One of the imbalances in the financial sector is the segregation that exists in the entire populace. Over the years, it has been recorded that there are some classes of a particular country’s populace that could not access financial services even with the piercing impact of technology.
Beyond that, Satoshi Nakamoto – the creator of Bitcoin – shared his motivation for creating the first cryptocurrency in the world. Having tagged the traditional financial system as a trust-less system, he is looking to eradicate the third-party middlemen involved in the transfer and movement of money and eventually create a system that includes everybody.
Since the inception of the new financial evolution, there have been some hurdles for it to face ranging from its environmental impacts to the political in-satisfaction. Different cadres of political power in most countries have kicked against the evolution, but at that, it seems the motivation for the evolution is stronger than the setbacks on its way to public adoption.
In this article, cognizance will be given to the rise and adoption of cryptocurrency first globally and in developing countries and how it has impacted the economy and livelihood in developing countries.
The Rise and Adoption of Cryptocurrency
Since 2009, when Bitcoin was created, the crypto space has grown; in size, struggles, adoption, and use cases. The popularity of the space went beyond the roof with the COVID-19 pandemic slamming the global economy because almost everyone found an alternative currency to invest in. This massive attraction has driven the value of the space up with the crypto flagship token at the core of the movement.
Beyond the growth in market capitalization, the massive adoption of the crypto space has seen people calling onto the global political space to validate cryptocurrency as a legal tender and an official means of transaction. This is due to its massive use cases including the ability to reach the unbanked class of the populace and also its diversification which doesn’t exist with the legal currencies.
While political power seems to be budging, there are still some who are outrightly against the adoption of the asset class. There are some politicians in the United States like the mayor of Miami, Francis Suarez who declared the state as “The Bitcoin City” and ordered his paycheck be issued in Bitcoin alongside other civil servants who are interested. Other politicians are also using crypto for their campaign funding.
At the peak of crypto adoption in the political space is the adoption of bitcoin as a legal tender in El-Salvador, which is championed by their sitting president of the country, Nayib Bukele, who is pro-crypto. While the move has received huge criticisms from individuals and institutions, the country seems to care less about them and also furthers the adoption of cryptocurrency by creating a government-owned bitcoin-mining data center powered by geothermal energy from volcanoes.
Bukele has personally been heavily criticized for using public funds for acquiring bitcoin, but in response, he praised the digital financial evolution because of the inclusion it gives the unbanked population. He promised to use the proceeds from their Bitcoin holding to create infrastructures in the country like schools and veterinary hospitals.
The Inflow of Institutional Investors in the Crypto Space
Beyond the massive adoption of cryptocurrencies amidst individual, institutional investors often called the “big money” has taken interest in the space, which has spelled validation for some individuals with skepticism. Different companies joined the crypto space either by participating in startup funding, partnerships, startup merger & acquisition and even acquiring crypto directly.
Just like Tesla, the electric automobile firm owned by the billionaire Elon Musk, some firms have decided to accept cryptocurrencies as a method of payment for their products and services. Other companies accepting crypto as payment are Elektra Store Chain in Mexico, Amazon, Microsoft, PayPal, AT&T, and other big names to mention a few.
There are some other companies having cryptocurrencies on their balance sheet like MicroStrategy owned by the popular Michael Saylor who has a positive disposition to the crypto space. Up to this moment, MicroStrategy is the company holding the highest bitcoin with about 110,000 bitcoins on its balance sheet.
Other companies holding cryptocurrency include Tesla, Galaxy Digital, and Square owned by the popular Jack Dorsey who is the former CEO of Twitter Inc.
The trust the institutional investors have in the crypto space has further pushed the adoption and value of the crypto space and has even influenced some of the big names to get themselves involved in the space.
However, with the massive adoption of cryptocurrencies, it will be good to touch on the struggles facing the space since inception and even currently. Since 2009 till date, there have been a series of scams and frauds recorded will have further strengthened the opinion of every anti-crypto personality in debates. The common ones include the use of cryptocurrencies for terrorism funding, money laundering, and tax evasion because of the decentralized nature of the space through the centralized exchanges are under the hold of the government to prioritize KYC as a means to battle these setbacks.
Other scams in the space have been crypto Ponzi, ICOs (Initial Coin Offering), and other random frauds like wallet and exchange hacking.
The Adoption of Cryptocurrencies in Developing Countries
While it looks like the song of cryptocurrency is only being sung in the developed countries, the crypto space has gotten root in the developing countries as much as the developed countries if not more.
The 2021 Global Crypto Adoption Index as published by Chainalysis revealed that countries like Vietnam (which is leading the chart), India, Pakistan, Ukraine, Kenya, Nigeria, and Venezuela have higher index scores than the United States of America and some other key developed countries.
Financial Inclusion and Social Trust: Reaching the Unbanked Population
With the massive financial inclusion of the unbanked population that comes with the digital revolution in the financial sector that can lead to poverty alleviation in society, the crypto space has earned a name in developing countries.
First, dealing in the crypto space doesn’t need a physical assembly or infrastructure as everything needed is based online, this has eradicated the barrier posed by distance. Adding to this is the increase in social trust which seems lacking in the traditional banking sector through the ability for fund traceability in the crypto space.
Other issues around financial inclusion of the unbanked which the advent of cryptocurrencies catered for include high banking fees, mandatory minimum balance to open an account, heavy documentation.
The World Bank believes that the lack of access to banking services could be responsible for the lack of media freedom in most countries. And it will be kudos to cryptocurrency for solving those issues. Also, this means that everyone can access financial services through cryptocurrency with less restraint and barrier and, ultimately, no central bank or issuer that mandates clearing costs or other fees.
Somehow, the cryptocurrency might struggle to get established in the developed countries because of the established financial system but for the entire populace of the developing countries, it is a great addition, hence, the reason why it is widely embraced in the region.
Despite the speculative and volatile nature of the space, the financial instability in most of the developing countries has contributed to the successful establishment and embracing of the crypto space. Also, the inability of a larger percentage of the populace in the developing countries to access some particular desired products in the traditional financial sector has caused the integration of cryptocurrencies into their daily life.
How Cryptocurrencies Can Further help the Developing Countries
So far, cryptocurrency has proved useful in developing countries, at least with the aforementioned facts. But there are yet more contributions and improvements the crypto space can bring to the developing countries.
In this section, the line of thought will around how the developing countries can further benefit from the digital financial evolution and also, how they can position themselves to enjoy the avalanche of benefits embedded in the space.
As mentioned earlier, there might be huge suspicion and skepticism around the crypto space in most developed countries mainly because of the well-structured systems and environment available in those regions. But for the developing countries, there might be a need to intentionally position their proboscis to suck the untapped nectar that comes with the evolution of cryptocurrencies.
This disparity in structures and systems might make it unwise for most developing countries to download the approach of the developed countries to cryptocurrency hook, line, and sinker. But rather, be open-minded to explore how evolution can further better their systems and create a better life for its citizens.
The following lines will highlight and explain how the crypto evolution can further improve developing countries beyond having a greater level of financial inclusion for the underbanked and unbanked population:
- Reduction in Transaction Time and Costs
One of the good things that happened to the financial industry is cryptocurrencies, and this is because it saves money and time. Crypto allows for fast transaction time even for cross-border payments with minimal cost.
Consider a worker from a developing country seeking to work outside his country, there most likely are reasons to send money to his family or even an individual in his home country. But the cost of processing the transaction through traditional financial services can be very overwhelming as much as the long time it will take in cases of emergency funding.
Different companies within the crypto space have risen to the task of allowing workers (or even an average individual) outside their home country (a developing country) to send money back home while the recipient receives it in the local currency. An example of such a company is Rebit – a crypto-related venture based in the Philippines – that allows Filipinos to send money to the country while the recipient withdraws it on pesos.
Consider this other illustration; a country like Haiti has about 26 percent of its total Gross Domestic Product (GDP), which is approximately 1.5 billion USD, as money sent home from its citizens working abroad. But sadly, the remittance and processing fees gulp about 8 to 10 percent, especially if the sender is from Canada, the Dominican Republic, or the United States of America. Aggregately, this costs about $150 million approximately, which is quite overwhelming as an average individual sending money home earns $500 in a year.
This pain point has been the motivation for crypto-related ventures to push out products that reduce the cost of transaction processing as much as the time of processing the remittance. Most ventures made their products available for users that don’t have a personal bank account.
According to an article published on Forbes, these mouth-watering features that comes with the crypto evolution have created some sort of competition between cryptocurrency and banks. First, dealing with crypto doesn’t require setting up huge unfractured physically, not to talk of charges and fees related to bank operations. While, some banking systems are already giving in to adopting the new crypto trends, some are still in ardent opposition to the movement.
- Transparency Promotion and Corruption Reduction
Different researches carried out over time have linked poverty with corruption among the leaders. An example of these studies is one carried out by Transparency International – one of the largest NGOs fighting corruption in the world. In their studies, they revealed that there is a relationship between the poverty indicators and the percentage of those paying bribes in a set population. They revealed that corruption alone will hype the budget of the United Nations by $48 billion for the completion of the Millennium Development Goals.
One of the countries with a history of high corruption is Singapore which of course, is the reason for the high poverty index in the country. But due to the massive anti-corruption campaigns, the country has become more sustainable, reducing unemployment and ultimately, eradicating poverty.
Because of the fund traceability in the crypto space, anti-corruption organizations can now track how the public funds are being used or diverted, which will be very handy in cracking corruption.
Based on a report from the Brooking Institution, with the help of blockchain technology, a corruption investigation that is supposed to take about 15 months can be solved with just a press of a button. There exists the possibility of reducing the mishandled public funds by $2 trillion in a year; a positive appraisal for the financial evolution.
- Opportunities to Solve the Limitation of Technology
Truthfully, there will be limitations to the growth of cryptocurrency in developing countries, but the technologies available are quite limited compared to those in developed countries. With the crypto trend being one of the common baselines globally, diving into the crypto space gives developing countries the right motivation to invest in the technologies needed to thrive and adapt successfully.
Handling it on a smaller scale, there is a larger percentage of the population of the developing countries that don’t have access to the internet which is needed for using cryptocurrencies. One of the things the growth of cryptocurrencies will cause in developing countries is to increase the availability of stable internet access to the population deprived of it.
- Alternative for Weak Currencies and Inflation Hedge
As a result of a poor economy, the currencies of most developing countries are nothing to reckon with. And this is often the reason for huge emigration from those countries. Cryptocurrencies, on the other hand, are referred to as a store of value.
The crypto evolution has brought control to such financial and economic issues as high inflation, expensive and sophisticated banking systems, fast-changing (unstable) exchange rates, financial and regulatory restrictions, and other capital control threats.
Consider Nigeria – the most populous country in Africa, as an example, the uncertainty in the oil market, which happened to be the main export of the country, has a huge effect on the dollar supply in the country and, in turn, affects other foreign transactions, hence the abnormality that exists with currency exchange and the birth of what is called “black market.”
With cryptocurrency, there is such an opportunity to forget the worries of currency exchange because of its cross-border transaction ability and the store of value that save money from depreciation.
- Access to a Common Investment Opportunities across all Social Classes
Common in most developing countries, there is a large disparity among social classes in almost everything especially in access to financial investment. There are those social classes who don’t even have access to any kind of investment opportunities, mainly because of the volume of money needed for the investment. On some other occasions, there might not be such available documents needed to further their interest in the investment plan.
But with cryptocurrency, the market is not limited to any social classes, and this has widely breached the gap that exists in social classes when it comes to financial investments irrespective of the volume.
Conclusion
With all these highlighted facts on how cryptocurrency can help the developing countries, leaders in these countries should become more open-minded to exploring this seeming uncharted trend to better their existence rather than following the rigid structures. Nayib Bukele, the president of El-Salvador, when responding to one of his criticisms said crypto has done more than the traditional financial industry has done in a century and he is waiting for more developing countries to follow his lead in their respective countries.