Bitcoin and other blockchain applications may help expand access to financial services for the world’s poor, but the technology is not the cure-all that some of the early rhetoric in the space made it out to be.
That’s the takeaway from a panel discussion Sunday at Money2020 in Las Vegas featuring representatives of the Bill & Melinda Gates Foundation and Omidyar Network, two of the most prominent philanthropic organizations focused on promoting financial inclusion.
While both executives said they see potential from distributed ledger technology to support their mission, their enthusiasm for the prospect was notably subdued.
Kosta Peric, the deputy director for financial services for the poor at the Gates Foundation, went so far as to downplay the blockchain-like aspects of his organization’s recently announced Mojaloop software. The open-source software is designed to make disparate financial networks interoperable, all in the service of helping the world’s underbanked.
While Mojaloop makes use of Ripple’s Interledger Protocol, “it’s not exactly a blockchain,” Peric said. “Some pieces of that are inspired by blockchain.”
Slow and redundant
Peric was particularly lukewarm on the usefulness of bitcoin and other public blockchains for financial inclusion.
Specifically, they are not adequate for domestic payment systems, he said. One reason is performance: no public blockchain can match the 1,000 or more transactions per second of real-time domestic payment systems, Peric said.
Also, public blockchains do not make sense for this use case because “payment data from one country ends up being spread across the planet.”
He tempered these comments by adding that public chains “can totally make sense” for international remittances. But moving money is not the only way blockchains can be useful for financial inclusion, said Arjuna Costa, a partner at Omidyar Network.
“Beyond payments, there’s a lot of potential we haven’t tapped yet,” he said, describing two use cases that would help poor people get access to capital, albeit indirectly.
One such use case Costa mentioned lies in land registries, which would help people secure title to properties that they could then borrow against. Another is using blockchains to analyze payment flows (including receipts and invoices) for small businesses, which would then help financial institutions to assess their creditworthiness and therefore lend to them.
“The potential of distributed ledger technology is very high,” Costa said.
The most enthusiastic voice about blockchain during the session was the moderator, Christine Duhaime, founder of the Digital Finance Institute, a fintech think tank based in Vancouver, Canada.
“One of my favorite technologies of all time is bitcoin,” said Duhaime, who is also a lawyer with a specialized anti-money-laundering and counter-terrorist-financing law practice.
To illustrate why she likes the cryptocurrency, she pointed to the work of Code to Inspire, an organization that teaches Afghan women and girls how to code, how to find work online – and how to use bitcoin. It gives these women a measure of financial autonomy and privacy in a country where financial services are unavailable to them or unsafe to use.
Duhaime even went so far as to laud initial coin offerings, the process by which startups or open-source project raise funds by issuing a custom cryptocurrency.
While acknowledging that the controversial fundraising method has risks, she said it could go a long way toward expanding access to capital for underbanked entrepreneurs.
“It allows access to capital for Joe Average on the street. It could be a farmer, it could be a billionaire – it doesn’t matter. You skip the markets, you skip the infrastructure, you get access to capital.”