This article comes fromMedium, the original author: evok3d

Odaily Translator |

Odaily Translator |

This three-part article examines the feasibility of introducing cryptocurrencies and decentralized systems in emerging economies such as Mexico.

The first part will discuss the financial sector in Mexico and the situation of unbanked users;

Part III will discuss the limitations and benefits of cryptocurrencies and decentralized systems, while highlighting two case studies conducted in Mexico.

________________________________________

Part 1: The Future of Finance in Mexico

secondary title

A country that needs cryptocurrencies: Mexico

“We realized that there was a huge opportunity for the unbanked... More than 80% of Mexican consumers still prefer to pay with cash.”

secondary title

So, why is cash dominant in Mexico?

According to an article published by PYMNTS in 2018, in countries like Mexico, because traditional banks are very corrupt, consumers do not trust financial service institutions at all, so it is difficult to quickly "disappear" cash, and people still prefer to use cash .

Tax avoidance is another reason locals prefer to use cash, as an executive at BBVA Bancomer, Mexico’s largest bank, told Reuters in a 2019 interview:

"There are Mexicans who work and live in the informal economy and they don't want to be taxed."

BillMo CEO Steve LaBella made a proposal that he believes should fundamentally disrupt people's payment habits, and he also proposed some basic strategies, such as: try before you buy, give people the ability to access money anytime, anywhere, and special Focus on motivation for launching new products and services.

secondary title

Alternative Financial Solutions

In February 2019, Routers published an article revealing that Mexico's new government plans to launch a mobile phone-based banking solution inspired by similar systems in emerging markets such as China, India and Kenya. However, this plan cannot address the people's feeling of boredom with the existing financial system:

Adolfo Babatz, chief executive of payment services startup Clip, said the Mexican government should seek support from fintech entrepreneurs rather than traditional banks, which already have high barriers to entry. Clip, based in Mexico City, has developed a low-cost mobile credit card reader for smartphones.

secondary title

Do people need bank accounts?

Regardless of whether the solution is "noble", you need to consider the reality that many innovations are simply not used by people. According to a 2018 World Bank report, the number of people living in moderate poverty (less than $5.50 a day) in Mexico fell by only 4% between 2004 and 2014, compared to 16.8 in Latin America and the Caribbean %.

If we look at the total population, Mexico has a total population of 132 million, of which 43.6% (about 55.6 million) live below the national poverty line; and 25.7% (about 25.7 million, which is close to the total population of Australia) live on less than 5.5 US dollars, equivalent to a monthly income of less than US$168.

In Mexico, one of the most populous countries in the world (top 10), any provider of innovative financial solutions will not be able to succeed in Mexico if it ignores those who are poor, financially struggling and lack trust. Of course, where there are difficulties, there are opportunities, so we introduce a new idea: what solution will be more effective?

Below we give two solutions, you can compare:

1. A banking system with the same systemic problems, but with upgraded hardware in an attempt to reduce costs and improve accessibility;

With this question in mind, let's move on to the second part.

first level title

Part Two: The Age of Biometrics: Are People Ready?

The need for financial access can be met through the use of biometrics as a form of authentication and identification. To better understand the role of decentralized systems and cryptocurrencies, we need to first look at the problem of centralized system integrity.

secondary title

biometric era

Biometric authentication is becoming more common in a range of digital applications and security systems, and can be used to unlock mobile phones, authenticate at airports, or access services provided by governments and financial institutions.

Earlier this year, Grupo Financiero Banorte, one of Mexico's largest banks, announced the launch of a mobile phone-based solution, according to Marcos Ramírez Miguel, the bank's managing director:

"Through this innovation, we will improve the customer experience and increase operational security, allowing the financial systems of Banorte branches to contribute more."

Marcos Ramírez Miguel's statement is strange, because why do people go to a bank branch if their mobile phone can perform all banking services?

In theory, mobile phone-based financial solutions are great, but it begs the question: are these systems secure? More importantly, are people aware of the risks involved?

secondary title

Consequences of Using Biometrics

In 2019, ID2020, Microsoft, Accenture and the United Nations partnered to create an encrypted, permanent and shareable identification solution for all refugees using biometric data and blockchain (distributed ledger). It is true that biometric-based digital systems will enable people to use banking, healthcare, and other vital services, but little attention has been paid to personal privacy, data retention security, and accessibility. More importantly, in what form metadata is collected and shared.

secondary title

Mexico dances with biometrics

Mexico doesn’t currently have much of a biometric-enabled financial system, and in many other respects, Mexico is in its infancy. This actually leads us to a follow-up question: Can decentralized applications and cryptocurrencies provide us with a better alternative?

“Decentralized self-sovereign identity and reputation systems remove the need for centralized security systems. Biometrics is an invasion of privacy, worse than a privacy invasion, and it doesn’t need to exist.”

first level title

Part Three: Launching a Decentralized Cryptocurrency

Most of the world's economies and monetary systems are managed by central banks, such as in Mexico, it is the Banco de México that controls the monetary system. So when it comes to money and monetary systems, we don't have a lot of options.

If you have this kind of thinking, we can explore a deeper possibility.

secondary title

With power comes great responsibility

Which cryptocurrency strikes the right balance between decentralization and functionality? Which project embodies all the principles covered by the original intention of the decentralized cryptocurrency movement, such as transparency, immutability, accessibility, and the ability to innovate without permission?

There is no doubt that at present, there is only one best answer to all the above questions, and that is: Bitcoin. But over time, a new challenge emerged: financing.

A decentralized project needs dedicated people who are willing to contribute to the project, and thus need external investors to provide funding. Even if we put aside the issue of individual integrity first, there are many problems with centralization, such as the possibility of creating centralized points of failure. As Decred noted in its Business Brief:

“With Bitcoin, the core developers and proof-of-work miners are the most powerful centralization supporters, effectively vetoing changes to the consensus rules – other stakeholders in the Bitcoin ecosystem are becoming more and more influential.” Get smaller."

"If you're not willing to risk your choices, you're nothing." - Nassim Nicholas Taleb, author of Skin in the Game: Hidden Asymmetries in Daily Life

secondary title

Why Decred?

Decred was the natural cryptocurrency of choice for this "experiment", as it is a good example of how cryptocurrencies are modeled (at least the most typical examples of cryptocurrencies right now).

Adaptability is the catalyst that leads to near perfection - Charles Darwin, Theory of Natural Selection.

A decentralized network should be anti-fragile, while also remaining liquid and changing as technology, economics, and needs change, all without third-party assistance. Decred's underlying system architecture can support innovative decentralized governance and financing models, and then fully reflect the liquidity of the cryptocurrency:

While the principle of decentralization is very important, it does raise a question when we are dealing with national economies: does the principle of decentralization really work in an economy that needs it?

secondary title

Explore Mexico use cases

Recently, Entiende Bitcoin organized a research study involving more than 300 people around Mexico City to analyze various Bitcoin use cases in Mexico and Latin America.

store of value

store of value

The first part of the study suggests that one of the most promising use cases for bitcoin is as a store of value, or providing people with the ability to store value in the form of cryptocurrency. research shows:

“Based on a roughly 10x sample size, we now strongly believe that the primary use case for Bitcoin and stablecoins in Latin America is as a store of value. Over 70% of respondents believe that the Mexican peso will be The depreciation of the dollar..."

The study also found another interesting phenomenon, that older Mexicans (average age 45+) are the least bullish on the country's fiat currency, the Mexican peso, and are also the group that most agrees with Bitcoin as a store of value use case . This phenomenon is warranted, as they generally experienced the massive devaluation of the Mexican peso in the 1980s and the tequila crisis in the 1990s. (Odaily Note: The Tequila Crisis refers to the financial crisis in Mexico in 1994. There was a kind of alcohol in Mexico called Tequila, because it was a symbolic product of this country. After that, people called it The effect of the Mexican financial crisis is called the "tequila effect.")

Also, with a Bitcoin based product like Abra, one can easily enter and access US financial markets such as US stocks, bonds, certificates of deposit (CDs)…..

"Abra now offers stock services in 150 countries around the world, and has waived stock transaction fees throughout 2019. The product is safe enough, affordable, and allows global investment in the US market." - Abra, 2019.

Remittances and International Payments

The second part of the research shows that although it is possible to save about 15-20% in commission due to the technical characteristics of cryptocurrencies, it is not easy to easily break through the traditional cross-border remittance field, because there are still some inherent barriers in the industry.

As such, the study argues that international payment use cases are not yet ready for mass adoption by consumers (but for existing remittance businesses, Bitcoin gives a good background), especially in countries affected by corruption, And in areas where the centralized financial system has a greater influence, the use of Bitcoin is relatively high, which may be one of the reasons for the rapid increase in LocalBitcoins trading volume in countries such as Colombia, Venezuela, Peru, and Mexico.

What challenges exist?

Based on relevant research and personal experience, as with other new ideas and technologies when they first emerge, the most important thing for more people to understand Bitcoin and other cryptocurrencies is education. The study noted:

The research continued and we organized a second study in Oaxaca, Mexico.

secondary title

Case 2: Decred

Target:

Target:

To better understand what it's like for people to use decentralized cryptocurrencies for the first time.

Initial thoughts:

We hypothesize that people in a region where corruption levels are clearly high are instinctively skeptical when first introduced to a brand new financial "system".

However, if people gradually see that using this new system can gain more and more benefits, such as becoming "their own bank" without giving up their own identity information data, then they are likely to be willing to choose Infocom, Popularity and adoption will also increase. There are also some experiences that can’t be described in detail, such as we think that more open discussions about Bitcoin and cryptocurrencies will also help people gain insight into this new “financial system”.

We hope that people participating in the experiment can first experience the "sense of slavery" brought about by traditional financial tools, and then let them try to use new tools to gain a "sense of liberation".

We focused on the following nine themes:

1. What is money and how does the fractional reserve banking system work?

2. What are the current issues surrounding our global financial services and systems?

3. What are the possible harms caused by centralized systems, and what harms have they caused?

4. What is the importance of decentralized public chains and centralized private chains?

5. What impact might decentralized financial tools have on the 1.7 billion people who already have bank accounts around the world?

6. How do you view privacy, slavery and free software?

7. Top-down approach and bottom-up approach.

8. What are some examples of decentralized governance and what impact will it have?

While analyzing these issues, people participating in this experimental discussion can use Decred and Bitcoin in the Coinomi wallet on the tablet to buy drinks.

in conclusion

in conclusion

A demo of the experiment attracted about 30-40 people, and one woman commented that while there was a lot of conversation around cryptocurrency, she was unable to use it at this stage, however, she stated that after the experiment Inspired a bit and willing to explore Bitcoin further.

Based on the author's own experience, people seldom pay attention to the huge benefits brought by decentralized technology, but instead judge this emerging technology with their own inherent consciousness. But overall, people get excited when they use cryptocurrencies for the first time.

Limitations: Many people don't like to use secure wallets with complex private keys. Perhaps using paper wallets, physical cards, or other means will be more successful in attracting new users.

These obstacles will take a lot of work to resolve, especially for many people who may not be willing to trade convenience for a world of security and privacy. An important meaning of decentralization is to make everyone accountable, which means we need to remind funds at all times: with great power comes great responsibility.

The Decred framework includes a built-in decentralized governance and funding system. Some people are interested in this system and want to learn more about it, while others are eager to explore whether this system is disruptive and innovative. In fact, Decred itself is also considering a more secure, private and inclusive system architecture.

last of the last

Mexico is a cash-dominated country, financial services need further innovation, and people's distrust of traditional financial institutions and centralized organizations has not been fully resolved.