In a seminal article “Money, blockchain, and social scalability” smart contract pioneer Nick Szabo praises the properties of blockchain technology as being „socially scalable“. According to Szabo “the social scalability of an institutional technology depends on how that technology constrains or motivates participation in that institution, including protection of participants and the institution itself from harmful participation or attack. The cultural and jurisdictional diversity of people who can beneficially participate in an institution is also often important, especially in the global Internet context. The more an institution depends on local laws, customs, or language, the less socially scalable it is.”

In a globalized world well-functioning markets and a reliable financial system are as essential as ever.

For Szabo, bitcoin is the most reliable and secure financial network in the world. This is not due to its poor computational scalability, but thanks to its social scalability. In the broader context of blockchain technology its distinctive favorable characteristics are:

· Independence from existing institutions for its basic operations

· Ability to operate seamlessly across borders

· Very high levels of security and reliability

The socially scalable benefits of cryptocurrencies are that they are accessible to individuals that do not have access to the banking system, for instance, because they live in an area where it’s not profitable to have a physical branch of a bank (first bullet above). The borderless nature of digital currencies also allows the transfers of remittances at less than 7% to 8% of transaction costs that are commonly charged by traditional remittance service providers (second bullet above). And finally , digital currencies are not subject to credit risk like deposits in a bank or theft risk like cash (of course provided the wallet is managed properly; third bullet).

Notwithstanding the eminent socially scalable properties of blockchain technology and cryptocurrencies it should be noted that they too have to operate in a regulated environment. Their borderless nature does not imply that they are not subject to regulatory requirements. Probably the most relevant regulatory principle is „Know Your Customer“ (KYC). The KYC principle means that every user of electronic payment services (including, for instance, remittances, mobile payments, pre-paid cards) needs to be properly identified. For crypto currencies the identification needs to be done by the exchanges (crypto currency/fiat), the wallet provider and the payment service provider. Just in March 2018, the G20 countries Finance Ministers and Central Bank Governors committed to a more consistent implementation of the KYC rules for „crypto assets“ going forward. Clearly, this will make the use of crypto currencies more expensive, but leads to benefits in terms of less money laundering and tax evasion and enhanced crime detection.

A good illustration of the social scalability of blockchain technology is Bitlumens. Bitlumens is providing clean solar energy to remote areas in developing countries leveraging on blockchain technology. Not only are residents of such areas often locked out of the financial system, but also are they not connected to the power grid. The local economy is cash based; electricity is produced by diesel generators, light is provided by wick lamps or candles emitting large amounts of carbon and particulate matter 2.5 (black carbon). The Bitlumens ecosystem is now in pilot phase in Guatemala. More details can be found in the Bitlumens Whitepaper.

Rural villagers lease a solar home system (SHS) from Bitlumens. The lease payments are made with the BLS token (ERC20). Bitlumens agents on the ground fulfill several functions. They install the SHS, provide digital identities to the clients and set up the wallets. Thus, the KYC requirements of the regulated electronic financial systems are implemented. The agents also exchange fiat currency for BLS tokens at the prevailing market rate.

Three additional functionalities are worth mentioning. First, the SHS are equipped with sensors that measure air quality as well as power production and consumption. The data is stored in an immutable closed blockchain. This data can be monetized if a client deems to do so, for instance, by selling carbon certificates.

Second, BLS tokens can be used as remittances at very low transaction costs of 1%. A remitter can purchase BLS on an exchange or in the ICO and then transfer the tokens through the Ethereum network directly to the SHS of the receiver. Third, Bitlumens keeps blockchain records of the payment discipline of the clients. This record is available to the clients and is meant to support them in opening bank accounts and in obtaining loans fostering financial inclusion.