Yet the allure of blockchain as silver bullet is powerful. The writer Courtney Martin aptly describes the tendency to embrace such narratives as the “reductive seduction of other people’s problems,” whereby the bright-eyed American idealist feels capable of solving intricate problems with one-dimensional solutions. As difficult as it is can be for Americans to grasp the full complexity of systemic inequality in their own backyards, Martin argues, it’s much more challenging for Americans to understand the full complexity of problems in places far removed from their daily lives. The idea that blockchain could be a transformative tool for social change underscores this same problem: People often don’t take the time to understand the problems they’re trying to solve, because they believe they already know the solution.
Blockchain enthusiasts like to give the example of a poor farmer or a low-wage migrant worker receiving a low-cost money transfer from a loved one far away. And the cost of money transfer is a real issue. Sub-Saharan Africa remains the most expensive region in the world to send money to, with average fees in the range of 9 percent to 10 percent, according to the World Bank. But Bitcoin wouldn’t necessarily make transactions cheaper. The price of transacting over Bitcoin depends on how much demand there is to use the network at a given time. While the number of transactions over Bitcoin has been steadily rising over the last few years, the processing capacity of the network (that is, the volume of transactions that can be processed per second) has remained static. What that means: If transaction volumes continue to grow without a commensurate increase in processing capacity, then transaction fees are likely to climb well above the cost of credit cards or bank transfers.
On top of that, wait times for those transactions to be fully processed have become increasingly erratic, causing a record number of complaints from customers trying to pay with Bitcoin.
Part of this bottleneck comes from built-in limits on the number of transactions that can be processed at a given time. The issue of how to increase the processing capacity of the network, while also maintaining critical aspects of its decentralized character, has been a heated topic of debate for well over a year now. And, so far, there hasn’t been a clear way forward. These early growing-pains underscore some of the tough engineering decisions that need to be resolved before Bitcoin can be considered a reliable product for the world’s poor.
At the same time, companies like Sendwave are also competing with Bitcoin by significantly lowering the price of international money transfers. And while emerging, low-cost remittance services like Sendwave lack Bitcoin’s infrastructure, they’re catching on with developing-world users, who care more about predictability and utility than about Bitcoin’s decentralized structure.
Even in the developing world, Bitcoin transfers often aren’t used the way many enthusiasts might suggest. Rather than migrant workers sending money back home, for example, people often send money to themselves. That’s according to Elizabeth Rossiello, the founder of a bitcoin exchange based in Nairobi called BitPesa. Rossiello says much of the international money transfers conducted on the company’s platform were “self transfers” from an individual’s foreign bank account to a Kenyan one, or vice versa. These types of international money transfers are conducted by folks like John Kidenda, a recent graduate from Harvard University who returned home to Nairobi last year for work. “Every month I move a portion of my paycheck from my Kenyan bank to a U.S. account in order to pay back my school loans.” Kidenda said. “Using a service like BitPesa helps me save money on bank transfer-fees and high foreign-exchange rates.”