WHY EARLY USE OF CRYPTO AS A LEGAL TENDER IS COMMON IN EMERGING MARKETS

As the usage of cryptocurrencies like bitcoin increases, emerging economies appear to be laying the groundwork for their eventual acceptance as legal cash and creating the required regulatory framework.

Arturas Svirskis

7/7/2022 0 min read

Leading the charge for the acceptance of bitcoin as currency are emerging markets

Other nations, such El Salvador in Central America, are adopting cryptocurrencies as China seeks to outlaw them. El Salvador legalized bitcoin on September 7, 2021, the same day that the nation celebrated the 20th anniversary of the dollarization of its economy. The El Salvadorian government released the Chivo bitcoin wallet to enable quick and affordable payments via the Lightning Network (LN). Chivo has achieved success really quickly. Two months after the new legal cash was launched, 46 percent of the population, or two million people, had downloaded Chivo, although in 2017 just 29 percent of El Salvadorans had bank accounts.

Bitcoin may be used for small transactions like purchasing a cup of coffee because to this quick network. The Chivo Wallet also offers free cross-border payments2, which will assist El Salvador's migratory workers and their families in saving more than $400 million in annual remittance expenses. There, all significant chains and businesses, including McDonald's3, must also accept the bitcoin. It's possible that Panama, Cuba, and Paraguay may soon join El Salvador as Latin American nations. Surprisingly, the US dollar (USD) is also recognized as legal money in Panama and El Salvador. Not just nations with weak currencies, such as Argentina and Cuba, are searching for more stable, transparent, and dependable alternatives. Devaluations of sovereign currencies typically wreck their economies, leading to rises in unemployment and poverty. Emerging markets have looked for alternatives to weak currencies in order to avoid this extra source of instability. Additionally, crypto acceptance demonstrates how technology may promote growth and technological advancement in the developing countries.

What distinguishes CBDCs from cryptocurrencies?

Simply said, a CBDC is a virtual version of fiat money. As a result, it is centralized as opposed to decentralized, as the issuing government has authority over it. Due to lower banking and credit card usage than in industrialized nations, CBDCs appear to be particularly popular in emerging economies. The ability of CBDCs to use blockchain technology to eliminate the risk of fraud and chargebacks is another advantage. The ability of CBDCs and cryptocurrencies to conduct cross-border transactions with little or no fees attracts emerging markets as well.

A blockchain-based cryptocurrency network called Algorand (ALGO) has been attempting to provide decentralized CBDC infrastructure and regulations to nations all over the world. A CBDC known as SOV (Sovereign)6 was recently issued by the Marshall Islands. The ALGO protocol is being used because of its speed, scalability, and security. The SOV and USD will both be legal tender in circulation across the nation. Decentralized CBDC infrastructure has also been a goal of other blockchain technologies and associated digital currencies, such as Cardano (ADA) and Ethereum (ETH), and their development teams. In order to provide central banks and governments with decentralized, scalable, and secure blockchains on which to build their CBDCs, these platforms and currencies will keep competing. The trial programs for Sweden, the Bahamas, and the Eastern Caribbean Currency Union (ECCU) are also underway. India plans to launch its CBDC in December 2021. Eighty-one nations7, accounting for more than 90% of global GDP, are presently researching or have already introduced some type of digital money.

Why the crypto revolution is centered on emerging markets.

The future of cryptocurrency and blockchain implementation globally will be largely determined by emerging economies for a variety of reasons. The adoption of a CBDC or cryptocurrency might be advantageous in emerging nations because to their large unbanked populations, high banking risks, and, generally, lower bank and credit-card penetration rates. The adoption of blockchain in developing markets may help prevent corruption, guarantee transparency, and ensure that workers across a variety of sectors are treated fairly along the whole supply chain. To ensure transparency and fairness, smart contracts and blockchain have the potential to record all transactions and agreements on an immutable ledger. This may contribute to a reduction in global corruption and abuse. It is crucial that the US government starts talking about methods to catch up with developing nations and maintain the worldwide clout of the USD since tokenization looks likely.