Institute For The Future

Blockchain in High Delta Markets: Manufacturing Trust in Unstable Environments

Edited by Alex Goldman

Unfamiliar with how blockchain works? Watch this brief intro video.
Miss our first article on High Delta Markets? Read the first one here.

As Vitalik Buterin, founder of Ethereum, puts it, “Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.”

With blockchain, it’s possible (though often socially difficult) to create distributed systems for an impressive array of things-- transferring money, enforcing contracts, tracking property titles, voting, etc.

However, regulators and central coordinators often serve very important functions that just don’t get done in blockchain environments. For instance, central banks go to enormous lengths to ensure the value of their currencies stay stable—a process that takes a lot of coordination and analysis. With contracts, courts and regulators serve the purpose of mediating disputes, and providing punishment when parties renege on their commitments.

When these centralized systems work well, and at a fair price, there isn’t a great deal of reason not to use them. Compared to centralized systems, decentralized and distributed systems often lack stability and oversight.

With cryptocurrencies, the lack of a central bank to manage value leads Bitcoin price to fluctuate unpredictably. Speculators aside, it’s relatively difficult to find a reason why someone would hold or exchange their money in Bitcoins when they could hold it in dollars, considering how well dollars hold value over time.

Blockchain provides the most benefit when central intermediaries are unreliable or don’t exist at all. Blockchain tools broker trust in "VUCA" environments —volatile, uncertain, complex, and ambiguous (a term coined at the Army War College in Carlisle, PA to describe today's geopolitical environment). It’s no accident that the criminal economy has taken to blockchain technologies so readily, and it’s not only because of its potentially anonymizing  qualities. In the criminal economy, there’s no way to rely on centrally enforcing institutions to ensure claims or help transfer value. For them, blockchain is very useful.

The clearest use case for blockchain arises where institutions are unreliable or do not exist. Globally, these characteristics often typify high delta markets. High Delta Markets, sometimes called “frontier markets,” are global areas of high volatility and, often, growth, including much of Sub-Saharan West Africa, Indonesia, and Tier 2 and 3 cities in India or China. ("High Delta" refers to the mathematical symbol for change over time.) These markets are constantly shifting and changing economically, politically, socially and technologically. The so-called "informal sector" of their economy often dwarfs the so-called "formal" sector. Small-scale entrepreneurship (kiranas, bodegas, kiosks, etc.) drive commerce and large companies rely on these entrepreneurs to distribute their product.

Blockchain and other forms of distributed computing will likely have the greatest global impact in High Delta Markets, where volatility and low institutional trust create a vacuum of dependable infrastructure.

Signals of this trend are emerging. Stellar.org, a blockchain-based value transfer network, has created a cheap, instant money transfer within a wide network of microfinance institutions in Nigeria, in partnership with Croatian company Oradian This represents the first live, safe, and accessible money transfer service within Nigeria. They have also extended services to rural Nicaragua as well, which has similar infrastructure limitations.

Another high delta blockchain signal, bitland.world, comes from Ghana. A single piece of land in Ghana can often have competing claims from tribal chieftancies, current state governments, past claims from the colonial era, and individual disagreements. Bitland wants to solve this by creating a central blockchain to record land titles. This is a useful solution because in many cases, the different parties do not trust each other or the government to accurately record and store the information—a blockchain could act as a neutral “third party” to manage this distrust.

Bitcoin has had trouble getting traction partially because of its volatile value and difficulty of use for transactions.  However, in Argentina the use of Bitcoin has become a commonplace phenomenon because the Argentine Peso is so unstable.

International currency transfer rates can climb to 30 percent of the transfer value, so Bitcoin’s very low transfer costs are a tremendous asset. BitPagos is a service for Argentinians to make online payments without a credit card, by using a Bitcoin backend, even though both merchant and customer use fiat currency for the transaction. This allows mom-and-pop businesses to enter the global economy (for instance, travel booking for small guesthouses), even if they don’t have a bank account.

Blockchain, and other distributed computing technologies like Torrents, mesh networking, or telehash, create new methods for managing distrust in volatile or uncertain circumstances. Because these needs are most pronounced in High Delta Markets, the most impressive distributed computing applications and innovations in the next decade will continue to emerge there.