Cryptocurrency and its effects on current economy

Cryptocurrency is having a massive impact on the economies of the world, and it will continue to do so in the coming years. Many countries around the world are welcoming this digital currency, but some are trying to ban it. I have examined the policies given by the leading countries in favor of cryptocurrency and against it (which we will discuss in this article), but can say that this digital currency is already started to fluctuate the economies of many countries. Before proceeding further let us first know what is cryptocurrency and from where it originated.

Cryptocurrency is a digital payment system that cannot be verified by banks as it does not rely on banks, instead, it is a peer-to-peer system that enables anyone from anywhere around the world to send and receive payments. Cryptocurrency payments purely exist as digital entries in an online database for specific transactions instead of physical currency. In the banking system, when you send money to someone, it is recorded in the banking ledgers, but in the case of cryptocurrency, it is recorded in public ledgers and stored in digital wallets. Crypto is derived from encryption as every transaction in the digital entry is verified from encryptions, this involves advanced coding in transmitting and storing the data of cryptocurrency from wallets and to public ledgers. Encryption makes these transactions more secure and safe.

Let’s dig a little deep and learn how Cryptocurrencies work; digital currency runs through a blockchain which is a distributed public ledger, and the record of all transactions is held by the currency holders. For this, a process of mining is used to create units of cryptocurrency, it uses the power of the computer to solve complicated mathematical problems. On resolving these problems, coins are generated, which can also be bought through brokers. After that, users can store and spend the coins by using digital wallets. If you own cryptocurrency, you have a key that allows you to move the record or a unit, without a trusted third party, from one person to another.

Talking about the currency, Bitcoin was the first cryptocurrency that was founded in 2009, and it is the best known today. Since 2009, digital currencies and applications of blockchain tech, in financial terms, are still emerging and are expected to increase more in the future. With new developments in these techs, trade-in bonds, stocks, and financial assets will be possible. A few of the cryptocurrencies in the world are Bitcoin (2008), Ethereum (2015) also known as (ETH), Litecoin, and Ripple (2012), which also includes bank transactions. Currently, there are thousands of cryptocurrencies that hold the capital of 2.65 Trillion USD.

Now getting back to our main topic, what are and will be the effects of cryptocurrencies on the global economies. We just discussed that cryptocurrencies hold capital of 2.65 Trillion USD, and many investors around the globe profited from it as it was not so common then. It got its fame as many investors around the world gained from cryptocurrency, and the first company to accept bitcoin as one of the modes of payment against online purchases was Overstock in 2014. Later on, many famous companies accepted it as a mode of payment i.e Paypal, Master Card, Starbucks, Vida, and AXA insurance.

Many investors think that the use of cryptocurrency can be a tool to evade inflation. Cryptocurrency will be the currency of the future like mobile phones and the internet are today. The sole purpose of mobile phones was to stay connected with each other over a gap of kilometers. Later internet came, which was launched for sharing information through a common platform. Now both mobile phones and the internet have become part of our lives. Likewise, cryptocurrency will be the currency of the future, and transactions will take place from cryptocurrency platforms.

Due to this increase in acceptance of cryptocurrencies, many countries are gaining in terms of remittances and online purchases from around the world. Countries that are benefiting from cryptocurrencies are: the United States gained an estimate of 47 Billion USD from 8.1 billion USD for year-over-year growth at the rate of 476%, the UK saw a growth of 431% increase, and Germany grew 423%. From the year 2020, the countries which are growing more from their cryptocurrency investments are as under:

While discussing the gains of countries from the Geography of Cryptocurrency Report, we came to know that many markets which emerged in cryptocurrency are the markets of the countries which are embracing cryptocurrency for their remittances and also as a response to currency devaluation. Seeing these growths in the globe, now many banks are accepting cryptocurrencies by coming up with CBDCs (Central Bank Digital Currencies). This acceptance of cryptocurrency shows its potential to change world economies. Australia is a country that has introduced the term “Crypto Friendliness” to increase the use of cryptocurrency in the country. Senate Select Committee on Australia in October has published a report on cryptocurrency as favorable in Financial Centre. The report proposed that licensing for crypto exchanges, taxation, and regulatory structure may be introduced for decentralized autonomous organizations.

Contrary to the above, many leading countries are also imposing a ban on the use of cryptocurrencies because they think it will create fiscal and ideological changes in the sovereignty of the country. Russia and China are among the countries to discourage the use of cryptocurrency.

Mr. Dmitry Chernyshenko, Deputy Prime Minister of Russia, signed a roadmap for operations in Russia to regulate crypto. This was done when Russia’s Central Bank published a consultation paper in which they proposed to ban crypto-related activity in the country. Another paper published as cryptocurrencies: Trends, Risks, and Regulations stated that “A wider adoption of cryptocurrencies creates significant risks for Russian financial market.” It further states that non-state-based currencies can create a threat to well being of the citizens through the loss of their investments due to volatility of the market, scams, and cyber attacks. Decentralized currencies create an alternative to state-based currencies which pose a threat to the power of central banks over monetary policy. Another report by Russia’s Central Bank stated that the anonymity of decentralized currencies can enable illegal activities like money laundering, terror financing, drug trade, and tax evasion.

Hold on to that thought, what the Russian Central Bank is stating, all of it isn’t completely true, in fact, transaction history on the public blockchain is public. Many governments (including Australia and the US) are collaborating with firms with large blockchain analytics for monitoring the citizen’s addresses and crypto wallet transactions. This mitigates the risk of money laundering, terror financing, and tax evasion. Cryptocurrencies aren’t anonymous, the wallet address is linked with a person’s identity through a central touchpoint, via cryptocurrency exchange or an email, and the individual is traceable from its wallet.

In my opinion, cryptocurrency is providing many opportunities for entrepreneurs around the globe. Cryptocurrency is making it easy for entrepreneurs to grow from local or national markets to the international market. The use of cryptocurrency is creating a relationship and trust with the markets, which is very beneficial for developing countries. In addition, cryptocurrency provides a new tech-based way which is allowing new buyers to enter international trading and also makes trade worldwide more smooth. The cryptocurrency market has been on the rise, and if this currency is accepted more widely, it will grow more in the future. A major issue with cryptocurrency is that it fails to protect the buyers online because most of the sites are against the use of a third party to delegate transactions, therefore, buyers are scammed. Cryptocurrency has its demerits, but we can prevent them by accepting and trying it through a continuous process like we have done with many new inventions in the world throughout history.

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