Cryptocurrency Use in “Fragile States”?

In an interview with Coindesk, Ben Parker comments on the possible benefits of Bitcoin or similar technology in chaotic “fragile” states, where infrastructure, including financial infrastructure, is broken down under the pressure of war or other disaster. For more than a decade Parker has reported on humanitarian crises in Africa and elsewhere, and has first hand knowledge of life in fragile states.

Despite the Coindesk headline that “Bitcoin Has Potential in Fragile States”, Parker actually gives lukewarm evaluation for cryptocurrencies in this situation. Clearly, if the conventional banking system is not functioning and cut off from the rest of the world, Bitcoin would be extremely useful. Providing, of course, that the mobile phone net is working, which it isn’t. Which makes Bitcoin a purely theoretical solution.

Parker notes that legal regulation is a vital component in this scenario. In a chaotic and nearly lawless environment, black and grey market finance will not promote stability, nor attract business activity. And if you have your act together well enough to set up a solid cryptocurrency system, you are probably able to set up conventional banks as well.

Parker also comments on the potential value of Bitcoin to feed relief funds into Syria, which has much more functioning infrastructure, but many civilians are trapped by battles and blockades. Bitcoin could potentially be used to directly deliver funds to humanitarian workers in affected areas, circumventing interdiction, and with reasonable confidence.

Of course, this technology works for all sides, and not just for humanitarian uses. So it is far from clear whether easy, frictionless ways to feed money into conflict zones is completely beneficial. For that matter, cryptocurrency may provide an easy channel for looting.

On that front, Parker suggests that using blockchain for tracing conflict diamonds is potentially a good thing. This concept has been demonstrated, but it isn’t in use. The problem is much more about regulation and behavior as about record keeping. In any case, there surely are many ways to create a public registry other than the blockchain, so it remains to be seen if the Bitcoin blockchain offers any specific advantage.

Overall, it seems to me that Parker simply says that Bitcoin might be useful in some desperate cases, where conventional institutions and infrastructure are not working. But it would be useful only if the right, alternative infrastructure is created.

Therefore, it is certainly something to think about as we try to rebuild and stabilize troubled places. Booting up a Bitcoin based system might well be a fast track solution, accompanied by appropriate institutions and laws. It also might be a step on the way to robust infrastructure, even if Bitcoin is not the whole solution.

On the other hand, it is not a completely positive picture. Frictionless flows of money will certainly benefit the rich and powerful long before it helps ordinary folks. And feeding money into (and out of) conflict zones could well fuel the fighting.

 

Cryptocurrency Thursday

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