Broadly speaking, people’s opinions on cryptocurrency can be split into three groups: Those who are crypto enthusiasts and believe it’s the future, those who understand but think it’s rubbish, and those who don’t understand it all. Our intention here is not to dismiss any of those factions. Many cryptocurrencies are worthless, or at least they will be one day. Others are based solely on the value that people perceive them to have, and this makes it difficult to predict their worth. But some cryptocurrencies have a purpose that goes beyond making money for investors.
Speak to anyone who is involved with building the software apparatus and applications for the next generation of the internet, and they will tell you that cryptocurrency is being put in place to decentralize finance. To take power away from institutions and put it into the hands of the people. It might sound idealistic, but, for the moment, that’s a moot point. These people believe that they can achieve it. And if they do, it’s going to mean huge changes for many of our perceptions of finance. And one area that might be impacted is the concept of geo-pricing.
What do we mean by geo-pricing? It is the practice of modifying the prices of goods and services based on the buyer’s location. And all too often, some countries get the raw end of the deal, while others reap the benefits.
People expect to pay the same price for the same product
Consider this example: I make a bet at an online casino in Indian rupees. I wager one rupee on a game of blackjack, which I win. The payout for a winning hand is 1:1, so now I have 2 rupees. If I played at a casino in the USA, betting one dollar, I would have two dollars if I won. The same would occur in the UK if I wagered one pound. That seems fair, right? And it is. The odds are the same whether I play in Las Vegas, London, or Goa.
But now consider this example: I want to buy the latest PlayStation 5. The cost for me to buy the basic version is Rs 39, 990, which is the standard price Sony has set in India. This equates to around $533 USD. However, the price of the same model PlayStation 5 in the United States is just $399, meaning Indian gamers have to pay around $130 more for the same product. This is geo-pricing, and many believe that it is unfair.
Now, if you were to talk to Sony about the pricing of a PS5, they will tell you that the price is based on many things, including taxes, supply chains, logistics, and so on. But there is also the undeniable truth that some currencies have advantages over others. The strength of the dollar versus the rupee is not just what you see on the exchange rates. As the world’s reserve currency, there is a weight given to the dollar over many other currencies for transactions. This is even more evident in countries like Mexico, where dollars are worth much more than what you see in the peso exchange rate.
A new era of decentralized finance could begin
So, what does this have to do with cryptocurrency? Well, we mentioned that some cryptocurrencies have a purpose. And some of the creators have the ambition to change how money is transacted around the world. It might surprise you how, even in this digital age, how clunky it is to send money from one place to another. The crypto community believes that it can eliminate the clunkiness and the financial institutions that profit from those transactions. The idea is to create a decentralized financial eco-system – this has been termed DeFi.
DeFi basically envisages a system where no intermediaries (banks, governments) get involved in the transaction. It’s just you and the person you are buying from. To make sure things go smoothly, the transaction is based on a smart contract on a blockchain. Smart contracts are self-executing, with the terms of the agreement written into the code. In plain English, it means that they ensure that Sony knows you are good for the money, and you know Sony will deliver that PlayStation 5.
So will it be able to solve geo-pricing unfairness? Prices are always likely to be different depending on where you live. But in a decentralized internet using cryptocurrencies and smart contracts, it is easier to envisage a fairer deal for all.
And that’s our point here: there isn’t any good reason for products widely available on the internet to be more expensive in one country than in another. If I buy a cup of tea in Sweden, there are many understandable reasons why it’s more expensive than Mumbai. But if I go online to buy the same product from the same retailer, why should I pay more beyond, say, the extra shipping costs? In the decentralized internet – one that many believe will run on crypto and blockchains – that will no longer be an issue.