Block chain is an innovative new technology with the power to disrupt existing economic and business models. Block chain also has enormous potential for emerging markets. These nations appear poised for a more rapid adoption of block chain, though a framework is needed to assess how the technology can be deployed and which applications and use cases are likely to be seen in the near future.
While the potential of block chain is great, the technology is still at an early stage of development and will need to overcome potential setbacks—technical, regulatory, and organizational—before it becomes mainstream.
In such a context of uncertainty, companies in emerging markets can neither afford to wait until the outcome is evident nor expose their existing business models to overly risky wholescale block chain initiatives. Instead, they will need to adopt an experimental approach that allows them to develop options and thereby learn in the process, inform their strategies, and improve their value propositions.
The success of block chain as a technology depends on the extent of its adoption. An appreciation of the underlying factors or impediments to adoption of this technology will help uncover challenges that may need addressing.
Regions and countries are driven by different social and cultural behaviors, values, principles and economic priorities. These kind of qualitative attributes have a bearing on the extent of adoption of disruptive technologies like block chain. It is important to understand these factors in the local context before assessing a society’s readiness for block chain. We examine some of these critical factors from multiple perspectives – social, cultural, economic, legal and political – and the influence they have on large scale adoption of block chain.
In financial services, for example, the existing infrastructure is shallow in almost all low-income countries, many of which have also suffered from de-risking in the wake of the financial crisis. Fortunately, this handicap may accelerate adoption of block chain, as a lack of financial infrastructure also means less organizational resistance to the new technology and lower transition costs for moving from a legacy to a new system.
Consequently, regulators and existing financial institutions in emerging markets have less incentive to prevent the block chain revolution, as it does not massively disrupt existing market conditions. Global payments and trade finance are examples of sectors experiencing a flurry of initiatives from market frontrunners and new entrants alike.
Both have high transaction and verification costs that block chain can reduce by improving the speed, transparency, and process. Emerging market nations have large population segments that remain underserved in terms of financial and banking services due to the high cost of customer acquisition for traditional financial institutions.
In addition, the extensive use of mobile based services, particularly in Africa and Asia, provides an easy avenue for a blockchain-based system to extend its services. Even in lower income countries, mobile penetration is extremely high, at 83 percent among the 16-to-65 age bracket. If blockchain manages to provide proof of concept for a viable business model in payments for mobile banks and other financial players, it would advance the longstanding developmental goal of financial inclusion. Serving previously unprofitable customers and small and medium-sized companies can generate up to $380 billion in additional revenues.
So blockchain may provide emerging markets an opportunity to leapfrog traditional technologies, as happened with mobile technology in many emerging market regions, particularly Sub-Saharan Africa.
I have concluded that when blockchain is combined with cryptocurrency, marketplaces can be ‘bootstrapped’ to function without the use of traditional ‘trusted parties’ and thereby result in significantly lower networking costs for participants. We also find that open blockchains will likely have the most drastic effect on market structure, challenging the market power of incumbents and lowering the cost of entry for new entrants.