How cryptocurrency affects a country’s economy

Source: Pexels (www.pexels.com)
Source: Pexels (www.pexels.com)

In 2008, the pseudonymous whitepaper provided insight into a new way to transfer value over the Internet. It led to the emergence of bitcoin, blockchain, and cryptocurrencies.

Over the next decade, the cryptocurrency market went through all the classic phases of disruptive technology:

  • Bull markets and crushing pullbacks
  • Periods of euphoria and moments of despair
  • Fear
  • A whirlwind of emotions

The cryptocurrency market has made it clear that it is here to stay. Now entering its second decade, it has been preparing for new highs, attracting the world’s biggest investors and financial institutions. Also, to check is coinloan safe? Crypto Loan is one of the top influences on the country’s economy currently.

What are cryptocurrencies?

As a medium of exchange, cryptocurrency uses advanced blockchain technology. It is a way to track the sending and receiving of cryptocurrencies and encryption to ensure the validity of transactions.

This form of exchange became popular in 2017, when the market cap of crypto-assets significantly increased, driven by the emergence of new currencies and appreciation far above the levels of conventional assets. This rapid rise attracted the interest of many, who quickly became familiar with the name “cryptocurrency.” With the popularization of the currency, there was a great migration from traditional investments to digital assets.

Recently, a wave of institutional adoption and inflationary concerns have propelled cryptocurrency prices. And also, their market soared to new all-time highs, though not without their usual volatility.

Business analytics firm MicroStrategy, one of the largest corporate Bitcoin holders, announced another $1 billion bitcoin investment on February 24 of this year. The previous week, Bloomberg reported that Morgan Stanley’s $150 billion investment arm is planning to add bitcoin to its portfolio.

Additionally, banking powerhouse Goldman Sachs is setting up a cryptocurrency trading desk after pulling back from an effort to enter the market after Bitcoin crashed in 2018. It made it the latest institutional player to invest in cryptocurrencies amid a surprising surge in its values.

Impacts on the economy

Few people thought that cryptocurrency would never make such a significant impact on the world. Many saw it as more of an obscure hobby or a dream to get rich through asset appreciation than a serious investment opportunity. Today, the story is quite different.

News about Bitcoin and other cryptocurrencies such as Ethereum and litecoin. It is even the recent meme-created cryptocurrency dogecoin that is everywhere. Banks, companies, investors, and governments already show interest in this type of investment. Whether you intend to get rich or warn of a potential financial bubble, most people have already accepted that Bitcoin will significantly impact the economy.

In addition to being a form of payment, companies are using encryption technology to add value to their product portfolio. One of the cases is Mastercard, which, in partnership with the broker Gemini, announced its first credit card with cryptocurrency rewards.

Another interesting case of using these new technologies is that of Pringles. In a virtual auction, the brand launched 50 units of a new digital product, “Crypto Crisp,” in the form of NFT (Non-Fungible Tokens). For those unfamiliar, NFT is a type of cryptographic token that represents something unique, guaranteeing a certificate of authenticity in the digital medium. It is made with a design by Vasya Kolotusha; the “flavor” of potato is a virtual work of art that started to be sold for US$ 2.00 and is now worth the equivalent of US$ 1,933.89.

Factors that directly impact the economy

Elimination of the need for intermediaries in financial transactions. One of the main features of cryptocurrency is that it does not require an intermediary like traditional currency. Instead of a bank or other central institution validating transactions, all currency users verify them in a decentralized way.

Therefore, it is not difficult to understand the concern of banks as cryptocurrency threatens even the need for their services. Transactions take place much faster because they don’t have to go through multiple hands. There is also a concern about the difficulty in regulating financial activity, which has particularly interesting implications at the international level.

          Separation of dollar transactions

The dollar acts as a reserve currency for the global economy, as the main financial transactions around the world are based on the dollar. It is the main source of America’s global power and has allowed the US and other nations to impose economic sanctions on other countries.

On the other hand, cryptocurrency transactions do not need to have any connection to the US or government-sponsored currency. It provides financial actors with another way to participate in the global economy and bypasses major political and economic powers.

A practical example is that of Venezuela, which created its cryptocurrency, “Petro,” which it says is supported by the country’s oil supply to circumvent sanctions. Other nations have tried similar tactics.

          Removing entry barriers

Cryptocurrencies have also allowed entrepreneurs to bypass traditional capital-raising routes for crypto and blockchain-related ventures. Instead of convincing venture capitalists and banks to invest in their projects, they can bypass regulation and bureaucracy through an initial coin offering or ICO.

An ICO is similar to an initial public offering, in which a company offers shares in its company for the first time. In an ICO, however, a startup sells a portion of a cryptocurrency to investors to fund the project.

Many countries have started to impose restrictions on ICOs. Regulatory institutions began to act, such as the Securities Exchange Commission (SEC), which does not regulate them and has not registered any ICO with the agency. It prompted the SEC to warn about potential risks for investors considering acquiring ICOs. The fact that this fundraising approach has received so much attention indicates that it deserves attention.

          Complicating Regulations

As mentioned earlier, a potential challenge related to cryptocurrency transactions is that they are difficult to regulate due to their anonymous nature. An example is the negative effect it had on the Federal Police operation investigating money laundering from drug trafficking in São Paulo. The appeal of using cryptocurrencies in criminal activities is evident from the ease of access to the currency anywhere on the planet.

Another reason governments are concerned about cryptocurrency is that it makes it easier for people to avoid paying taxes. It has led several countries to consider stricter regulations on the cryptocurrency market and even develop their government-sponsored types.

          Enabling more international transactions

About 2 billion people worldwide do not have a bank account, and in many countries worldwide, businesses still cannot accept credit card payments. For people in these typically less developed countries, cryptocurrency offers a way to engage with the global internet economy.

The connection to the Internet economy has, in part, allowed many businesses in the United States to thrive even in times of economic downturn. Cryptocurrencies can similarly impact people living in countries with weak economies.

For example, it can be especially useful for migrant workers who send money to their families while working abroad, who currently pay an average of 9% to transfer money through international financial institutions. If they used cryptocurrencies, they could do it practically for free.

Business impacts and peers’ point of view

Many companies are moving to adapt to the new reality of cryptocurrencies. Giant companies like Tesla and Microsoft already have cryptocurrencies in cash and as a payment method for selling their products. However, many of the individual threats inherent to the currency also manifest themselves and affect the business, adding an extra layer of uncertainty.

In addition, institutions may be challenged by various jurisdictional law enforcement agencies, each with their motivation for failing to comply with the many different state and local laws.

Another imminent impact is the pressure companies will face to adapt and make this payment method available to their customers, as large companies are already adopting it. The decision to adopt this strategy would involve a substantial review of the company’s entire Order-to-Cash process, requiring a complete redefinition of all processes and systems involved in this chain.

In general, we understand that crypto assets have already conquered the market and investors. We just need to understand the level of readiness to use this type of asset. Public acceptance and trust will still take some time to establish; however, what is certain, going forward will be the constant need for business changes to adapt to this form of exchange in the digital world.