MSc in Digital Currency

Introduction to Digital Currencies

 Session 12
Digital Currencies and the Developing World

Introduction to Digital Currencies

 Session Objectives
Understanding digital currencies’ potential impact on infrastructure development and non-
traditional payment systems.
Understand what “financial inclusion” and “financial communication”, on a global scale, could
mean for underdeveloped countries
Examine existing examples where development leapfrogged the conventional financial services
infrastructure through the use of digital transactions
Discuss the potential that may exist on alternative avenues of infrastructure development, what
transaction disintermediation may mean for developing regions, and how conventional
infrastructure could potentially be leapfrogged
Provide a preview of the new “MSc in Digital Currencies” curriculum

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 Agenda
1. Financial inclusion in the developing world
2. Cryptocurrencies for developing world problems
3. Conclusions
4. Further Reading
5. A preview of the new “MSc in Digital Currencies” curriculum

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Financial inclusion in the developing world
 Financial inclusion in the developing world
Cryptocurrencies can be a valuable tool for people in underdeveloped regions, to
gain access to financial inclusion and use them as a monetary transaction method.
Let’s first have a look at some ongoing studies from the World Bank, indicating a
growth in financial inclusion of adults having access to conventional financial
services.
Even though there have been improvements on account ownership at a financial
institute on or with a mobile-money-service provider, billions of people globally are
still unbanked.

Source: The World Bank (https://ufa.worldbank.org/)

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 Who are the “unbanked”?
The World Bank created the
“Global Findex”, a global
financial inclusion database to
measure the use of financial
services and identify the
population with the greatest
barriers to access.
Not only poverty - but costs,
travel distance and paper work
involved are also factors which
keep many people unbanked.
Note that the World Bank has
shown interest towards
blockchain technology so there
might be a room of innovation
and global adoption

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 The poorest and the excluded
The poorest regions enjoy less financial inclusion while women have relatively less opportunities
to access financial services. This includes access to all types of conventional financial services,
including remittances, depository accounts and lending, for people in rural or undeveloped
regions.

According to the Universal Financial Access 2020 initiative 73% of all financially excluded people
live in: Bangladesh, Brazil, China, Colombia, Cote d'Ivoire, DRC, Egypt, Ethiopia, India, Indonesia,
Kenya, Mexico, Morocco, Mozambique, Myanmar, Nigeria, Pakistan, Peru, Philippines, Rwanda,
South Africa, Vietnam, Tanzania, Turkey, and Zambia

Source: The World Bank – Country Progress

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 The poorest and the excluded
Countries worldwide have the opportunity to enable access to a transaction account and other
financial services to:
1.3 billion adults by opening up the regulatory environment and market to reach financially active,
unbanked adults who currently save, remit or pay bills in cash.
167 million adults by digitizing government (G2P) payments provided to unbanked adults and
depositing them directly into transaction accounts.
802 million adults by developing and implementing national financial inclusion strategies (NFIS) to
coordinate financial inclusion efforts and increase the number of banked adults over time.

Source: The World Bank – Country Progress

The key takeaway from the above statements is that millions of people in developing nations can
gain access to financial services if their nations follow paradigms of existing regulatory
frameworks which promote digitized payments. This sounds similar to national blockchain
frameworks/strategies currently under implementation in nations like Singapore, Malta and
Cyprus.

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 Remittances
According to the latest Migration and Development Brief (April 2019) there was an acceleration to
remittances to the Sub-Saharan Africa in 2018.
Remittance Trends:
In 2019, annual remittance flows to low- and middle-income countries (LMICs) are likely to reach
$550 billion. That would make remittance flows larger than foreign direct investment (FDI) and
official development assistance (ODA) flows to LMICs.
In 2018, remittance flows to LMICs reached $529 billion, an increase of 9.6 percent over 2017.
Remittance flows grew in all six regions, particularly in South Asia (12.3 percent) and Europe and
Central Asia (11.2 percent).

However, the global average cost of sending remittances remained at about 7 percent in the first
quarter of 2019, according to the World Bank’s Remittance Prices Worldwide database. The cost
of sending summary money to Sub-Saharan Africa was 9.3 percent, significantly higher than the
target of 3 percent. Banks were the costliest channel for transferring remittances, at an average
cost of 10.9 percent.
There is clearly a huge demand for remittance services globally. These high costs of remittance
services can be eliminated by adopting P2P blockchain transactions.
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 M-Pesa – A broad mobile money ecosystem
In 2007, there were only 2.5 million bank accounts in a population of 39 million in Kenya. Given
the lack of traditional banking infrastructure, mobile phone users began bartering prepaid airtime
for other products and services (a commodity currency)
In 2007 Safaricom, the leading mobile phone company in Kenya, launched M- Pesa, allowing its
subscribers to send and receive funds with SMS
M-Pesa charges allow for transactions at
relatively low costs compared to existing financial infrastructures
There are no monthly fees and fees are only incurred once performing
an action such as sending funds
M-Pesa usage is relatively easy and has recently launched a loyalty program
When sending funds to an unregistered user, the sender pays a fee,
providing an incentive to convince unregistered users to register
Users may use the services as peer-to-peer services or to pay bills

Currently, there are more than 28.6 million registered customers with approximately 18 million
active customers, 100,000 merchants and 156,000 M-PESA agents

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 The importance of digitized payments and mobile ownership

Source: The Global Findex Database 2017

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 Less friction and more incentives
As Trace Mayer said in an interview: “Some may even skip entire generations of currency, going
directly from only using cash to using Bitcoin, missing out credit and debit cards altogether. In
doing so they will also avoid the problems associated with card payments. Credit and debit cards
are outdated; they were created before the internet whereas bitcoins have been designed with
ecommerce in mind so they are much easier to use.”

As we’ve seen with M-Pesa, dozens of thousands of agents sprung out due to the existence of a
profitability margin in exchanging M-Pesa into local currencies. Conventional shopkeepers were
incented to add M-Pesa payments to attract a small profit (revenue sharing)

Since it only takes a cell phone with very limited capabilities to manifest the service, there is little
friction in starting a service as an agent after receiving the “go” from Safaricom or other providers

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 Are cryptocurrencies the “M-Pesa on a planetary scale”?
Until the infrastructure is there for global connectivity, mobile operators in developing countries
could leverage the cryptocurrencies’ ecosystem and the inherent low transaction fees to provide a
much needed service to those in their region. By creating a simple interface controlled by them,
people from all over the world could send remittance funds via cryptocurrencies to their service,
which they then handle with local agents to exchange in the local currencies.

This would mean an additional profitability avenue for any mobile operator, with significantly
lower costs, since the Bitcoin network is very lean and cost effective, while remaining safe and
immediate.

The important development needed is for internet coverage to develop further and cover more
rural areas. We can then expect local agents and/or payment processors converting
cryptocurrencies to local currencies to enter the equation similarly to the current services offered
now by BitPay, Coingate, GoCoin and more.

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Cryptocurrencies for developing world problems
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 New tools + no infrastructure= ?
The interconnectivity produced by the internet and digitized communication, has presented a
large number of new avenues for information acquisition, commerce and new avenues for trade,
with fewer intermediaries

We’ll try to take a deeper look at the potential that the technology behind cryptocurrencies and
specifically the technologies around distributed consensus may hold, as tools for building
infrastructure where non exists

If people and companies in developing countries are replacing conventional financial services with
digital services that provide faster access, cost less and demand less physical presence, while
bringing convenience, security and solve practical problems, who is to say that the same can’t
happen in other areas?

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 A virtuous development for further development

Digital Mobile Digital Financial Dis-intermediated More financial

Communication Communication Services and Direct power to Direct
And Trade Access producers

More competitive
services and products at
the same (or better)
profit margins Increase in quality of life for
them and their communities

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 Cryptocurrencies are addressing vital developing world issues
Cryptocurrencies allow freedom in payments as any amount of money can be sent anywhere
globally, instantly and without limit restrictions.
Unlike traditional banking systems, it does not matter if it is a bank holiday or if the time of the
required transaction is after midnight. Payments go through under any circumstances and this is
hugely important for people in developing nations who are currently unbanked.
The significantly reduced fees associated with blockchain transactions (BTC fees are usually below
$0.50), come in contrast with transaction fees via other payment/remittance methods like credit
cards, PayPal and Western Union which in some occasions may reach the level of 9%-10% of the
transaction.
Abra was founded with the aim to partner up with logistics providers in the developing world and
allow customers with or without bank accounts, to choose the deposit and withdrawal method
(including Bitcoin), using P2P technology with zero transfer fees. Due to limited awareness at the
time, the company moved to focus its operations on developed markets.

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 Cryptocurrencies could transform developing world processes
While in the developed world, innovation and development usually follow certain known paths
mentioned in the previous lectures, digital innovation has allowed developing countries to
essentially “leapfrog” some of these stages
Cryptocurrencies may have the potential to revolutionize processes even more and allow further
financial access for the poor
https://blockonomi.com/cryptocurrencies-developing-countries/
One of the most notable initiatives is Bitpesa which acts as a payment and trading platform
and allows flow of remittances to and from underdeveloped nations
Bitpesa is an older initiative which ran through some regulatory pressures and has not been yet
combined effectively with local mobile money services. Even though the potential is huge the
service is not limited to a lot of nations.

BitPesa helps business make B2B payments in multiple

currencies across its operations within the markets of Nigeria,
Senegal, Uganda, Tanzania, Dominical Republic and the U.K

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 Billions about to be connected?
“For every person online, there are two who are not”, wrote Eric Schmidt of Google, and continued,
“By the end of the decade, everyone on Earth will be connected.”

Lack of internet connectivity is a key issue

when adopting blockchain related
services. Current research projections
indicate that internet users will double by
2021 to about 53.7% of the world
population, with large populations of users
located in China, India and Africa
Very cheap smartphones now exist (prices
below $25) Source: Microsoft
The next big barrier for companies like Google, Microsoft and Facebook appears to be bringing
the internet to every developing country and citizen on the planet

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 First and last mile issue
No matter how innovative current projects are, the first and last mile problem is still unsolved
The challenges related to crypto-remittances are quite significant and include local competition,
government regulation, exchange rates fluctuations, accessibility of services, liquidity
management and more. However, the most significant one is the first and last mile problem.
The recipient of the remittance funds does not use cryptocurrencies as a payment method to
perform his/her everyday transactions. The local currency is what the recipient needs, to settle
local payments. Every physical branch associated with money transfer needs to charge its
customers with the respective fees to cover its initial costs.
Unawareness is the main reason why the majority of people still prefer the certainty of money
transfer leaders such as MoneyGram and Western Union.
The above outline the first mile problem.

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 First and last mile issue
Now let’s proceed to the last mile issue, the really
tough hurdle.
Pawnshops operating for traditional money transfer
companies with a flow of over 90 billion dollars in
Philippines alone, is the dominant power in this
industry, allowing them to charge on their will.
Similarly, any amount of cryptocurrencies sent to a
country like Philippines will still have to go through
these expensive pawnshops. In simple words, no
matter where the funds come from, the fees will still
be high as they flow through the same physical
branches to reach the recipients.
Internet access and accessibility to bank accounts are
not popular features of rural areas in If initiatives like BitPesa are allowed to
underdeveloped countries, therefore real P2P join forces with local mobile money
transactions between migrant workers and their services, the last mile problem could
relatives back home, is far from reality at the be eliminated
moment.
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 Thought Exercise: Attestation
Attestation, the fact of providing proof of identity can be wholly digitized with systems akin to
what Bitcoin is using, asymmetric cryptography. Imagine a village that has no street addresses, no
significant central authority to issue certificates, no notaries to verify the legality of contracts or
agreements, or even ownership titles of real estate. Could they be using Uport, Tykn or any other
key based identity solution?
Instead of performing the conventional KYC policies that financial services need to operate,
systems of digital crowd-sourced identity management could exist for rural communities to attest
that a certain member of the community is who he claims he is, and the more villagers attest to
this fact, the more credible his own online identity is when digitally signing documents

The documents or contracts, could exist online via

extended protocols like Ethereum or Rootstock, and
could be transparent and easily verifiable by the
authorities

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 Currency is only the first ‘app’
The invention of blockchain might allow some or all of these systems to be digitally decentralized
over time to some degree:
I. Financial Instruments, Trading records incorporation / Gun permits
Records and Models dissolution records
Mortgage / loan Forensic evidence
Currency records Business ownership
records Court records
Private equities Servicing records
Regulatory records Voting records
Public equities Crowd-funding
Criminal records Non-profit records
Bonds Micro-finance
Passports Government / non-
Derivatives (futures, Micro-charity profit accounting /
forwards, swaps, Birth certificates transparency
options and more
complex variations) II. Public Records Death certificates
Voting rights Voter IDs
Land titles
associated with any of Voting
the above Vehicle registries
Health / Safety
Commodities Business license Inspections
Spending records Business Building permits
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 Currency is only the first ‘app’
III. Private Records Grades V. Physical Asset Keys firm and receiver)
Contracts HR records (salary, Home / apartment Betting records
performance reviews, keys
Signatures Fantasy sports records
accomplishment)
Vacation home /
Wills
Medical records timeshare keys
Trusts
Accounting records Hotel room keys
Escrows
Business transaction Car keys
GPS trails (personal) records
Rental car keys
Genome data
Leased cars keys
IV. Other Semi-Public GPS trails
Locker keys
Records (institutional)
Safety deposit box
Degree Delivery records
keys
Certifications Arbitration
Package delivery (split
Learning Outcomes key between delivery

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 Currency is only the first ‘app’
VI. Intangibles Domain names
Coupons Online identities
Vouchers Proof of authorship / Proof of prior art
Reservations (restaurants, hotels, queues, etc)
Movie tickets
Patents
Copyrights
Trademarks
Software licenses
Videogame licenses
Music/movie/book licenses (DRM)

Source: Ledra Capital crowd-sourced list. Some ideas are more exotic than others, but certainly some of these will come to fruition.

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A preview of the new* “MSc in Blockchain and
Digital Currencies” curriculum:
18 months (90 ECTS)

*(pending formal approval)

 MSc Compulsory Courses

Compulsory Courses

Code Course Title Sem. ECTS

BLOC-511 Introduction to Blockchain and Digital Currency 1 10

BLOC-512 Blockchain Systems and Architectures 1 10

BLOC-513 Law and Regulation in Blockchain 1 10

BLOC-514 Emerging Topics in Blockchain and Digital Currency 2 10

BLOC-515 Blockchain and Entrepreneurship Management 2 10

BLOC-516 Principles of Money, Banking and Finance 2 10

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 MSc Elective Courses
Elective Courses (choose 3 courses or a Master Thesis)
Code Course Title Sem. ECTS
BLOC-521 Digital Currency Programming 3 10
BLOC-522 Smart Contract Programming 3 10
BLOC-523 Permissioned Blockchains Programming 3 10
BLOC-524 Cryptographic Systems Security 3 10
BLOC-525 Emerging Topics in Law and Regulation 3 10
BLOC-526 Emerging Topics in FinTech 3 10
BLOC-527 Open and Decentralized Financial Systems 3 10
BLOC-528 Token Economics 3 10
Master Thesis
BLOC-551 Master Thesis 3 30

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 Suggested Pathways to complete the MSc: total ECTS 90

Software Engineering Pathway

Take all 6 compulsory courses and
Choose 3 courses from 521, 522, 523 or 524

Business, Finance and Regulation Pathway

Take all 6 compulsory courses and
Choose 3 courses from 525, 526, 527 or 528

Free electives (choose any 3 courses)

Take all 6 compulsory courses and
Choose any 3 elective courses

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Conclusions
 Conclusions
A large percentage of the global adult population does not have access to conventional finance
infrastructure and services.
M-Pesa is one example of an extremely successful private initiative to leverage a digital
communication platform (mobile phones) into a financial transaction system in a country with a
limited financial services sector. It is a great example of ‘leapfrogging’. If initiatives like BitPesa
would be allowed to join forces with local mobile money services, the first & last mile problem
could be solved.
The increasing prevalence of internet connectivity will bring many more newcomers to the
internet that will want to interact with the global market.
For many of these newcomers, conventional local infrastructure will be lacking and if newer,
easier, digital solutions emerge, they might be able to ‘leapfrog’ a generation forward in a similar
manner.
Adoption of blockchain and cryptocurrencies in developing regions, heavily depends on the
emergence of internet connectivity and concept awareness.

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Further Reading
 Further Reading
Findex Report, Chapter 2 – The Unbanked
https://globalfindex.worldbank.org/sites/globalfindex/files/chapters/2017%20Findex%20full%20report_chapter2.pdf
Mobile Money, Individuals’ Payments, Remittances, and Investments: Evidence from the Ashanti Region,
Ghana
http://eds.a.ebscohost.com/eds/pdfviewer/pdfviewer?vid=0&sid=1110a386-df6b-45d3-8a3d-3bf20ac8a772%40sdc-v-
sessmgr01
M-PESA: how Kenya revolutionized mobile payments
https://mag.n26.com/m-pesa-how-kenya-revolutionized-mobile-payments-56786bc09ef
Blockchain entrepreneurship opportunity in the practices of the unbanked
https://www.sciencedirect.com/science/article/pii/S0007681317301209
A Look at BitPesa: Powering African Business with Bitcoin
https://medium.com/wolverineblockchain/a-look-at-bitpesa-powering-african-business-with-bitcoin-8b84f2140106
Sierra Leone Blockchain Voting
https://www.coindesk.com/blockchain-vote-election-sierra-leone-got-wrong/
Blockchain entrepreneurship opportunity in the practices of the unbanked
https://www.sciencedirect.com/science/article/pii/S0007681317301209

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 Further Reading
M-Pesa
https://www.reuters.com/article/kenya-safaricom-western-union/update-1-kenyas-safaricom-takes-m-pesa-global-with-
western-union-idUSL8N1XH5ZI https://www.standardmedia.co.ke/article/2001284962/safaricom-launches-loyalty-promotion-
seeking-to-reward-m-pesa-customers
Bitwala & M-Pesa
https://www.ccn.com/bitwala-allows-users-to-send-bitcoin-free-to-mpesa-accounts/
Kenyan banks have joined forces to launch a mobile money rival to M-Pesa
https://qz.com/913761/safaricoms-m-pesa-has-a-new-rival-in-pesalink-from-kenyas-banks/
https://ipsl.co.ke/pesalink/
Remittances Data by World Bank:
https://www.worldbank.org/en/topic/migrationremittancesdiasporaissues/brief/migration-remittances-data
Migration and Development Brief 31
https://www.knomad.org/sites/default/files/2019-04/Migrationanddevelopmentbrief31.pdf
It's Taken Time But The African Crypto Revolution Is About To Get Started
https://www.forbes.com/sites/montymunford/2018/07/09/its-taken-time-but-the-african-crypto-revolution-is-about-to-get-
started/#49da8f67438e

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 Twitter: @mscdigital
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