With the cryptocurrency industry continuing to enjoy a surge in interest and adoption levels in recent years, it has been found that there are a couple of different reasons why this is the case.
According to this blog, emerging markets are setting the tone for future adoption of crypto as legal tender, with El Salvador’s decision to make it legal tender being groundbreaking, whilst it has also been revealed that these types of markets are being the frontiers for the adoption of Bitcoin, central bank digital currencies (CBDCs), and other digital currencies.
Indeed, bitcoin has managed to experience a huge amount of volatility over the last 12 months, with the token having fluctuated to vast values recently.
In October 2021, it had reached an all-time high of more than US$66,000, which has led to some experts suggesting that it will be worth more than US$100,000 in the very near future.
Emerging markets lead the charge
As mentioned, there are countries such as El Salvador that are currently leading the way in regard to the adoption of crypto as a form of legal tender, with the Central American nation embracing Bitcoin as they utilize Chivo as the Bitcoin wallet, launched by the country’s government to help facilitate cheap and efficient payments.
Although it was met by protests when it was first implemented, there has been a lot of success to have been experienced in the short time it has been available. Within two months of the law being passed, 46% (2 million) of the nation’s population had downloaded Chivo, compared to just 29% of the population having had bank accounts in 2017.
Following on from the success that has been had and the way that it is changing the lives of residents in an effective way, Latin American countries such as Panama, Cuba and Paraguay are all believed to be potential adopters of crypto as a form of legal tender in the near future. Of course, nations that have weak currencies are always going to be considered potential adopters as they are looking to try and find alternatives that offer stability, as well as transparency and reliability. The implementation of crypto within countries that have weak currency could allow them to reduce the levels of poverty and unemployment at the same time.
China implementing its own digital currency
China is famous amongst the cryptocurrency community for its negative stance towards digital asset as they decided to try and ban virtual currency on multiple occasions. September 2021 saw the global superpower decide to ban mining and the use of crypto after citing concerns that they had for gambling, fraud and money laundering.
Nonetheless, whilst the Asian country has clearly had its reservations about crypto, they have been working on implementing its own government digital currency electronic payment (DCEP), which has been referred to as e-CNY or digital yuan/digital renminbi (RMB).
The DCEP is China’s version of a sovereign e-currency pegged to the yuan, thus creating a central bank digital currency (CBDC). The ban on Bitcoin is seen as a means of limiting the threat that they feel is posed from the virtual token, whilst they are also restricting any interference in its tests on their own experiments.
The ban has not had any impact on the value of Bitcoin, whilst the growth of mobile payments technology over the last couple of years has meant China was ready to adopt a DCEP, especially as more than half of its population used the technology, as well as being the leading country in building a cashless society.
What are the differences?
There are a number of differences between cryptocurrency and DCEP, despite the fact that they may seem rather similar. The main difference has been defined by Mu Changchun, the People’s Bank of China’s (PBOC’s) deputy director, as stating the currency would not be pegged to a basket of currencies (as the yuan theoretically is) but to the yuan itself and could be used without an internet connection. Instead of being decentralized, the DCEP will be regulated and issued by the Chinese government, therefore it would essentially be a virtual form of fiat currency.
CBDCs appear to be rather popular within emerging markets due to the low levels of banking penetration and credit-card use within developed countries. Additionally, CBDCs can implement blockchain technology, thus eliminating the threat of counterfeiting or chargebacks, whilst the cross-border transactions will be able to take place with few to no fees.
Other countries working on issuing CBDC
Algorand is a blockchain-based crypto network that has been working to offer CBDCs to other countries, with some having already taken the decision to look to implement them. For instance, The Marshall Islands have issued SOV (Sovereign), whilst The Bahamas, the Eastern Caribbean Currency Union (ECCU) and Sweden are also in their pilot phases, and India is scheduling its CBDC for December 2021. It is believed that 81 countries have explored or launched some form of digital currency, with those accounting for more than 90% of the global gross domestic product (GDP).
The United States of America has not yet announced any plans to make Bitcoin legal tender, although discussions are thought to be happening, with Fedcoin8 proposing that the government create a digital currency with a 1:1 exchange rate against the dollar. Facebook has been trying to create its own international Stablecoin called Libra (which has since been rebranded as Diem).
To conclude, emerging markets appear to be leading the way for cryptocurrency adoption due to a number of reasons, including the unbanked populations within the country and high banking risks. There are a number of advantages that can be experienced with the use of Bitcoin, as well.