The Rise of Bitcoin: An Advantage for the Caribbean Economy
Karsten Becker
The Rise of Bitcoin: An Advantage for the Caribbean Economy By Karsten Becker October 2016 Technological solutions brought about by the new digital age are changing the way we interact and do business on a global scale. The financial services sector in particular is being forced to undergo dramatic changes in order to keep up with emerging technologies that give us faster, better and more efficient ways to move money around. While banks and payment services providers have been relatively slow to take advantage of the many new opportunities the digital era presents, consumers have shown a fast growing appetite to embrace change. The availability of low cost smartphones and high-speed Internet is opening up access to these new technologies to people all over the world, in particular the third world or developing nations. One of these technologies is Bitcoin, a new form of digital currency that allows for the instant transfer of value directly between people anywhere around the world, and that holds enormous potential to transform the financial landscape. Bitcoin eliminates the high costs and regulatory barriers of the banking industry and provides an alternate way for people to take part in the global financial economy. With mobile penetration above 90% in many third world countries, and over 50% of the Caribbean being unbanked 1, it is a powerful solution for driving financial inclusion, something which has been broadly recognized as critical to reducing poverty and achieving inclusive economic growth2 But the adoption of bitcoin is not without challenges, however, as regulators and the banks that control them are just beginning to understand the far reaching implications of digital currencies and have made integration into the existing banking system – a key factor in driving growth and adoption – a slow and painful process. WHAT IS A BITCOIN? Bitcoin is the world’s most popular digital currency with a global value of over $10 billion US dollars. Bitcoins are digital assets that cannot be duplicated and thus are able to hold their own value. They are mathematical in nature and so can easily be broken down into smaller units, allowing for them to be used on anything from micropayments (i.e. 0.005 of a bitcoin) to million dollar transactions (i.e. 50,000 bitcoin). Individuals and companies around the globe are adopting and embracing bitcoin for good reason: it allows for instant peer-to-peer financial transactions between users anywhere in the world without fees or costs, and since all transactions are directly between users, the exchange of funds is private and secure.
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There is no single entity that controls the bitcoin network, and so there is no need to qualify in order to create a bitcoin wallet, making it accessible to everyone. For the first time in history, people have the freedom to make decisions about their finances that were previously the purview of financial institutions and governments. Bitcoin is rapidly transforming the payment and mobile money spaces and is fast becoming the modern equivalent of cash. In the past year alone, the bitcoin network has increased to over 250,000 transactions a day, with a cumulative total through June 2016 of over 140 million transactions since its inception in October 20083. A key driver in the rapid growth of the number of daily transactions has been its acceptance by hundreds of thousands of retailers worldwide who now accept bitcoin as payment for goods and services. These retailers include Paypal, Dell, Microsoft, Expedia, Target, Starbucks, Subway, Amazon and Overstock, among many others.
THE BITCOIN ECOSYSTEM The two main components of the bitcoin ecosystem are bitcoin wallets and bitcoin exchanges. Both are critical parts of the bitcoin ecosystem, providing ways to manage bitcoin and integrate with existing financial systems. Bitcoin wallets are mobile bank accounts that allow users to manage their digital funds, send or request payments, and make purchases from their mobile phone or computer. Bitcoin wallets come with a digital payment address, making them an instant ecommerce solution that merchants can use to collect payments. Bitcoin exchanges are the digital banking infrastructure that links bitcoin wallets with the real world, allowing users to buy and sell bitcoin, and in doing so move funds between fiat and digital currency by connecting to the existing banking system. THE BLOCKCHAIN The technology that drives the bitcoin network is known as the blockchain. It is a self-policing global network that does not rely on a central authority like banks or clearing houses. It enables the creation of digital assets in a distributed environment that are digitally secure and protected from tampering and revision. The blockchain also serves as an incorruptible public record for bitcoin transactions that are filed in digital ledgers and disseminated among all parties involved. Because bitcoin and the blockchain are not controlled by any single entity, no single point of failure exists. What is more, the owner of a digital asset is the only one who can send it, the intended recipient is the only one who can receive it, the transaction can be validated by anyone, and the asset can only be in one place at a time.
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A transfer such as this is guaranteed to be safe and secure, as all parties involved are aware of the transaction’s details and no one can challenge its legitimacy. Given the revolutionary nature of the blockchain, many banks have shown strong interest in the technology as a replacement for ageing systems. Among the financial institutions embracing blockchain are BNP Paribas, Societe Generale, Citi Bank, UBS, Barclays, Goldman Sachs, Banco Santander and Standard Chartered. BITCOIN FOR THE PEOPLE As bitcoins become easier to acquire in developed countries where remittance flow originates, the migrant population is now able to send funds to developing regions for low to no cost, compared to traditional providers like banks and Western Union who have high markups. Remittances currently account for over US$10 billion of the Caribbean’s foreign exchange earnings – US$2.2 billion in Jamaica alone – and transfer fees run in the region of 5% to 10%. Since bitcoin remittances can be verified and settled for free within a few minutes, this money transfer model has the capability to save the Caribbean almost US$ 1 billion dollars2 annually in fees that can be reinvested into local economies. Due to the ease of use and total accessibility of a bitcoin wallet, bitcoin represents a direct path to the global digital economy for the region’s unbanked that also functions as a stepping-stone into the traditional banking system. About 50% of the Caribbean’s population currently remains unbanked1 without any access to the global financial system. Bitcoin is able to facilitate true financial inclusion on a mass scale by delivering a monetary ecosystem based on a single currency that can easily be used by anyone anywhere in the world. This has long been one of the goals of CARICOM, known as the Caribbean Single Market and Economy (CSME)4 and bitcoin holds this potential to radically transform the region’s economy. BITCOIN FOR MERCHANTS By providing users with a new way of managing digital payments, bitcoin has the potential to significantly increase the GDP in the Caribbean, much like offshore banking did in the past. One of the largest opportunities bitcoin brings is its ability to open up ecommerce to hundreds of thousands of small businesses across the Caribbean who are eager to take part in the global economy. Due to the high costs of integration, management, and support required to implement credit card based commerce, it is out of the reach of the average small business in the Caribbean. Processing a credit card payment can take days to settle, incurs fees of over 5% for basic purchases and even more for international transactions. It also leaves the merchant open to fraud, reversals and chargebacks that can drive overall costs to way over 10%.
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A bitcoin payment takes only seconds to be registered and less than 10 minutes to be included in the blockchain ledger, which means transactions are posted almost instantly. Bitcoin payments are also irreversible and so carry no risk of fraud to the merchant, and while credit cards place limits on the size of transactions, bitcoin can be used for trades of any size. When used as an international online payment platform, bitcoin has the potential to create new opportunities for both inter-island and international trade in the Caribbean on a massive scale by giving merchants instant access to a unifying financial platform with which to do business that has the benefit of instant, unbreakable transactions.
BITCOIN: AN INVESTMENT IN OUR FUTURE Bitcoin holds the potential to bring massive economic reform and can be a boom for local industry. This is already playing out in other developing regions. In Argentina, most hotels and restaurants now accept bitcoin as payment due a severe shortage of foreign currency. In the Philippines, bitcoin is being used to dramatically reduce the cost of remittances, a US$30 billion a year market. And across Africa, bitcoin is rapidly growing as an alternative to mobile money platforms due to the absence of transaction fees. The Caribbean stands to gain a tremendous amount from the capital injection that bitcoin adoption would produce for the region. Besides having the capability to save Caribbean countries hundreds of millions of dollars in annual remittance fees2, its capacity to bank the region’s unbanked and to provide local merchants with a globally accessible payment platform signals an opportunity to invigorate our local economy and facilitate the distribution of wealth that should not be overlooked. [1]Taken from the World Bank Migration and Remittances Brief, Oct 2015 [2] Taken from the World Bank 2015 Global Findex Report [3] Sourced from Caricoin Intelligence; data derived and calculated based on information in GSMA 2015 State of the Industry Report - Mobile Money [4] The CSME as defined at https://en.wikipedia.org/wiki/CARICOM_Single_Market_and_Economy
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