Blockchain will deliver a globalised economy, making it as easy to send money as information.
Blockchain technologies will close the loop on economic globalisation, bringing the missing piece in the IMF’s definition of economic globalisation, says Carel de Jager, consultant at South Africa’s Blockchain Academy.
Speaking on day two of Finance Indaba Africa in Sandton, Carel gave the first of a series of talks in the FinTech track aimed at demystifying Blockchain and highlighting its potential beyond cryptocurrency.
“IMF says economic globalisation is the seamless sharing of goods, information and money. The ability to share goods internationally happened in the 1950s when shipping containers were invented; and in the 1990s, the internet brought seamless sharing of information, so sending money is the missing piece of economic globalisation. If we can send money as easily as we send information, we will have a globalised economy,” he said.
Explaining that Blockchain systems have trust inherently embedded in them, Carel pointed out that ensuring trust in virtually all other systems and processes was costly and cumbersome.
He said:
“Trust in transactions is quite a new problem. In the days of bartering, it was easier – you could see what you were trading for and the barter would take place. Cash works in the same manner – you don’t need to trust the person as long as you’re confident you can re-spend the money they paid. So there is a perceived value to the money. But everything changed when we started transacting digitally – it may appear someone is paying but they might not be; so now we outsource the trust to a third party – an agent, clearing house, bank, government or lawyers. This system worked for decades because these intermediaries’ entire existence depends on maintaining that trust. But every time there is a breach in trust, we add more layers of resistance to the process to regain that trust.”
This adds complexity and cost to transactions, he noted. One of biggest areas of resistance is the remittance market, he said. “According to the World Bank, South Africans pay around 16 percent to all the intermediaries involved in sending money abroad.”
“So along came bitcoin – a new way of transacting without having to outsource trust.” Blockchain systems, especially the bitcoin blockchain, reduce the need for intermediaries and allow absolute trust, he said. “If you could eliminate transaction fees alone, you’d probably save enough money to end world hunger,” he noted.
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Carel says that bitcoin trades cost a fraction of the fees paid to maintain trust in traditional transaction systems, and have the additional advantage of allowing assets to realise their true value and allow seamless, borderless asset transfers with instant settlement; while eliminating counterparty risk.
