3 Ways Blockchain Can Transform Development Finance|
Blockchain is the technology underpinning cryptocurrencies like Bitcoin; additionally, it's a ledger in which all transactions are recorded digitally and publicly. EcoKraft is exploring blockchain use in development finance, specifically in financing renewable energy projects in Africa.
What is blockchain? It's not just a buzzword, but it is a word that's drawing a lot of attention in the technology and financial industries. Blockchain is the technology underpinning cryptocurrencies like Bitcoin; additionally, it's a ledger in which all transactions are recorded digitally and publicly.
I'm not an expert in blockchain, but our company, EcoKraft is exploring its use in development finance, specifically in financing renewable energy projects in Africa. I hope my ideas about what blockchain can do to transform development finance will contribute to your understanding; however, if you still have questions about blockchain, BlockGeeks has a good description of how it actually works.
1. Ease Cross-Border Transactions
Through using blockchain technology and crpytocurrencies, cross-border payments become a breeze. Transactions are broadcast through a peer-to-peer network, or through nodes. Transactions cost $0.05-$0.10, which is a bargain compared with Western Union or other providers where fees are usually more than $10.
This feature is attractive for development finance, because cross-border investments are needed for developing countries to meet the Sustainable Development Goals (SDGs) set by the UN. According to the UNDP, $130 billion of outside investment is needed for Africa to meet its SDGs.
2. Increase Transparency
The publicness of the blockchain ledger enables transparency of transactions and investments. All computers connected to the blockchain know who owns each block. This level of transparency could be transformative for increasing investment into countries with high levels of corruption. When corruption scandals occur, public and private investments can drop off severely. Local governments may be wary of this transparency, but blockchain could bring greater certainty to foreign investors.
3. Reduce Litigation and Compliance Issues
Smart contracts are a system of code that can be embedded into the blockchain. Instead of going to a court or through governments for enforcement, the clauses of the contract automatically take effect. The energy industry has started to utilize this technology to simplify energy tariffs. This technology also enables Pay As You Go (PAYG) systems, where energy users pay from a digital wallet as they consume energy.
Blockchain is a fascinating technology, and it will be interesting to see how its applications evolve. If your in Frankfurt am Main area, please join EcoKraft, Accelerator Frankfurt and the Society for International Development for a discussion about Blockchain and Social Impact. Sign up for the Meetup.
Go to www.eco-kraft.com to learn about our innovative platform for investing in renewable energy. Sign up to receive updates.