Since the COVID-19 pandemic, cryptocurrency has gained popularity, with more people looking into alternative currencies. As cryptocurrency has been rediscovering its value, more and more people realize its utility, with Bitcoin at the center. In recent years, cryptocurrencies have become an integral part of many of the world’s major economies, with the number of cryptocurrency traders in the U.S. and the U.K. leading the pack.
The cryptocurrency market has been introduced and traded by several developing countries, but not to the level where it should be used within their borders. Cryptocurrency value increases with increased trading volume. Therefore, it would seem necessary to become more globally viable. Developing countries need to understand that different strategies should be used when approaching the market to succeed. To improve developing countries, we should dissect the factors that play a role in attempting to reach this market.
The volatile nature and anonymity of Bitcoin may make some people hesitant to adopt it, but there are other coins and blockchain adaptations that prove to be more promising. Although cryptocurrencies continue to evolve, they are already taking on a form that can help developing countries economically and politically.
With cryptocurrency, developing countries can reduce corruption, promote transparency, reduce transaction costs and times, and offer more financial inclusion and microfinance.
Introduction to cryptocurrencies
They are convinced to gain a comprehensive understanding of the possibilities that cryptocurrencies offer to developing countries. It is necessary to be aware of the general advantages and disadvantages of digital currencies compared with fiat currencies issued by central banks, such as the euro or the dollar, and review how these cryptocurrencies derive from the technology underneath.
This paper illustrates the point by using two cryptocurrencies. Cryptocurrencies work on blockchain technology, which Eric Schmidt developed. Several theories exist regarding blockchain as decentralized databases shared among many computers. A block database is characterized by storing entries into blocks, then evaluating each block to provide a summary.
As an example of cryptocurrencies discussed in this paper, Ammous (2015) describes Bitcoin as “an algorithm to record the transactions conducted between members of a decentralized peer-to-peer network and broadcast this information across the network.” Bitcoin has the largest market capitalization worldwide, with a valuation exceeding $189 billion.
How does it affect global society?
Cryptocurrencies or cryptos are virtual currencies that are secured by cryptography. In a computerized database, ownership records of individual properties are stored as a medium of exchange. Cryptocurrencies are digital currency that is independent of official government control.
Cryptocurrency is an emerging field of technology that offers a revolutionary revolution for the way people manage their financial affairs. There are both positive and negative impacts that cryptocurrency has had on global socity, as outlined below:
- The increasing use of cryptocurrency contributes to the integration of global society economically. There are currently several different currencies used worldwide. Cryptocurrency circumvents this divide and has become a more popular way of transacting.
- Cryptocurrencies remove a country’s right to issue its own money. A bad economic policy and a loss of trust between citizens and government.
- Cryptocurrency transactions are cheaper and faster. Therefore, it increases capital mobility/volatility, creating risk for macroeconomic stability and the associated social consequences.
- The emergence of cryptocurrency (instead of gold) has become one of the fastest-growing areas of the financial industry. Despite these fluctuations, cryptocurrencies have made both kings and beggars.
- In addition, terrorist organizations and drug cartels use crypto to smuggle contrabands that negatively impact society. The anonymity of cryptocurrency could lead to increased crime.
- People illiterate in the world of technology are being left behind as the acceptance of crypto increases. As a result, inequality will grow disproportionately as the use of crypto becomes widely accepted.
As a symbol of technological advances in today’s world, cryptocurrency is a symbol of cryptocurrency. It is unfortunate that not all people will be able to use it. In urban and rural areas, the technology level is quite different in most developing countries, typical of highly urbanized areas. Rural areas can sometimes have difficulty accessing the internet, for instance. Several developing countries are becoming more familiar with PayWave and online transactions.
Some developing countries may not be able to take advantage of cryptocurrency due to advancements in technology.
It is common for social classes to differ significantly in developing countries. There is not much creating a way of life closer to more developed countries by improving the speed and affordability of life. In addition to changing perspectives on investing, cryptocurrency can also affect cultural changes. A greater understanding of the value of the investment and its practical use will lead to an increase in income for the general population.
Purchasing cryptocurrencies involves several risks. With more people taking these risks, these risks will decrease. It is not a one-sided change, and if it is done right, everyone could benefit.
Reducing Corruption and Promoting Transparency
Studies have demonstrated that corruption is linked to poverty. Transparency International, the most prominent anti-corruption organization globally, found a correlation between poverty indicators and the percentage of the population who paid bribes last year. It has been estimated that corruption increases the cost of achieving the U.N. Millennium Development Goal for sanitation and water by about $48.5 billion.
After the People’s Action Party’s successful anti-corruption campaign, Singapore prospered, despite once being plagued with corruption and poverty. The elimination of corruption allowed Singapore to reduce unemployment and eradicate poverty, leading to a beautiful and sustainable foreign direct investment and economic development environment. An innovative way to combat crime is by using cryptocurrency, which is highly beneficial to developing countries.
As a result, the government can track to which extent its funds are spent on various projects. A donor can also use these funds only for the purpose for which they are intended and only during the designated time frames during which they can use them.
There is a report that the Brookings Institution declares that blockchain technology can eliminate the need for 15-month investigations into corruption. In essence, cryptocurrency is estimated to reduce the number of illegal bribes paid to public officials by an order of $1.5 to $2 trillion a year, thereby improving the development of nations.
Likewise, cryptocurrencies promote transparency by offering tracking functions and transparently handling data. Due to the distributed nature of blockchain software, data loss is minimized. Cryptocurrency transactions are more secure due to the encryption and because they are public and can be tracked because they are followed. The transparency of the process is enhanced since no anonymous or ambiguous user is involved, which prevents corruption from taking place.
Reducing Transaction Costs and Time
In the 21st century, anyone with a computer and the internet can access two valuable assets: time and money. Cryptocurrency decreases remittance fees, thereby improving the financial situation of developing countries and foreign workers. These fees will have to be paid to send money from an individual’s home country to an individual’s home country.
Rebit, a company specializing in Bitcoin-related ventures based in the Philippines, exemplifies this notion, as it allows USD to be sent to the Philippines without high costs. After converting their currencies into bitcoin, the workers can withdraw their money through their families back home in pesos. Take the case of Haiti, a country where hundreds of thousands of its citizens work overseas and send home money equivalent to 26 percent of Haiti’s gross domestic product (approximately $1.5 billion).
On the other hand, remittance fees can range from 8 to 10 percent, depending on whether the sender is American, Canadian, Asian, or Dominican. Remittance fees are as high as $130 million per annum. It should be noted that the fact that there are an additional hundred million dollars in taxes on taxes being sent home has a significant effect since the money sent home is for individuals making less than $500 in a year. It has been possible to find a player that stands out from the crowd since there are many players in the cross-border money transfer market.
Using Abra, the transaction costs can be substantially reduced. Its system involves:
- Transferring money into Bitcoin.
- Sharing it with the recipient via blockchain.
- Converting it to local currency.
Bitcoin transactions do not have to be witnessed by the customer. Abra can also be used without having a bank account. In Forbes’s view, banks and cryptocurrency are competition since cryptocurrency can avoid higher transaction fees that banks cannot. Because cryptocurrency does not require expensive private infrastructure to function, the charges associated with banking and mobile banking are reduced.
Cryptocurrencies boost developing countries’ financial inclusion
Cryptocurrency is a software-based system accessible to users over the internet and does not require physical infrastructure. Among cryptocurrency’s advantages to developing countries is its infrastructure provides greater financial inclusion, a barrier to poverty reduction. Access to banking services is among the obstacles cited by the World Bank that lacks media freedom.
Despite the lack of freedom of the press, specific locations cannot accept new accounts, more extensive deposits are required to open accounts, more documentation is needed before opening an account, and loans are processed more slowly due to the lack of freedom of the press. Aside from physical infrastructure issues, high banking fees are another obstacle to access, especially when it comes to mobile banking, which is often the only option available to people not affiliated with a bank. Although these obstacles exist, the emergence of cryptocurrency will allow them to be removed.
Software programs can be used to access a cryptocurrency wallet without a bank account. In recent years, there has been a great deal of innovation in meeting the financial needs of those who cannot access banking infrastructures or credit and, for that reason, are at a disadvantage. The way we accomplish this, we can eliminate the hassle of carrying around cash and protecting it caused by a lack of banking access.
Having a record of user transactions for cryptocurrencies could prove extremely useful for microfinance endeavors in the future. Because transactional history is freely available, it is not necessary to maintain further documents or carry out audits. Due to cryptocurrency’s constant growth and the increasing use of mobile phones and the internet by developing countries, the benefits of cryptocurrencies cannot be overlooked.
Developing countries and poverty
The report also provides an overview of which countries are considered developing countries, which puts this report’s focus on developing countries. It is estimated that developing countries have a Human Development Index, which is low, and that their industrial base is less developed than developed countries.
The way developing countries are defined is not standardized by the United Nations. On the other hand, there are specific characteristics that most countries considered to be “developing countries” have in common, so they can therefore be viewed as developing country criteria. The countries both lack adequate food for large portions of their population, have low income and poverty, inadequate educational and health opportunities, and lack access to quality medical care, resulting in a low life expectancy and high infant mortality.
Consequently, there is a higher incidence of unemployment in developing countries and less prosperity. The United Nations’ study “World Economic Situation and Prospects” examined global economic trends in 2018. According to their financial status, all countries fall into the categories of developed, transitional, and developing economies.
Countries from different economic circumstances are included in these groupings, reflecting the economic circumstances of these countries. Since many countries have characteristics that may lead to different classifications in the future, many of them cannot be classified solely in one category. Nevertheless, the U.N. has decided that these categories are mutually exclusive.
They provide a comprehensive list of developing countries organized geographically by the United Nations, as shown by the U.N. and this study. Developing countries are confronted with several economic challenges in their countries. Besides a low level of education and inadequate medical care, many other factors contribute to this issue.
Many studies show that a country’s economic development depends mainly on the availability of financial services. Honohan (2018) suggests that access to financial services is one of the most significant problems facing poor people since poverty is linked with inaccessibility to financial services. If people have access to financial services, they can prevent themselves from facing financial shortages.
Both consumers and companies need to have access to financial intermediaries because they provide loans to both groups of people. Firms could also be pressured to behave suboptimally if their financial frictions are high. As a result of their disadvantageous position, businesses have no access to financial intermediaries, so they cannot receive innovation funding, which puts them at a competitive disadvantage with foreign competitors.
The productivity gap widens when they fail to take advantage of innovation and exports’ complementary nature. Consequently, companies in developing countries cannot generate as much revenue and profit as they would like. Accordingly, fewer jobs are created, salaries are lowered, and tax revenues are decreased. To participate in global trade, businesses and individuals need access to finance.
An international transaction identification system such as SWIFT is required to link a bank account to an international transaction.
Companies without bank accounts can also not sell outside their region since they are excluded from many international services. In developing countries, there is also a problem of low levels of social trust since social trust is often associated with economic growth and the improvement of living standards. There is a significant correlation between social trust and equality, economic equality, and equal opportunity, which causes poor levels of social trust in many developing countries.
The social trust trap, a situation in which low social trust countries can’t rise out of, has plagued many countries with low social trust. Likely, social confidence will not increase in an environment with a high level of social inequality. They devised public policies to remedy this situation in the absence of faith. A major problem facing developing countries is corruption within their government institutions.
It is rare for many people to benefit from corruption; however, more people suffer the consequences caused by lower government incomes. The report finds that for Indonesia, the benefits of redistribution programs can even be exceeded by corruption, as Olken (2006) notes.
Cryptocurrencies can have a significant impact on developing countries. Reducing transaction fees and time can enhance cross-border payments. Peer-to-peer lending, international trade, and remittance payments benefit from this. By requiring transparent tracking, payments technology supports the fight against corruption.
However, to reap these benefits, cryptocurrencies need to be widely adopted and provide all three functions of money, which is not happening due to excessive volatility in prices. It is unlikely that the costs will remain stable without a backup and centralization. Stronger regulation of cryptocurrencies and more political support could lead to a sound price level.
Governments and central banks cannot support cryptocurrencies unless they control the money supply. Although, such control would lessen the benefits cryptocurrency offers. Cryptocurrencies are currently used in minimal ways in which developing countries can contribute to their growth. The future of the cryptocurrency industry is highly dependent on price stability, new regulations, and the adoption of cryptocurrency. I hope you find this article helpful. Now you know how cryptocurrency can improve developing countries.