January 06, 2022 - 8 min read
Leapfrogging refers to an economic phenomenon characterized by smaller or startup firms advancing faster than older or more dominant competitors through innovation. This situation typically arises as a result of the entrenched establishment having reduced incentives to innovate or adopt new technology in comparison with new market entrants. Nations with highly developed banking and regulatory systems might not only be disincentivized from adopting innovative technologies, but certain stakeholders may actively resist changes to the status quo.
On the other hand, up-and-coming nations with less entrenched economic infrastructure may be presented opportunities to leapfrog their peers by leveraging Web3 technology. This might look like a nation adopting their own central bank digital currency (CBDC), or simply adopting a crypto asset as legal tender, as in the case of El Salvador.
Not only do we witness this phenomenon in the economy, but we also see the same thing play out at the social level. For instance, Paxful reported demographic data on its 2021 user base, demonstrating that younger demographics (under 44 years old) dominated the traffic on their platform at roughly 65%. While this only represents a small sampling of crypto users, it nevertheless illustrates how heavily the Web3 market is skewed in favor of nimble upstarts, risk-takers, and a tech-savvy youth.
With so many impactful use cases, adoption of distributed systems in industries like health, finance, logistics, and educational institutions alike could attract young talent and provide more efficient and equitable access to global capital, not to mention an explosion of employment opportunities for the next generation and those to come.
According to the World Bank’s Global Findex, over 1.5 billion adults remain unbanked globally, meaning they operate on a cash-only system. Though this number has been trending in the right direction, it nevertheless remains a substantial figure, indicating that large swathes of the global economy are being excluded from opportunities in capital markets, not to mention the opportunities presented by a world financially intertwined by Web3. This sort of disconnect drives global inequality and is unsustainable over the long term, not to mention morally corrupt.
As such, financial inclusion to capital markets and other services is essential for directing investment where it’s needed most. Without existing infrastructure or legacy institutions slowing progress, adept leadership in developing nations are presented with opportunities to take the lead in implementing Web3 tech directly into optimizing their supply chain management, payments and remittance systems, financing, and even green energy solutions in the form of energy capture. In the U.S., leaders have called for states to capture wasted natural gas; in places like El Salvador, President Bukele is spearheading projects to capture and harness energy from nearby volcanoes, funded in part by Bitcoin Bonds.
The continent of Africa houses several key players which could seize the Web3 adoption opportunity. For example, nations like Rwanda, Nigeria, and Kenya have youthful populations and internet adoption rates which could be leveraged into a first-mover advantage if strategic investments are made early on.
Similar to how many made the jump directly to the mobile Web without an established traditional telecommunications infrastructure, the same can be done with blockchain in terms of voting and governance, providing municipal services, and other smart city functions for residents. Familiar names like Cardano have already made forays into Ethiopia and Uganda, including the training of all-female classes of local students in the programming language Haskell, used by Cardano, as well as investments in Internet and supply chain infrastructure.
Another notable example is the ICT Skills Capacity Building Blueprint published by Smart Africa in collaboration with the Republic of Burkina-Faso. The blueprint identified five key areas for leaders to implement actionable projects for accelerating the development of digital skills and infrastructure.
Directed measures to lean into Web3 will provide the foundation for leapfrogging local nations like Morocco, Kenya, South Africa, or Ghana. In only two years, the government of Dubai went from making public their plans to put all physical documents on a blockchain to announcing themselves as the first paperless government in December 2021.
The Internet and subsequently Web3 is creating a new level playing field in which physical geography may mean less and less. El Salvador founded a Bitcoin City on a mountain without any need to export the captured volcanic energy. The Bitcoin miners will run day and night, powering the city and adding to the nation’s Bitcoin balance sheet.
In fact, on a blockchain, physical proximity of two individuals makes no difference unless data is written onto its immutable ledger. As such, clever infrastructure investments and Web3 initiatives will lead to human flourishing and actually incentivize investments into renewable energy projects, speeding the way to both a greener and wealthier future.
Dubai is a notable example of a nation state adopting blockchain technology. In 2018, the central government released its own blockchain strategy proposal to usher in new economic opportunities for its citizens, announcing in December 2021 that Dubai had become the world’s first paperless government. According to the government’s announcement, the Dubai Paperless Strategy saved over 336 million pieces of paper, 1.3 billion Dirham ($350m USD), and 14 million hours of physical work by government workers.
The initiative looks to be the first step toward Dubai’s implementation of smart city services, almost entirely removing the necessity for paper transactions altogether, freeing up both monetary and human capital to be more effectively deployed. Residents can download the DubaiNow app on their mobile phones, which already offers access to over 130 different smart city services in 12 distinct sectors such as paying bills, settling traffic fines, or applying for residency. Going forward, Dubai will continue implementing its Blockchain Strategy across the city-state to fuel entrepreneurship, attract global talent and capital, and deliver more seamless, efficient, and impactful experiences.
In December 2021, Twitter co-founder and CEO of Block, Jack Dorsey teamed up with Jay-Z to donate 500 BTC to set up a blind endowment called ₿trust. The two announced the project back in Q1, stating they would be seeking three board members, directing users to an application landing page through Twitter.
Now, the team has announced four board members, unveiling their plan to fund Bitcoin adoption, education, and innovation. The board members, already having worked to promote Bitcoin development efforts across Africa, will focus development efforts on localized teams, signalling they also have a leapfrogging strategy in mind. Dorsey’s payments firm, Block, has additional funding grant programs to accelerate adoption of the technology.
El Salvador embraced Bitcoin in 2021 by adopting the crypto asset as legal tender in the Central American nation, and founding ‘Bitcoin Beach’ in the coastal town of El Zonte. Not long after, President Bukele announced plans to offer Bitcoin-backed government bonds, hoping to attract global capital to a planned ‘Bitcoin City,’ free of income, property, capital gains, or payroll taxes. This is of course to attract capital from across the world who are drawn to such perks, but the question remains how such a government could function with so few revenue sources.
Residents will only need to pay a 10% VAT on purchases, and the city is to run on sustainable volcanic energy, harnessed to power the infrastructure of the city and mine Bitcoin simultaneously. This model can be replicated in any geographical location which can harness natural resources for energy. Just as with El Salvador’s volcano, it has already been proposed in Texas to capture flared natural gas from oil well pads, turning the wasted gas into electricity and eventually Bitcoin through their mining facilities.
Since any excess capacity can be turned into Bitcoin through mining facilities, self-sustaining green infrastructure investment will inevitably flood into areas naturally rich in clean, net-zero energy. Removing the fear that overcapacity will go to waste also removes the necessity for government subsidization and will instead create positive incentives for participation and innovation in green energy sectors.
Though many have speculated on what motivations the young leader may harbor, such as a reassertion of national sovereignty from the IMF or U.S. Federal Reserve’s influence regarding the country’s dollar-denominated debt. Nevertheless, El Salvadorans will now enjoy frictionless and decentralized currency in the form of Bitcoin. Bitcoin is accepted by local vendors, and is particularly useful for international remittances, often coming from the salaries of family members employed abroad.
Taking this into account, El Salvador’s embrace of blockchain technology and Bitcoin more specifically positions the nation and its people to continue international business uninterrupted regardless of their standing with the IMF or the U.S. financial system of settlements.
Uncertainty breeds fear and inaction, particularly when one has a lot to lose. Nevertheless, countries which embrace Web3 technology and the momentum that comes with popular support may find themselves on a positive feedback loop of upward trajectory on the world stage. Popular support favors decentralization, not to mention its obvious usefulness for writing and enforcing international law. The immutable and transparent qualities of blockchain will inevitably attract global capital seeking financial safe havens which respect property rights through decentralized governance.
If nimble economies position themselves favorably in terms of policy and tax burdens for residents, they may find themselves leapfrogging laggard, and often more established economies. It would not be surprising to see the biggest names in crypto continue to emerge from smaller and more agile economies outmaneuvering their counterparts. As the old Latin proverb goes, fortune favors the bold.
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