Cryptocurrency and blockchain technology promise great things, along with great danger, especially for developing countries. Proponents laud its promise to expand financial inclusion and spur innovation. On the other side is a darker, twisted version that could further exacerbate inequities and erode the agency of countries in the Global South. This phenomenon, termed "crypto-colonialism," warrants careful examination.
Overview of Frontier Fintech Newsletter
Though it has enabled an explosion of other innovative financial possibilities. At the same time, it presents the risk of recreating historical patterns of extraction and exploitation. As Marcin Kowalczyk, a blockchain regulatory analyst, contends, the Global South is especially susceptible to what he calls “crypto-colonialism.” Their standard reference to blockchain does the work of delegitimizing and thus justifying taking economic value out of countries. These countries are still dealing with the aftermath of colonialism’s atrocities.
Definition and Purpose
Crypto-colonialism at its simplest operates through using blockchain technology to legitimize and make easier the extraction of resources. This practice unfairly punishes nations within the Global South, forcing these countries to suffer severe economic penalties. As decentralized systems, blockchain platforms seem to hold promise as tools of empowerment and progressive change. These approaches frequently emerge as a neo-colonial process that fearlessly upholds predatory power imbalances and economic dependencies. The intent is to maintain racial wealth gap. In short, the Global North continues to reap the benefits of these harmful practices while the Global South pays the price.
Key Features
Several key features define crypto-colonialism. One underappreciated trend is the emergence of “climate-smart” blockchain platforms. These platforms tout environmental benefits, but they quickly can turn into mechanisms for “green grabbing.” This rigged process chips away at land and resources, all while posing as a defender of the environment. Due to this, it exacerbates the Global North-South divide in trade and investment. Data colonialism further extracts personal data from individuals in the Global South. Yet, this practice frequently serves to further profit corporations and governments of the Global North. Those patterns of resource extraction are being duplicated in this new exploitation of data resources. As in earlier episodes of colonial extraction, wealth created in the Global South is being drained to enrich the Global North.
Reasons Behind Bank Participation
As has been discussed in-depth, the incorporation of fintech—especially blockchain—into international development and climate change efforts opens up new opportunities for “green grabbing.” In the process, local communities almost always forfeit their rights to those resources. This opens the door to green investments that mostly benefit foreign companies rather than the local community. This process enables unprecedented power asymmetry under data colonialism and surveillance capitalism.
Strategic Advantages
The strategic benefits for actors participating in crypto-colonialism are extensive. In return they receive access to tangible benefits such as land, data, and carbon credits, at low or undervalued cost. Underneath these green-washed lies, they continue to exploit the Global South while claiming to be leaders in sustainability and innovation. This access provides cover for their pernicious narrative. Blockchain technology gives the illusion of transparency and legitimacy. This creates a chilling effect that makes it more difficult to challenge unconstitutional and discriminatory practices.
Market Trends
According to current market trends, there is increasing demand for blockchain-based carbon offsetting and green financing projects. These initiatives, though very promising, open new doors for even more extractive ventures in the Global South. Climate demand for carbon credits fuels the displacement of local communities. Yet it frequently results in the abuse of our natural resources. In much the same way, the global donor and aid community’s impetus towards digitalization and data collection in developing countries opens up new pipelines for data colonialism.
Potential Consequences of Fintech Integration
The possible impacts of rapid, unregulated fintech integration in the Global South are catastrophic. Neoliberal capitalism, in which great economic inequality and maintenance of racial and gender hierarchies are essential to the system’s functioning, is ascendant now more than ever. Together, this environment provides a perfect backdrop for crypto-colonialism to take root.
Impact on Traditional Banking
Not to mention that traditional banking systems in the Global South can’t keep up with the breakneck speed at which fintechs are scaling up and spreading out. Incorporating blockchain technology into these systems could drive local banks to the periphery. This change renders them more vulnerable to foreign takeover. Most developing countries do not have the regulatory regimes in place. This lack of transparency creates an environment that makes it easier for bad actors to game the system.
Future of Financial Services
The future of financial services in the Global South depends on whether these challenges can be overcome. If we leave crypto-colonialism unchecked, it will exacerbate the existing system that places wealth and power in the hands of a few. Such a scenario would deepen current inequities and peril the independence of countries around the globe. With thoughtful interventions, blockchain technology can be a powerful tool to help people achieve good. Though still tentative, it has the potential to encourage financial inclusion and empower local communities by prioritizing equitable development.
Trump's Evolving Crypto Stance
Donald Trump’s shifting position on crypto creates another variable in the already uncertain global regulatory environment. Further, despite his initial skepticism, Trump has recently come around to digital assets — even launching his own NFT collection. Such an attitude adjustment would make the regulatory climate more favorable towards crypto within the U.S. Secondly, it would lead by example and encourage other major economies to implement similar policies. This scenario constitutes a regulatory arbitrage concern. Furthermore, companies will likely seek out jurisdictions with the most permissive rules to the detriment of any good faith attempt to fight illicit activities.
Crypto vs. Digital Currencies
It’s important to note the difference between cryptocurrencies such as Bitcoin and central bank digital currencies, or CBDCs. One of the key foundations of cryptocurrencies is decentralization, that no one entity—not even a government—could control it. In comparison, CBDCs are digital versions of a nation’s fiat currency, issued and overseen by the central bank. Though both have great promise, they each present unique dangers. We know that cryptocurrencies are highly volatile and can be easily manipulated, and we know that CBDCs would allow governments to exercise extreme control over citizens’ financial lives.
Power Dynamics in International Financial Institutions
Indeed, international financial institutions such as the World Bank and the International Monetary Fund (IMF) have enormous power over developing nations. Their policies sometimes push neoliberal reforms, which in many cases deepen inequalities that already exist. Incorporating fintech into these institutions’ programs could exacerbate the colonialist power dynamic that already exists. This amendment could lead to solutions that work for multinational corporations to the detriment of communities across the country.
Less International Regulation: A Better Path for the Global South?
We believe that the seeds for crypto-colonialism and the imbalances of power found within international financial institutions are particularly alarming. They argue that removing international regulation would serve the interests of the Global South. That’s not to say we should toss out all regulations. To address this, we need to take a developing-country-first approach and move away from an all-or-nothing attitude.
- Empowering local regulators to develop their own frameworks, tailored to their specific circumstances.
- Promoting transparency and accountability in all blockchain-related projects.
- Investing in education and capacity building to ensure that local communities can benefit from the technology.
Our endgame should be no different—with a level playing field for all modes. This ensures that the Global South can take advantage of blockchain technology while avoiding novel exploitative practices.
- Pros of Less International Regulation:
- Allows for tailored solutions that address specific needs of developing countries.
- Empowers local regulators and promotes self-determination.
- Reduces the risk of imposing one-size-fits-all solutions that may not be appropriate for all contexts.
- Cons of Less International Regulation:
- Could lead to regulatory arbitrage and the proliferation of illicit activities.
- May create uncertainty and discourage investment.
- Could make it more difficult to combat cross-border crime and money laundering.
The challenge will be to reap the benefits of the US-China competition and spur innovation while not sacrificing the interests of the Global South.
From carbon offsetting to green financing, blockchain tech is changing the game. It’s just as well opening new doors for rapid, extractive activities in the Global South, deepening inequalities in the process. The Global South is at an enormous risk of being exploited by blockchain technology. This technology is open to abuse, as seen by its potential use to provide cover to seize valuable resources and uproot established communities.
Blockchain aside, the broader fintech revolution is being brought to bear on international development and climate change adaptation efforts. This integration is giving rise to more forms of "green grabbing," as local resource claims are liquidated in the pursuit of green investments.
As an environmental journalist, I know I have a responsibility to shine a light on these possible harms. Always a passionate advocate, I’ll continue fighting for policies that create equitable, sustainable development. The future of the Global South may very well depend on it.
