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April 4, 2023

The mass adoption of cryptocurrency in countries: why is it happening and how is it possible?

“How do you wish to pay? With cash, debit card, credit card or crypto?”. It is a question that will be asked a lot in the future. Why? Each day that passes, terms such as blockchain and cryptocurrency are being used more frequently in our vocabulary. This new form of exchange is also bringing up issues like: should I invest in Bitcoin or Ethereum? What is going to happen to the traditional currency? Is this just a fad?

While there are no clear answers to these issues, some of you might ask: How close are we for governments to fully adopt crypto in their economies? Can the traditional currency of a country coexist with Bitcoin and other cryptocurrencies?

It is possible. We will tell you why crypto is gaining more traction in various countries and how a country can fully adopt these digital exchanges.

Reasons why cryptocurrency is starting to be considered as an alternative exchange

In the digital atmosphere, the concept of decentralization is often talked about against tech monopolies. You can find an example here (alternative methodologies in how to run apps, services or products that travel in more than one cloud). Those few companies should not use the personal information of users for their own gain. With money, there are also calls in our society that it should not be centralized nor hegemonic; in this case, the solution is crypto, a currency that is not controlled necessarily by a government or a central bank.

Due to the use of blockchain, cryptocurrency transactions are completely transparent because in this distributed database, all the users can see what the parties in this operation are and how much crypto is being exchanged.

Crypto is exposed to volatility the same way traditional currencies are. Global events that affect a country that mines cryptocurrency or power outages in these crypto farms that have the physical servers to mine crypto, could affect the value of these digital coins.

Back to our question: what does the decentralization of technology have to do with traditional money? Let us use Venezuela as an example, a country where the Bolívar (their traditional currency) has been devalued due to hyperinflation. As a result, Venezuelans are buying goods, food and paying their bills with cryptocurrency.

Chainalysis, a blockchain data platform, in their 2021 Global Crypto Adoption Index, noticed that countries like Venezuela, Kenya, Vietnam and Nigeria are mass adopting crypto because they don’t have an easy access to foreign currencies such as the Dollar or Euro due to foreign policies or the lack of overseas investors. It is also interesting to note that these nations have large transaction volumes on peer-to-peer (P2P) platforms, facilitating crypto bartering between them. Thus, the devaluation of the official local currency makes the residents of these nations buy cryptocurrency for their savings and for a better quality of life.

Cuemby the Rabbit getting ready to move to El Salvador

Mass adoption of crypto is intended to decentralize policies of foreign governments or central banks. For example, Bitcoin, which is internationalized and has a large economic stake in hand, is used to bring overseas investments and helps to globalize the economies of these countries.

Let’s look at El Salvador’s case, which was the first country to adopt Bitcoin as part of their official currency along with the US Dollar. In 2021, their president, Nayib Bukele, bought 550 bitcoins which was the equivalent of 23 million US Dollars.

Precisely, widely adopting this cryptocurrency allows the Salvadorian merchants to easily pay for importing and exporting their products. Also, foreign investors started to buy real estate with their digital money without the hassle.

As more countries are starting to adopt crypto as an alternative means of payment to their devaluated currency or to attract foreign investors, what are the two ways in which a government can start circulating digital money?

The first option: mass adoption of an existing cryptocurrency

Let’s go back to the example of El Salvador. What the Salvadorians did was to associate with Strike, a digital finance company, to create an infrastructure to start working with bitcoins. After establishing the system, the government launched the Chivo Wallet, a digital wallet that acts the same way as a bank account where people store their cryptocurrency in.

And what about politics? It is important that a government administration backs the initiative of using crypto. To succeed in the mass adoption of digital currencies, it is essential that a nation’s economy isn’t attached and dependent on the notions and actions of a government; that the country has international trade with others such as Free Trade Agreements that backs overseas investments and gives an economic autonomy to merchants; and most importantly, that there is not a censorship of any kind.

*Imagen de Cuemby el conejo en un aeropuerto yendo a la portería de un vuelo a El Salvador

Guillermo Torrealba, CEO of the exchange house Buda, says that “the accepted use of cryptocurrency by a country can create further confidence in these digital assets and could bring a snowball effect of mass adoption”. In other words, countries like El Salvador that are using Bitcoin as an official currency can move towards to a more prosperous economy –thanks to foreign investment– than those nations haven’t made the jump yet.

Second option: “digitalizing” traditional currency

On the other hand, governments and central banks can distrust currencies that aren’t managed nor administrated by them. However, it is difficult to not recognize that the use of cryptocurrencies is gaining traction in our society and commerce.

What is the alternative option for these governments? There is a crypto called central bank digital currency (CBDC) that is basically digital money issued directly by a country’s central bank. An example would be, let’s say the US decided that the dollar should also be a CBDC. If someone has 45 digital dollars, it is the equivalent of having the same amount of US Dollars physically.

The benefit of a CBDC is safer and more stable. Yes, these cryptocurrencies act the same way as their traditional currency counterparts that are subjected to government policies, global events, etc.

Fernando Fernández Méndez de Andes, an economist and university teacher at IE Business School, in an interview with TechMonitor, claims that a CBDC complements the bills and coins of an issued legal tender by a central bank without any risk of exchange nor gas fees (pricing values required to successfully conduct a transaction or execute a contract on the Ethereum blockchain platform) how it occurs with other cryptos.

Also, since a CBDC is issued by a central bank, the use of blockchain isn’t required. Why? The centralization of managing these digital currencies by a banking institution and its government causes a sense of security with their population and because inside a blockchain no one has control; while this cryptocurrency since it is backed by the government, they must have an autonomous jurisdiction.

Some countries have already on or going down the path of adopting CBDCs. China, The Bahamas and Sweden have already made efforts to start using these cryptocurrencies although the European Union, Japan, United States, and other nations have expressed their intentions to start digitalizing their traditional currency soon.

Cryptocurrency, whether it’ll be regulated by a government or blockchain, will come

According to a poll done by YouGov (an international firm of online investigation and data analysis) to 33,000 Americans, 38% of participants think that cryptocurrency will be widely accepted as a means of legal transaction in 10 years.

In Latin America’s case, the mass adoption of crypto is also on the rise. According to the Statista Global Consumer Survey, their results indicate that Argentina leads in this region with 21% of survey respondents using or possessing digital currencies, Colombia follows with 15%, Chile with 14%, Peru and Brazil with 13% and lastly Mexico with 9%.

In a nutshell, the mass adoption of cryptocurrencies isn’t a trend that is going to fade out anytime soon. To act purposefully as an alternative to a weak currency or to attract foreign investments, to use an existing crypto or create a CBDC, these are the decisions that governments must take in the next couple of years to make the jump or not with cryptocurrency in their economies.

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