The World Bank describes that “the number of poor worldwide remains unacceptably high, and it is increasingly clear that the benefits of economic growth have been shared unevenly across regions and countries” (World Bank Group, 2018, p. 23). Along with these incidents of economic chaos, civil war and governmental collapse plague developing regions (Prahalad & Hammond, 2002). Besides, poverty is mainly driven by economic factors, which include limited access to financial services (Beck & Demirguc-Kunt, 2006) and high inflation rates (Aisen & Veiga, 2006). Moreover, studies have argued that a low level of trust (Barham, Boadway, Marchand, & Pestieau, 1995) and corrupt government institutions harm the economic development (Olken, 2006).

Crypto currencies could provide a significant benefit by overcoming the lack of social trust and by increasing the access to financial services (Nakamoto, 2008) as they can be considered as a medium to support the growth process in developing countries by increasing financial inclusion, providing a better traceability of funds and to help people to escape poverty (Ammous, 2015).

Introduction to crypto currencies

To provide a comprehensive overview of the opportunities of crypto currencies in developing countries, it is necessary to understand the general advantages and disadvantages crypto currencies provide for users compared to central bank-issued fiat currencies, like the Euro or the US dollar, and to discuss how they emerge from the underlying technology. For this purpose, the example of two crypto currencies is used in this paper. The underlying technology of most crypto currencies is blockchain technology. A blockchain is a decentralized database that is distributed in the network on a variety of computers. It is characterized by the fact that its entries are summarized and stored in blocks.

The first crypto currency discussed in this paper as an example is Bitcoin which is technically, “an algorithm that records an ongoing chain of transactions between members of a decentralized peer-to-peer network and broadcasts these records to all members of the network” (Ammous, 2015, p. 19). Bitcoin is the world’s biggest crypto currency with a market capitalization of more than $189 billion[i]. It was invented by Satoshi Nakamoto in 2008 when he has published his white paper “Bitcoin: A Peer-to-Peer Electronic Cash System” (Nakamoto, 2008).

Secondly, Ethereum is used as an example which is a blockchain-based, public, open-source, computing platform and operating system for smart contracts. This platform supports a modified version of Nakamoto’s consensus mechanism and was proposed in 2014 by Vitalik Buterin (Buterin Vitalik, 2014; Rizzo et al., 2016). The underlying crypto currency is called “Ether”. It is the second biggest crypto currency in the market with a capitalization of over $18 billion[ii].