high-speed Internet, widely available smartphones, reliable energy access or stable incomes.

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