By According to a recently published report by the World Economic Forum (“WEF”) entitled “Building Block(chain)s for a Better Planet”, cryptocurrency and blockchain applications may be an exciting new source of sustainable finance.
The WEF believes that Blockchain has the potential not only to redefine how business, governance, and society operate but also to transcend present-day concentrations of governance and power. The WEF is confident that this is all possible through the advent of “token economies” which blockchain applications are presently giving rise to. These economies may be able to transcend national borders and traditional economic limitations by bypassing currencies, political bias and crippling exchange rates in underdeveloped countries.
Unlocking Financing Needs
While the UN estimates that developing countries have financing shortfalls running into the trillions of dollars, blockchain-enabled platforms could be the answer to unlocking such funding needs.
Blockchain, by its very nature, has the potential to manage complex financing environments. It can integrate a wide number of stakeholders and make it feasible for projects and ventures to source funds from a large number of diverse investors rather than from just one or two large investors. Its decentralized framework could also significantly increase efficiency and lower transaction costs.
Converting traditional financing mechanisms into a unitary proven system of tokens, such as represented by blockchain technology, is the key that could open up the opportunity for a wider group of stakeholders to invest in development projects. Investors with larger amounts of capital would share the same automated process as investors with very small amounts of capital. Therefore, access and entry requirements for such investments are “tokenized” into logical, acceptable units of tokens, removing the need for the involvement of third parties and red tape.
Blockchain technology could also be a real game changer for complex projects which require different types of funding for different types of assets and for multiple stakeholders with multiple requirements. Blockchain technology, by design, will seamlessly deal with the complexity of such transactions and may, in the future, be widely applicable to such projects.
Early Blockchain Financing Applications
Although there are still considerable challenges that need to be overcome in the widespread application of blockchain technology, there are already several examples of the early application of blockchain technology’s financing applications.
The Sun Exchange, which has launched a blockchain-based platform for crowd-selling solar assets, is connecting people who want to invest in solar based products with those who want access to it. This technology can help overcome the traditional difficulties which inhibit the widespread deployment of solar technology, such as high upfront costs, political barriers and the reluctance to invest by traditional investment-capital sources. It can also facilitate cross-border investments and repayments, specifically fees and costs associated with a local currency.
A further example of the financing applications of blockchain is Clean Water Coin, which uses a blockchain platform to quickly and efficiently raise funds for clean-water projects worldwide. The Natural Asset Exchange is another blockchain platform which uses an Earth Token cryptocurrency that aims to create a Natural Asset Marketplace which will connect certified producers of natural capital assets with consumers of these assets.
Although the “token economy” created by the proliferation of crypto-technology is still in its infancy, the WEF and others believe that blockchain technology has the potential to become a new and significant source of sustainable development finance.
Do you believe token economies will attract a greater source of investment capital? Would you be more willing to invest in development projects if it was through a token economy? Let us know in the comments below.
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