Back when I was a teenager, I spent a few years living in a developing Caribbean country where public and financial services only sometimes worked. For example, in 2018 public sector workers received a pay package initially promised to them back in early 2013. It was a wonderful place to live, however, like many developing countries, it was marred by economic problems that affected day-to-day life and business.
Interestingly, the Republic of Marshall Islands, a tiny developing nation in the Pacific Ocean plagued with similar institutional problems, made headlines recently for its proposed solution to those economic problems.
In 2018, the Republic declared an intention to “issue a digital decentralised currency based on blockchain technology as legal tender”. The new cryptocurrency, dubbed the ‘sovereign’, will follow a planned ICO, with the intention for it to be legal tender alongside the US dollar — the country’s main currency.
The Marshall Islands is not alone in looking towards digital currency. Venezuela recently introduced the petro, a cryptocurrency designed to support the Venezuelan bolivar and ostensibly backed by the country’s oil reserves. Both the Venezuelan petro and Marshall sovereign have something in common: namely that experts think they are both terrible ideas.
In September 2018, The International Monetary Fund heavily advised against adopting the cryptocurrency and warned the Marshall Islands it was at risk from being cut off from using the US dollar as a result. With regards to Venezuela, the response has been largely derisive, with many experts labelling it a scam. The petro itself is widely unpopular amongst Venezuelan citizens and is unable to break the perception that it is a cheap vanity project by the (presently disputed) President Nicolas Maduro.
Admittedly, the state-backed cryptocurrencies of the Marshall Islands and Venezuela will probably not end up as shining examples of blockchain being successfully used to resolve the economic problems of a developing country. The Marshall Islands is too small and without industry, whilst Venezuela is marred with domestic instability, foreign sanctions and hyperinflation.
However, there is still a compelling case for other developing countries to take advantage of blockchain in the right way. Millions of people live in countries where their financial, governmental and legal institutions are plagued with corruption, untrustworthiness and a lack of efficiency. Transactions in developing countries are often prone to error, delay or have a tendency to go missing with no record to prove they occurred.
For a country like the Marshall Islands, which is reliant on US aid and lacks effective financial instruments, it’s easy to see the rationale behind viewing blockchain as an adequate solution, even if it has received a negative reaction. Giving people an avenue to transact directly with each other via a cryptocurrency that exists side-by-side with the US dollar could, in theory, lead to more convenience in transactions and open the door to better productivity. Furthermore, the transparency of blockchain technologies could eliminate many troublesome problems of establishing validity and ownership that can plague transactions in developing countries.
Turning back to Venezuela, whilst the state-sponsored petro is distrusted, other forms of cryptocurrency have been adopted to some degree. Dash, a cryptocurrency rival to Bitcoin, announced on Twitter in January that it has more than 2,500 merchants in Venezuela using Dash as tender. The users do not fit into the standard stereotypes of cryptocurrency aficionados, namely web-savvy libertarians or speculators, but are comprised of everyone from medical professionals, bartenders to shopkeepers.
Maintaining bitcoin mining farms takes a tremendous amount of electricity, which can prove to be very expensive. However, as Venezuela heavily subsidises their electricity, it means that the country is the cheapest place in the world to mine bitcoin and has led to a burgeoning underground bitcoin mining scene. As this allows people to store and hedge their savings, many Venezuelans are using this to not only receive payment for services but also to evade government oppression by either avoiding government taxes in private money transfers or transferring their assets into cryptocurrency so they can access their savings if they flee the country.
Despite the negative reaction to foray into cryptocurrency by Venezuela and the Marshall Islands, blockchain technologies are still a potentially lucrative avenue for developing countries — and more specifically their citizens — to resolve their economic problems. The problem is finding the right country to use blockchain in the correct way.