For Bitcoin to get mass adoption in Underbanked, it has to be more like M-Pesa

The meme that mass adoption for Bitcoin will happen first in the developing world is spreading fast.

I don’t buy it.

These stories are written by people in the West who are Bitcoin enthusiasts and who are depressed by the lack of mass adoption in the West. So, they grasp at the straw that Bitcoin will be adopted somewhere else that they do not really understand.

The grass is not always greener on the other side.

I think that Bitcoin will find mass adoption in the West quite soon, but that is another story.

The Bitcoin in the developing world meme is connecting two dots:

  • Dysfunctional currencies in countries such as Argentina. The story here goes that Bitcoin could be a great alternative to a currency facing hyperinflation. That is true. When Zimbabwe was suffering hyperinflation, you would prefer to hold Bitcoin than Zimbabwe dollars. Sure, but in practice, US dollars on the black market are easier as a medium of exchange. The Bitcoin enthusiast response that Central Bank printing means that US dollars won’t hold their value is perfectly true – and utterly irrelevant to the people who just want a medium of exchange to buy food and other stuff to live their daily lives. This story is confusing Bitcoin as an asset for speculation/investment (what the West is interested in) with Bitcoin as a medium of exchange (aka currency) which is what the Underbanked need in their daily lives.
  • Remittances. Yes, the cost of remittances is way too high and yes, it is a massive market; but when you try solving this with Bitcoin, you soon bump up against the on ramp and off ramp problem. Bitcoin enthusiasts may retort that the on ramp and off ramp problems only occur because governments want to protect their ability to print money. That may be true, but entrepreneurs create services for the world that actually exists today, not the world that they think should exist. This story is confusing Blockchain based technology (Bitcoin upper case) with bitcoin the currency (lower case). It is an easy confusion to make; I still struggle to remember which one is upper case B and which one is lower case b.

Bitcoin has one massive advantage over M-Pesa – it is an open platform. M-Pesa only works great in countries where Vodafone is dominant. However in the real world of the Underbanked, M-Pesa has two massive advantages:

  • The ability to cash out via roadside stores. In Kenya there are 40,000 that are M-Pesa agents. You get your M-Pesa units on your phone and turn them into spending cash at one of these ubiquitous agents. The Bitcoin enthusiasts will point out that this is a backward step, that you should be able to spend your digital currency directly with merchants rather than handling messy notes and coins (and that this simply preserves the Fiat monopoly over money). That again is railing against how the world works. M-Pesa is dealing with the way the world actually works today.
  • M-Pesa works on the most basic low cost phone. To Bitcoin enthusiasts in the West this seems so silly “don’t they understand Moore’s Law and see that we will all eventually have smart phones?” Entrepreneurs understand the difference between inevitable and imminent. Yes, it may be inevitable that most of the 7 billion people on the planet will have a smart phone. However try predicting when that will happen and try persuading somebody earning $500 a year (when you move beyond subsistence farming and start needing a way to send and receive money) that a smart phone is an important investment (compared to food, medicine, housing and education).

I can only see three ways that this can play out:

  • An entrepreneur figures out how to offer those two advantages using Bitcoin.
  • Vodafone creates an open version of M-Pesa so that it gets traction in countries where Vodafone is not a big player.
  • Some new solution emerges that delivers the best of both worlds (M-Pesa and Bitcoin).