In recent blog posts (see part one here, and part two here,) we’ve explored the transformative potential of microbonds in reshaping community finance. Today, we delve deeper into how blockchain technology, particularly the Stellar network, can revolutionize this space by drastically reducing transaction costs, thus making microbonds a feasible and attractive option for local governments.
Understanding Blockchain Beyond Cryptocurrency
A common misunderstanding persists that blockchain and cryptocurrency are synonymous. To clarify, blockchain is the underlying technology—a digital ledger capable of recording transactions securely and transparently. Cryptocurrency, like Bitcoin, is merely one application of this technology. Think of blockchain as an operating system, such as iOS or Android, on which various applications (dApps) can run, ranging from social media platforms to financial services. The “d” stands for “decentralized.”
This distinction is crucial because when we talk about integrating blockchain with microbonds, we’re not suggesting communities need to engage directly with cryptocurrencies. Instead, we’re looking at blockchain as a tool to streamline and secure transactions at the infrastructure level, much like how platforms like PayPal and Venmo operate within traditional financial systems.
How Blockchain Reduces Costs for Microbonds
One of the recurring questions from local policymakers during our trainings at the Center is whether there are practical, non-cryptocurrency applications of blockchain that can benefit them directly. Blockchain’s ability to reduce transaction costs is a prime example. Typically, small transactions incur proportionately higher fees, which can render small-scale financial operations, like issuing and managing microbonds, economically unfeasible. Blockchain technology mitigates these costs dramatically, making it cheaper to issue bonds, maintain a ledger of bondholders, and manage the distribution of interest payments, even in
small amounts.
This cost efficiency is especially crucial for microbonds, where the transaction sizes are inherently small. By lowering these overheads, blockchain enables local governments to harness community capital for local projects without the hefty fees that would otherwise erode the benefits.
Source: Chainlink
Why Choose Stellar for the BMB Project?
The Stellar Development Foundation aligns perfectly with our mission at the Center, which is focused on fostering equitable access to financial resources through innovative technology. The reasons Stellar stands out as the ideal blockchain partner for the BMB Project are threefold:
- Technology: Stellar’s blockchain technology is robust, stable, and secure. Given the relative nascency of blockchain technology, it is imperative that any deployment in public finance not only meets but exceeds the highest standards of reliability and security. Stellar has a proven track record in this regard.
- Ecosystem: Stellar boasts a thriving ecosystem of developers and partners, which ensures that the BMB Project can leverage cutting-edge innovations and broad support from a community committed to the democratization of financial access.
- Legal Framework: Operating under U.S. jurisdiction, Stellar provides a legal clarity that is crucial for government partnerships. This legal framework reassures all stakeholders of compliance with relevant regulations, which is essential for the adoption of new technologies in public sectors.
Conclusion: A Brighter Future with Blockchain
The journey of integrating blockchain into municipal finance is not merely about adopting new technology. It’s about rethinking how local governments can efficiently and equitably raise capital for public goods. By reducing the costs associated with issuing and managing microbonds, blockchain technology presents a compelling case for modernizing municipal finance.
In future posts, I hope to continue to explore other practical applications of blockchain in public services, aiming to illuminate its potential to enhance transparency, efficiency, and inclusivity in government operations. For now, the BMB Project stands as a pioneering initiative that could set a precedent for how technology is harnessed to serve the public good, ensuring that today’s innovations become tomorrow’s solutions.
For more information or to participate in the initiative, please visit the BMB Project’s website here or contact the Center (cltsg@usfca.edu).
