- >Cryptocurrency Has Huge Potential as a Leapfrog Technology
Cryptocurrency Has Huge Potential as a Leapfrog Technology
Cryptocurrency has come a long way now. Eleven years after the mysterious Satoshi brought us Bitcoin, it’s incredible to see what a force the industry has become. From outperforming assets that have been around forever to being an unexpected and welcome alternative where legacy finance has failed.
Now, the asset class is poised to transform not just people’s understanding of money but their entire lives too. For the (relatively) short time it’s been around, cryptocurrency has leapfrogged the existing money system in various ways. How did cryptocurrency acquire the ‘leapfrog technology’ honorary badge? This article explores this status of events. But first, let’s deconstruct the whole idea of leapfrog technology.
Hope Mutie | Dec 17, 2020
What's Leapfrog Technology?
Leapfrog technology is when a community/country is so far behind a certain technology that they skip it entirely for its successor. Such a transition involves bypassing the intermediate stages of a technology and going straight to its most modern iteration. One of the finest examples of this phenomenon is how millions of people in Africa went straight from sending letters to communicating via a mobile phone. These people never owned a landline, but they possess the latest technology in communication – the mobile phone.
Another globally hailed leapfrog technology example is Kenya’s M-Pesa, launched in 2007. Owned by the country’s largest mobile service provider, Safaricom, M-Pesa is a mobile money system through which people can send and receive money, and pay for goods and services right on their mobile phones. This process takes no more than two minutes. Anyone with a Safaricom SIM card, even with the most dated mobile phone, can do these things by simply pressing on a few buttons on their phone. Today, M-Pesa accounts for more than 50% of Kenya’s GDP. Nearly everyone uses it, and even most people don’t need to go to a bank and set up an account. M-Pesa leapfrogged banking.
Leapfrogging Around the World
Development wonks like to associate leapfrogging with Africa, but you’ll find many more examples when you look around the world. We have India, which is said to have skipped through an intense manufacturing phase straight to a tech-driven economy. Then there’s Brazil, which out of necessity, leapfrogged from gasoline to ethanol fuel, bypassing fossil fuels. In China, fintech solutions like WeChat Pay and Alipay have stepped in to make it easier for people to make mobile payments after strict government regulations made it a pain to create a bank account.
Some people have even let their imaginations run pleasantly wild and have concluded that road-poor countries will not build modern roads. Apparently, such countries will shoot straight to self-driving buses or Elon Musk’s crazy-fast underground Hyperloop tunnels. In other words, leapfrogging the subway.
Cryptocurrency as a Leapfrog Technology
In various parts of the world, crypto has taken on a role that can be seen as leapfrogging. The tech is decentralized, autonomous, and borderless nature makes it a ripe candidate for completely eclipsing the existing finance system.
Let’s begin with crypto’s ability to include millions of unbanked people in the global financial system. Being unbanked means these people do not have savings; they can’t get a loan, and they don’t have insurance. These and other downsides of being unbanked hugely affect their quality of life. It also complicates their chances of escaping poverty.
The Magic Wand of Cryptocurrency
Why are people unbanked? That could be because they have no IDs, lack physical access to banks, etc. Here’s where cryptocurrency waves a magic wand. Or close to. All you need to start interacting with crypto is to have an internet connection. This is really the essence of the concept of decentralized finance (DeFi). DeFi has no geographical boundaries or a central authority lording over who gets in and who doesn’t. It’s a radical idea that democratizes finance.
As long as you have a phone and internet connectivity, then you can borrow, send, and receive crypto. In short – participate in the financial system and get access to economic opportunities. Crypto leapfrogs banking in this way.
Crypto could also likely skip past traditional money and become a global currency. As a matter of fact, it is already a global currency, just not a widely adopted one – yet. You can use Bitcoin anywhere in the world. Why? Because it doesn’t have affiliation with any specific country or government.
At the moment, your nation’s currency can only be used in your country and perhaps a few more (especially in close-proximity countries). If you travel to a different country, you have to exchange your national currency for the local currency to pay for things. Many people who’ve traveled to other countries have accumulated different currencies – and they can’t use them – because those currencies are worthless back home or in their next destination. It’s ridiculous, and it goes to demonstrate how fractured the global system is. We can boldly say crypto has leapfrogged the legacy financial system by becoming a global currency system.
Think about the way transferring money across borders is often a tedious and expensive process. On the other hand, sending crypto takes minutes or is instant, depending on the crypto network. At the moment, we don’t have a highly efficient, universal tool for sending money across the world. That may change in the future, but until then, we have crypto. It has leapfrogged the legacy system.
It’s the same thing with property rights – we don’t have a universal standard that protects people’s rights to property ownership. Not everyone has the luxury of safely owning their property. Whether it’s family feuds, or a rogue government (we see you, authoritarian regimes), many people around the world are always in danger of having their wealth stolen or confiscated. By contrast, crypto lets people have complete control over their own money. You can even safely store wealth in your brain.
The Role of Smartphones
We’d be remiss if we didn’t talk about the role of smartphones in the leapfrogging of cryptocurrency. Like we mentioned earlier, the first step in interacting with crypto is having access to the internet. It doesn’t matter if it’s on a handset, a PC, or a desktop. The M-Pesa success story in Kenya is possible because of the mobile phone. It’s the same for crypto, except this time you need a phone with internet connectivity since crypto is internet-based.
This speaks to the sheer power of, and the inextricability of the smartphone from cryptocurrency adoption and growth. Already, nearly half of the world’s population own smartphones. For the first time, we have the opportunity to expand economic opportunities for entire populations. As we discovered earlier, owning a smartphone is not indicative of financial inclusion.
As millions remain locked out of legacy financial systems, owning a smartphone could be what breaks the ceiling that impedes their economic freedom. Kenyan-born development expert and Harvard scholar put it perfectly, saying, “The mobile handset in the hands of an ordinary African has become the symbol of leapfrogging.” Replace “ordinary African” with “ordinary person”, and that statement rings true.
Cryptocurrency has been hailed as many things. But when you think of it as leapfrog technology, it becomes even clearer what a treasure it is. It will break barriers, help transform lives, and give countless people a lifeline. Hopefully, it will go mainstream one day and save us all from today’s extremely fragmented financial system.