Crypto Adoption in Developing Economies
Adoption of cryptocurrencies and other blockchain technologies in developing economies Bitcoins and Ethereum are some examples of cryptocurrencies that act as digital currencies within a computer or the internet ecosystem, the creation of the units and the transfer of the funds requires the help of encryption techniques.
Cryptocurrencies are gaining much attention in the world in the recent few years. However, their use in developing economies is of most interest as the latter present conditions that are conducive to their effectiveness.
Why Cryptocurrencies Are Good for Developing Economies?
One of the main advantages that cryptocurrencies offer to developing economies is that such societies do not have adequate banking networks. It is important to understand that a significant part of people in a developing country have no access to what one might consider a normal bank.
As such, cryptocurrencies can be described as a digital currency that enables users to hold and transact digitally through their electronic gadgets without any need for a physical bank account.
The Nobel Prize laureate, in economics, Muhammad Yunus also highlights the issues of exclusion that surround financial systems by noting that:
“Poverty is not created by the poor people. It is created by the system we have built, the institutions we have designed, and the concepts we have formulated.”
Reducing Transaction Costs
Another advantage of cryptocurrency is that the cost of transactions is also lower. The common practice of transferring money, say across borders, normally takes a long time and costs a lot of money.
Cryptocurrencies can cut these costs and cross time far better than the traditional models.
For instance, transactions such as the use of Bitcoins to transfer money from one country to another are done in less than a few minutes at the most with lesser charges than those of the conventional banking systems.
This is especially important for migrant workers who send remittances to their families.
“According to the World Bank, remittances to developing countries reached $540 billion in 2020. Lower transaction costs mean more money reaches the people who need it.”
Addressing the issue of Inflation and Economic Instability
This is especially important for individuals in countries dealing with high inflation or other issues in the economy since it would involve the use of Cryptocurrencies.
Unlike traditional currencies, which are subject to government decisions and market situations, cryptocurrencies work independently of any central regulation body and often have a limited amount of coins.
It may prevent the erosion of savings where these are invested in such risk assets and the value of investment reduces.
Venezuelan economist Asdrúbal Oliveros's words on this:
“Cryptocurrencies have become a haven for those seeking to protect their wealth from hyperinflation and currency devaluation.”
Cryptocurrencies also promote innovation and entrepreneurship, although this may not be as apparent as the impact these digital assets have on the financial system.
Essentially, Blockchain is distributed database technology that we often associate with cryptocurrencies while its application is not limited to currency.
They can establish smart contracts, control the flow of supplies, and even confirm the identity of clients and customers. Through the help of such technology, there will be less undue influence, and corruption, which is common in developing countries especially when it comes to contract awards.
As recognized by the Nobel award-winning economist Joseph Stiglitz, people technology has been demonstrated to be an effective means for developing an economy, he stated:
“The key to growth is knowledge, and the new technologies allow us to share knowledge across borders in ways we never could before.”
Real-World Examples
Several developing countries are already seeing the benefits of cryptocurrency adoption. In Nigeria, where inflation and unemployment are high, people are turning to Bitcoin for savings and business transactions.
According to a 2020 survey by Statista, Nigeria has the highest rate of cryptocurrency ownership in the world, with 32% of respondents indicating they own or use digital currencies.
In El Salvador, the government made headlines by becoming the first country to adopt Bitcoin as legal tender in 2021. This move aimed to reduce remittance fees, attract foreign investment, and boost financial inclusion.
However, the use of cryptocurrencies faces some challenges and risks in developing economies. Areas that may limit its application include lack of regulatory compliance, issues with technology adoption, and low levels of computer literacy.
It is now up to the government institutions to come up with policies that will help to protect consumers but at the same time allow for flexibility and creativity.
However, governments and other authorities need to invest in education and infrastructure to allow all people to take advantage of this technological commodity.
