The most popular functionality of cryptocurrency at the moment is found in its store of value, whereas in countries where fiat currencies are failing, cryptocurrency stands as an alternative to fiat currencies in order to carry out the simplest of transactions. In this publication, we will take a look at the role cryptocurrency is playing in inflation-ravaged economies as well as its resourcefulness to governments that are shielding themselves from economic attacks.
There is no way we would discuss the importance of cryptocurrency in hyper-inflated prone economies without touching on the original functionality of cryptocurrency. In its most basic definition, cryptocurrency is “digital money”, therefore, it serves as a medium of payment or an alternative to fiat currencies. However, the recent spike in prices of these assets over the years has placed more emphasis on the “store of value” factor of cryptocurrency, which has further promoted the never-ending comparison between gold and crypto.
Although the focus on value has culminated in massive adoption of crypto globally, it is becoming obvious that retail-driven adoption is the next phase of crypto adoption. Yes, people are aware of crypto and some have even gone ahead to go through the process of owning coins. Then, what is next? What do they do with the coins they own apart from trading them? Note, that not everyone is a trader, some just want to escape the struggles associated with fiat currencies and use decentralized money for their daily activities and needs.
Perhaps, the most illustrative example is highlighted in economies with failing currencies. Citizens of countries like Venezuela have witnessed the unending devaluation of their currencies as a result of poor policies implemented by their governments or other external factors that threatens their livelihood. To them, crypto is more than the popular trading activities we are used to in this region; it serves as an escape from a seemingly irresolvable debacle that has gripped their society. In a way, this establishes the importance of decentralized currencies that are not subject to governments’ policies that inadvertently results in economic crisis.
The inflation crisis in Venezuela is perhaps one of the most peculiar cases of the crisis-influenced adoption of crypto, which has seen the circulation of the Bitcoin in this country peak in 2018. In this country, crypto does not only serve as an alternative to Bolivar (the local currency), it is also more available than the US dollars which have become increasingly difficult to access. As expected, Bitcoin is not the only crypto dominating in this country, cryptocurrencies like Dash, which offers lower transaction fees and faster transaction speed have become popular in Venezuela. This shows that Bitcoin’s store of value is not the most important factor at play, people in this economy are more concerned about crypto as a means of payment.
Unsurprisingly enough, the government of Venezuela decided to stay ahead of the situation by introducing a state-sponsored cryptocurrency that relies on the petroleum reserve of the country. Unfortunately, as Reuters reported, things have not gone according to plan as controversies still cloud the effectiveness of this project especially, if you consider that the cryptocurrency is very much unpopular. Regardless of the fact that Venezuela’s foray into state-owned crypto was not successful, it shows that governments that are riddled with various financial insecurities would not shy away from employing crypto-related solutions that would rid them of over-dependence on foreign currencies.
This is evident in Iran’s contemplative attempt to introduce state-owned crypto in order to by-pass the aftereffect of US-imposed sanctions. Countries like Iran that are battling inflation as a result of various sanctions that has crippled their economy are experiencing a boom in crypto-related activities. However, the boom in these activities in Iran, in particular, has been snuffed out by government-imposed bans on crypto. Whether the desperation to avail its citizens with alternative means of payment to gold would spur Iran to reopen its previous plan to introduce state-owned crypto is still uncertain, nonetheless, the original consideration indicates establish crypto’s importance to fragile economies.
Another country that has experienced crypto transactions as a result of inflation in Zimbabwe and it has consistently looked for new ways to facilitate transactions since its local currency currently has little or no value. Nevertheless, the deliberate attempt by some countries to eliminate the influence of the dollar from the world economy is as crucial to the adoption of crypto as the inflation-driven crypto adoption that is becoming common.
This may come as a surprise to you, but countries like Russia and North Korea have at one time or the other allegedly sponsored crypto-related projects that could cut the dollar-dependent status of their economy, particularly in the event of a US-imposed sanction. It would also not come as a surprise if it was revealed that one of China’s numerous crypto-related patents is specially tailored to set up China as a dollar-independent economy.
Cryptocurrency is fast becoming a reliable alternative to fiat currencies as shown in some of the inflation-ravaged economies. This highlights the importance of crypto and how much work is needed if crypto is to become a global means of payment.