Crypto Will Change Developing Countries – Here’s How

Written by Hannah Parker

Since the COVID-19 pandemic, more nations have been researching alternative currencies, resulting in the increased appeal of cryptocurrencies. More and more people recognise the usefulness of cryptocurrencies, with Bitcoin at the forefront. 

While cryptocurrencies have recently been integrated into many of the world’s leading markets, the largest concentration of cryptocurrency traders is highest in the United States and the United Kingdom, with several emerging nations also entering the Bitcoin market. Here’s an insight into what crypto can do for developing countries.  

Why is Crypto So Popular in Developing Countries? 

Developing countries are frequently compelled to look for alternative ways to earn, save, and transfer money. The cryptocurrency market helps people safeguard their fortune by holding it in crypto rather than their local currency, in addition to offering the chance to make money and become wealthy. 

A number of these countries include El Salvador, for example, which rendered Bitcoin (BTC-USD) its lawful tender in September 2021, Nigeria followed suit, and as of April 2022, it was documented that around 33.4 million citizens traded or operated crypto assets, despite limitations on digital currencies transactions by the Central Bank of Nigeria (CBN). Additionally, it was determined that more than 4.3 million Filipinos (4.0% of the country’s population) presently own Bitcoin.

Advantages of Crypto in Developing Countries 

Cryptocurrency is a decentralised software-based system that consumers can access over the internet. One benefit of cryptocurrencies for emerging nations is the infrastructure that increases financial participation – a roadblock to poverty reduction. The World Bank lists several challenges associated with a need for more media independence, including access to banking services.

Crypto benefits an economy by: 

• Financial Inclusion: Even if they lack access to conventional financial services, individuals in developing nations can use cryptocurrencies to engage in the global economy. This can be especially crucial for people and companies in rural regions or areas with poor banking facilities.

• Remittances: Many people in developing nations depend on money sent home by relatives who are labourers overseas. These people now have the option to receive money swiftly and safely without having to use costly and cumbersome conventional transfer methods.

• Protection from Inflation: By acting as a repository of value, cryptocurrencies can offer security from price increases and currency depreciation. Due to the potential for high inflation rates in many emerging nations, cryptocurrencies are a desirable replacement for conventional fiat currency.

• Lack of Confidence in Traditional Financial Institutions: As a result of things like corruption and political turmoil, traditional financial institutions need to gain more trust in some emerging nations. Cryptocurrencies provide an alternative to these organisations for storing and transferring wealth.

• Growth Possibility: Cryptocurrencies can experience substantial growth in the future as a still-evolving, young technology. Some people and companies in underdeveloped nations might see a chance to engage in cryptocurrencies as a means to make money.

Disadvantages of Crypto in Developing Countries 

While many positives may come from adopting cryptocurrency in developing countries, there are several drawbacks including: 

• Limited Access: Cryptocurrencies demand digital infrastructure and internet connectivity, which may not be easily accessible in developing nations. This may restrict the adoption and use of cryptocurrencies, especially among those who live in rural regions and those needing help to afford digital gadgets or connectivity.

• Volatility: Due to their high volatility, cryptocurrencies have become known as a hazardous source of value or medium of trade.  The price changes of cryptocurrencies may be hazardous for developing nations with shaky economies.

• Lack of Regulation: Since cryptocurrencies are primarily uncontrolled, fraud, scams, and criminal activities may result. These problems may be more prevalent in developing nations with lax regulation systems.

• Limited Acceptance: Cryptocurrencies are only widely accepted as a form of payment in some parts of the world. This can limit their usefulness in developing countries where cash and traditional forms of payment are still prevalent.

• Energy Consumption: Cryptocurrencies are not widely accepted as a form of payment in many parts of the world. This can limit their usefulness in developing countries where cash and traditional forms of payment are still prevalent.

• Technical Knowledge: Cryptocurrencies and blockchain technology are complex and require technical expertise to use and understand. People in developing countries may need more knowledge and skills to engage with cryptocurrencies fully.

The June 2022 Policy Brief No 100 by the United Nations Conference on Trade and Development (UNCTAD) examined the factors that led to cryptocurrency’s quick adoption in emerging nations, including the ease of transfers and their use as a hedge against inflation and currency risks. 

The UNCTAD mentioned, “Recent digital currency shocks in the market suggest that there are privacy risks to holding crypto, but if the central bank steps in to protect financial stability, then the problem becomes a public one.”

Developers at the Bitcode Method Official site  mentioned that if cryptocurrencies keep expanding as a form of payment and even informally take the place of national currencies, nations’ “monetary sovereignty” may be at risk. 

UNCTAD also emphasised the unique danger that stablecoins present in emerging nations with unfulfilled reserve currency demand. Stablecoins are intended to keep stability while their worth is anchored to another currency or financial asset, as their name suggests. 

While cryptocurrencies can make transfers easier, UNCTAD cautioned that they might also make it easier for people to evade and avoid paying taxes through shady financial transactions, much like a tax refuge where ownership is difficult to trace. 

UNCTAD has detailed several measures to stop the growth of cryptocurrencies in emerging nations. The agency encouraged officials to govern crypto exchanges, digital wallets, and decentralised finance to guarantee complete financial control of cryptocurrencies. Furthermore that it should be illegal for regulated financial organisations to own cryptocurrencies, including stablecoins, or to sell connected goods to their customers. 

Cryptocurrencies are likely to grow in importance as a means of storing and transferring money as digital infrastructure in emerging nations keeps growing. Additionally, the security and openness offered by blockchain technology may aid in the fight against other problems that have traditionally afflicted traditional financial organisations in these regions. It is critical to proceed cautiously with accepting cryptocurrencies in emerging nations and consider each area’s particular difficulties and circumstances. It is possible to use the power of cryptocurrencies to support economic freedom and societal advancement in the developing world by collaborating with regional groups and organisations.