Cryptocurrencies have been gaining more traction with several countries embracing the concept of decentralization. While cryptocurrency can be spotted in every other headline, people have also started to think about whether they should invest in Bitcoin or Ethereum.Â
Though governments have a long way to go before fully integrating cryptocurrency into their economies, the majority of people already see it as an investment opportunity.Â
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Before you start investing, let’s take a look at the potential benefits of cryptocurrencies. This article elaborates on how cryptocurrencies act as a tool for shoring up economies with chronic instability and insistent inflation.Â
It also highlights how cryptocurrencies may positively impact developing countries in terms of access to necessary capital and improved fiscal stability. Let’s begin exploring how the value of cryptocurrencies is shifting from an asset to a currency, increasing their accessibility and adoption.
Current Status of Cryptocurrencies:
The search for alternative solutions to manage supply chain risk and provide more stable solutions for emerging markets has been ongoing for many years. Cryptocurrencies are being seen as one of the possible solutions. Not only may they reduce transaction fees, but they also have the potential to increase liquidity in markets that include many small users and investors who cannot access traditional banking services or credit financing.
While cryptocurrencies have more pros than cons, it does lack some of the basic infrastructures such as lack of regulation and inadequate fraud protection. However, the role of cryptocurrencies in emerging markets is potentially transformative because they could allow more people to participate in their domestic economies. Nevertheless, their lack of regulation means they are vulnerable to fraud and cyber-attacks.
A technology advisor to the World Bank noted that the lack of regulations around cryptocurrencies increases the risk of financial crime and money laundering, making them unattractive for supply chain finance.Â
Also Read: 44 Countries to Meet in El Salvador to Discuss Bitcoin Says Nayib Bukele
Initial coin offerings (ICOs) are another potential issue for emerging markets because, although they are a way for start-up companies to raise funds without a bank loan, it has been suggested that most ICO launch with no legitimate business model and a large proportion fail within four months due to fraud or mismanagement.
Benefits of Adopting in different Countries:
Cryptocurrencies are already beginning to be recognized as a potential tool for financial stability and economic growth in certain parts of the world. With turbulent global markets, the need for cryptocurrencies is increasing globally, as they are often considered inflation-resistant assets.
For countries struggling with rising inflation issues, cryptocurrencies can provide a way to raise money without resorting to high-interest rates and inflationary tax policies. With developing economies facing several problems, including hyperinflation and large debts, the potential for new tools to solve financial problems is enormous.
In particular, countries that are particularly affected by volatility in the global market have begun to look for alternatives. A prime example of this is Venezuela, as the government has been in such a dire financial state that it relies on foreign currency reserves from the IMF to keep from defaulting on its loans.
In addition, Russia and India have indicated they could consider blockchain technology and cryptocurrencies as an alternative to their current monetary systems. Regardless of its drawbacks or risks, cryptocurrencies are finding their place as an alternative tool for countries with chronic inflation problems.
Also Read: Russian President Proposes Blockchain-based Global Payments System
Cryptocurrencies Shifting from an Asset to a Currency?
The world is witnessing the transformation of Bitcoin from an asset to a mainstream currency, with its value being determined by the demand for goods and services, yet the road ahead is bumpy and rocky. For instance, the US Treasury even named virtual currencies a potential tool for illegal activities because they are not subject to government oversight.
As the market begins to mature, cryptocurrencies are beginning to expand into different sectors of society and the economy, both in terms of use cases and infrastructure. A Brazilian start-up, for example, has recently launched a service for people who want to use bitcoin or other cryptocurrencies instead of cash when buying or selling real estate or signing up for cell phone services.
Regulatory Framework of Cryptocurrencies in different Countries:
Despite the potential for growth in this sector, widespread regulatory measures may hamper its development in many countries. The lack of clarity about their regulation makes it difficult for financial institutions to deal with them. In addition, there are concerns about the degree to which these currencies can be used by people who do not have access to traditional banking services.
Also Read: RBI releases Concept Note on CBDC for India
In many countries, there are small-scale use cases of cryptocurrencies for small pieces of commercial trade. For example, in Venezuela, the government has begun to accept cryptocurrencies for imports, and the sale of oil and agricultural products is taking place through local exchange platforms.
In addition to those that have banned or placed strict controls on their use, a number of countries have opted for a limited approach to regulate them as a commodity or security. In these cases, regulations tend to be applied at the national level with few provisions on how they can be traded or who can purchase and sell them.
