Why you should care
This beautiful tropical isle will soon be a bitcoin testing ground to help determine whether the cryptocurrency could actually become a commonly used form of money.
Imagine waking up one ordinary day to a text message saying somebody wants to give you 10 bucks for free. Well, that’s exactly what’s going to happen next March to the entire population of Dominica, a small island nation in the Caribbean.
Don’t mistake it for some sort of Internet or mobile scam. It is, in fact, the world’s first large-scale Bit Drop. On a single Saturday morning, the 70,000 inhabitants of this small Caribbean island will receive $10 worth of bitcoins, the digital currency, to use at their own discretion.
…an experiment to test whether the digital currency could actually become a widely used medium of exchange in a single economy.
The project is the brainchild of Coinapult , a for-profit company based in Panama that provides the technology needed for the mobile “drop” and has the support of the local government. Other sponsors, including bitcoin-friendly Aspen Assurance and the educational nonprofit College Cryptocurrency Network , are also backing the project.
Their goal is to create, in a single day, the largest and highest-density bitcoin community on the planet. It’s an experiment to test whether the digital currency could actually become a widely used medium of exchange in a single economy, even as it’s proved volatile and risky elsewhere.
Of course, bitcoin firms aim to increase exposure to their products. But backers of the scheme also believe the effort will offer locals a new payment technology that has the potential to help improve the economy — by both cutting remittance fees and facilitating international trade.
“We want to try to get bitcoin in as many people’s hands as possible,” explains Sarah Blincoe, Bit Drop project manager. “And the best way to teach people about it is to let them use it.”
Bitcoin is a peer-to-peer type of digital currency — controlled by a complex algorithm instead of a government — that can be bought and sold online. While the size of the bitcoin market is hard to measure, the currency has at least 2 million users with around 80,000 daily transactions.
Bit Droppers hope the cryptocurrency will help them leapfrog into a 21st-century digital economy.
So far, most early adopters are geeky Westerners, but the Bit Drop promoters think bitcoin can be most useful for developing countries like Dominica. With an economy based mainly on banana, citrus and coco exports, the island is the fifth poorest Caribbean economy per capita. It has a 23 percent unemployment rate, and it’s struggling to diversify its economy. Tourism is behind neighboring isles because of its volcanic nature and lack of sandy beaches.
Many people on the Caribbean island lack access to conventional banking or credit cards. Bit Droppers hope the cryptocurrency will help them leapfrog into a 21st-century digital economy, in a way that’s similar to what mobile banking has done in Africa. In Kenya, where an astonishing 31 percent of the country’s gross domestic product is spent in this way, bitcoin is already being adopted . The largest mobile banking provider, M-Pesa, just started offering Kipochi , a bitcoin wallet service, to its 19 million subscribers .
Unlike mobile banking systems, which only work within national borders, or PayPal, which charges around 3 percent to merchants to receive payments, bitcoin is a global nonprofit payment technology, which means it can be instantly transferred with virtually no fees. Promoters say this could help established Dominican companies save money in their overseas transactions and encourage entrepreneurs or freelancers to start to sell their products abroad.
“Bitcoin could really boost entrepreneurship on the island. Imagine an aspiring 16-year-old photographer finally being able to sell his photos online by accepting bitcoin,” says Blincoe.
Since bitcoin transactions are essentially free, they could also help with remittances, which bring around $26 million to the local economy every year. Now, most Dominicans working abroad pay about 12 percent commission to services like Western Union to send money home.
Certainly there are risks, especially given the volatility of the currency — its price rises and falls as much as 20 percent in a matter of days. Bitcoin also has a worrisome track record of scandals, including the notorious Japanese bitcoin exchange Mt. Gox, which was attacked by hackers who stole 850,000 bitcoins , worth an estimated $450 million, from its customers.
So welcoming the Bit Drop is a bold move by the Dominican government, especially given how cautious other nations are being in accepting the unregulatable cryptocurrency.
There are a lot of prejudices around bitcoin in the island. Many people think it’s some sort of scam.
According to the Bit Drop organization, local authorities are on board because they stand to benefit from taxing its use. Yet officials have been mum. Kenneth Darroux, the minister of environment and physical planning who is liaising with the project, has told local media he will only comment “at an appropriate time.”
Of course, the plan hinges on Dominicans choosing to use bitcoin, which is far from a given, and there are bound to be surprises. For starters, promoters will have to appease the locals’ fears. “There are a lot of prejudices around bitcoin in the island. Many people think it’s some sort of scam,” says Adella Toulon-Foerster, a Dominican who wrote her master’s thesis on bitcoin.
Infrastructure is also a challenge. While most Dominicans have access to the Internet, the island isn’t exactly teched-up. Bit Drop is working with locals to provide bitcoin point-of-sale systems to merchants and install bitcoin ATMs, where people can exchange local currency for bitcoins. Locals will be able to send and receive bitcoins through ordinary cell phones and will be able to print “paper wallets,” a hard-copy version of the details needed to make a transaction using a friend’s phone.
If the experiment works, organizers are already in talks with other Caribbean nations eager to have the bitcoin drop on them. The next one could be in Antigua, Barbados or Jamaica, where remittances contribute a third of the GDP.
Hoping to make the learning process more fun, the Bit Drop is marketing itself as a huge island party, Caribbean style, with celebrity appearances, musicians, giveaways, tropical drinks and even fire dancers.
“The worst-case scenario is that people won’t accept the bitcoins,” says Blincoe. “If they do, even if they only buy some drinks at the party, that would already be a big success, and ideally many will keep using them.”