The impact of the digital revolution has been felt across all parts of the world. One of the best examples of the expanding influence of technology on the world is the adoption of cryptocurrencies. The unique virtual assets have not only transformed conventional financial landscapes but also introduced new benefits in financial transactions.
As developed nations continue to struggle with embracing cryptocurrencies, the rising rate of cryptocurrency adoption in developing nations presents promising news for the crypto market. Is the accelerated adoption curve in developing countries due to speculative trading of cryptocurrencies? Let us find out the answer by unraveling the opportunities and challenges associated with adoption of cryptocurrencies in developing economies.
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Opportunities for Developing Nations in Adoption of Cryptocurrencies
The primary reason for growing adoption of cryptocurrencies in developing nations revolves around the resolution of formidable economic problems. The economic reality of developing nations is the biggest factor that drives cryptocurrency adoption.
The traditional financial systems in developing countries have to face issues of limited accessibility and inefficiencies. On top of it, the volatility of economic conditions in developing countries also creates a formidable challenge for citizens. The following points can help you understand the opportunities for crypto adoption in developing countries.
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Addressing the Problems of Financial Inclusion
One of the biggest problems that cryptocurrencies aim to solve in developing countries is financial inclusion. It is one of the prominent answers to “What is the role of cryptocurrencies in developing economies?” as most of the population in developing countries cannot access basic financial services. The exclusion comes from different factors such as strict onboarding requirements, geographical barriers and higher transaction fees. Cryptocurrencies can overcome these hurdles as they need only a smartphone with internet connection. With cryptocurrencies, citizens of developing countries can create a bank account in their phone and store, send or receive money digitally.
Cryptocurrencies can enable people in developing countries to become a part of the gradually expanding digital economy. Global institutions such as the World Bank have reported a positive correlation between higher rates of Bitcoin adoption and enhanced financial inclusion in developing countries. The best example of growing financial inclusion through cryptocurrencies is visible in Sub-Saharan Africa. In 2021, only 49% of the adults had a bank account in different parts of the region. On the contrary, the rise of crypto adoption in countries like South Africa, Nigeria and Kenya has presented a useful alternative to traditional banking.
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Simpler Remittances and Cross-Border Payments
Remittances are an integral part of the economy in developing countries as they are the money sent by migrant workers to their families. Traditional remittance services charge exorbitant fees and have extremely slow processing times with payments taking days or even weeks to complete. The inefficiency of traditional international payment systems has a negative impact on the citizens of developing countries who rely on cross-border money transfers.
Cryptocurrencies can offer the ideal solution to the inefficiencies in cross-border payment systems. Cross-border payments are one of the biggest reasons for crypto adoption in the world as cryptocurrencies offer more cost-effective, secure and faster solutions for international money transfer. Blockchain technology can facilitate almost instant transactions with considerably lower fees than traditional banking systems. Kenya and Nigeria are the two prominent examples of using cryptocurrencies for cross-border payments. The benefits of crypto adoption in Nigeria have helped in facilitating faster money transfer in urban as well as rural areas.
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Boosting Small Businesses and International Trade
Developing countries can achieve economic growth on the shoulders of their small and medium-size enterprises or SMEs and international trade. The traditional banking systems hold back the growth of developing economies in these areas with various inefficiencies. Cryptocurrencies can solve the problem by empowering businesses to accept payments from customers anywhere in the world.
Crypto adoption will also help business owners gain access to the services of international suppliers. Small businesses can also use cryptocurrencies to bypass the costs and complexities that come with international banking. As a result, businesses in developing countries can promote economic growth and expand their market presence. On top of it, the immutability of crypto transactions on blockchain helps in ensuring accountability and fighting against corruption prevalent in traditional systems of developing countries.
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Safeguards against Inflation and Currency Devaluation
Among the many problems of developing nations, the persistent inflation exerts the maximum impact. It can lead to faster depletion of savings and purchasing power of citizens. You can notice crypto adoption opportunities in developing nations where local currencies go through drastic devaluation due to political instability, external shocks or economic mismanagement. The only effective solution in such unstable environments points at assets which can serve as stable store of value.
Cryptocurrencies can offer a promising alternative for hedging against inflation and currency devaluation. While cryptocurrencies like Bitcoin can serve as a hedge due to their finite supply, stablecoins are the better option. Stablecoins are pegged to stable assets like the US Dollar, thereby offering a predictable anchor during inflation. Businesses and individuals in developing nations can use stablecoins and other cryptocurrencies to safeguard their health from inflation and relentless currency devaluation. Argentina and Turkey are the two examples of countries that have witnessed rising cryptocurrency adoption to fight against inflation and currency devaluation.
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Challenges for Crypto Adoption in Developing Nations
The diverse array of opportunities for crypto adoption in developing nations showcases that the world may witness large-scale adoption of cryptocurrencies in the next few years. At the same time, you should also acknowledge the crypto adoption challenges that might create setbacks for embracing cryptocurrencies. The following challenges will be the biggest barriers to the adoption of cryptocurrencies in developing economies.
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Consumer Protection from Price Volatility
The multiple advantages of cryptocurrencies for developing countries overshadow the fact that the price of crypto asserts is extremely volatile. The price fluctuation in short periods can make anyone think twice about adopting cryptocurrencies as a reliable medium of exchange or store of value. Crypto price volatility can lead to substantial financial losses, which are alarming in developing nations where people have limited financial resources.
The limited regulatory oversight along with the immaturity of the crypto market in developing nations exposes citizens to various risks. For instance, fraud, exchange breaches or scams indicate that users don’t have any robust protection mechanism. In the event of loss or crypto fraud, citizens in developing nations will have no one to turn to.
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Technological and Infrastructure Concerns
The existing state of cryptocurrency adoption in developing nations has been shaped by the availability of smartphones and internet connectivity. However, the lack of adequate digital infrastructure and reliable internet connectivity in various areas of developing nations create challenges. The impact of these challenges holds back many users from participating in the crypto space to access digital wallets or complete cross-border transactions. On top of it, many people in developing countries don’t have the fundamental knowledge required to use cryptocurrencies.
Another formidable infrastructure concern associated with crypto adoption is the energy-intensive cryptocurrency mining process. Developing countries that are struggling with power supply can have to face dire environmental challenges with increased crypto adoption. Furthermore, the increased energy demand in crypto mining operations can also drain the national resources of developing economies.
The biggest challenge to crypto adoption in developing countries emerges in the form of regulatory uncertainty. Governments of developing countries don’t have clear or consistent regulatory frameworks, especially for crypto governance. As a result, the legal framework for cryptocurrencies in developing nations is all about patchwork of different approaches. The regulatory uncertainty creates doubt in the minds of individuals, businesses and investors, thereby restricting institutional interest and mainstream adoption.
Regulatory uncertainty also affects crypto adoption in the world due to the negative impact of unprecedented policy changes. Another notable theme associated with regulatory uncertainty for cryptocurrencies is their borderless and decentralized nature. The governance or regulation of cryptocurrencies at a national level stands against the core principles of cryptocurrencies. Excessive intervention of the government in crypto regulations can lead to issues of terrorist financing and money laundering.
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How Should Developing Nations Adopt Cryptocurrencies?
Developing nations can capitalize on the benefits of cryptocurrencies by creating frameworks to make the most of opportunities and resolve challenges. The strategic approach for crypto adoption in developing economies must focus on establishing clear and dynamic regulatory frameworks for crypto usage. Developing nations should invest in digital infrastructure, such as internet connectivity in rural areas, and promote financial literacy to encourage citizens to use cryptocurrencies effectively. Most important of all, developing countries must always foster innovation to craft unique solutions to the problems of citizens with cryptocurrencies.
Final Thoughts
The adoption of cryptocurrencies in developing nations represents a major milestone in the domain of global finance. The emphasis on crypto adoption opportunities such as enhanced financial inclusion, efficient international transactions and hedging against inflation should not undermine the challenges of crypto adoption. Developing countries like Kenya and Nigeria have taken the first steps in crypto adoption on a large scale with success. At the same time, the lack of definite frameworks for working with cryptocurrencies might lead to trouble in the long run. Learn how to follow the expert recommendations for cryptocurrency adoption according to your requirements.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!
