Blockchain is the world’s leading platform for digital assets. Blockchain can be described as a continuous growing list of records, commonly known as “blocks”, which are linked and secured using cryptography. It comprises of a decentralized network that verifies transactions and an immutable ledger that the network maintains. The logic behind blockchain is to ensure that everything of value, not only financial transactions are stored permanently and securely with no risks of hacking or manipulation.
How blockchain will redefine emerging markets
Blockchain is of extreme importance in emerging markets, especially in Africa. This is because it enables entrepreneurs to set-up and manage companies easily and get better access to capital through tokenization. Emerging markets can create new capital market systems by adopting this new revolutionary technology and reap great benefits from it.
Less than 0.001% of the global technology venture capital investment went to startups in Africa in 2016. Notably, entrepreneurs in developed markets find it easy to obtain funds than entrepreneurs in emerging market. Reason being, inefficient capital market systems create barriers to entrepreneurs in emerging markets. By doing so, they prevent entrepreneurs in emerging markets from reaching out to cautious investors.
Blockchain is expected to change how people view emerging markets: capital, assets and securities and display it as new through:
Necessary innovation in private company corporation and management will be brought about by digital blockchain-enabled capital markets. In most emerging markets it is expensive, inefficient and slow to incorporate and manage a corporate structure. However, to do the same set up it can take just 24 hours in Canada. After all the setup has been done, the fees, company management, and reporting requirements are all documented on paper. This whole procedure will result in increased cost, time and filing requirements.
By relying on blockchain technology and smart contracts to create digital company and management software, investors and businesspersons can securely create, manage and track entrepreneurial activities. Obstacles blocking the penetration of entrepreneurs in emerging markets can be eliminated by digital corporate structure that could save resources and securely store intellectual property in the company structure. In addition, the ease of doing business in emerging markets could be transformed by digital corporations. Take an example of the Republic of Georgia that became among the top ten most accessible countries due to its recent innovations and efficient land ownership systems through adoption of blockchain technology. If Kenya created a similar system for corporate registry and enable setup of companies by just a click of a button, this could lower the barriers that hinder entry into economic systems.
Capital markets and issuance of securities and creation of corporate structures by startups in emerging markets can be defined by tokens and Initial Coin Offering. Governments and entrepreneurs can create an entirely new tokenized, flexible and accessible capital market instead of leapfrogging inflexible capital market systems that are created by developed market economies.
Through the sale of tokens, entrepreneurs in emerging markets can benefit from the new generation of democratized and tokenized investment in private companies and this can be achieved through the adoption of ICO model.
Placing young entrepreneurs and their enterprises at the center of their national development by monetizing capital markets in emerging markets can be an added advantage, as it will increase the effect of growing startup ecosystems. However, despite the portrayed potential, ICOS need to find a neutral ground between the initial debt systems and the new innovative tokenized ones.
ICOs can transform capital markets in two major ways and enable massive economic growth in emerging markets.
A research report on Global Real Estate Market trend in 2016, state that “Moderate economic growth with low-interest rates, punctuated with bouts of pessimism and volatility—the factors that have characterized the world economy for the past few years—are likely to continue supporting moderate growth in commercial rents and investment sales volume globally”.
Effective connection of assets and financial institutions are enabled by smart contract and distributed ledger technology. This technology allows people to create a system that divides large assets and distributes them through smart contracts to multiple financial institutions. By doing so, they allow users to invest in smaller fractions of real estate through those financial institutions. Once the process is initiated, smart contract and distributed ledger technology ensures that, the process is not tampered with no matter what.
A more versatile system
The old methods of carrying out transactions require long procedures with a lot of paper work that are prone to theft and occupy a lot of storage space. The whole process is rigid and can create illiquid capital structures for entrepreneurs and investors. In addition, the process can be tiresome to investors and businesspersons as it consumes time and money. With tokenized securities, the flexibility of the security system can be evolved and issuance of shares can take place within seconds.
Tokenized securities could form the pillar of a decentralized global equity market as tokens and blockchain are global. This is an advantage to emerging markets entrepreneurs especially in cases where venture capital organizations are scarce. Through tokenized securities, entrepreneurs can get their products financed by reaching out for supporters worldwide
Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meets their needs. Financial inclusion means more than just value storage and bank accounts. Capital markets and the ability to easily setup and govern a company can create an easy entry for entrepreneurs and make it easier for them to build their business. There are possibilities of creating new kinds of capital market systems in emerging market countries through blockchain technology and tools like decentralized oracles, tokens and smart contracts.
Blockchain technology is expected to change how we perceive finance today. For the emerging markets, it will revolutionize the whole way of their operation. However, to be on the safe side, proper research needs to be done to ascertain its advantages and disadvantages before implementing this revolutionary technology.