Though many people associate crypto with highly developed nations, the rate of cryptocurrency adoption in developing countries is unexpectedly high. The primary reason for this is that users from less advanced parts of the world are looking for an alternative store of value and a medium of exchange.
A growing number of developing nations are shifting from fiat currencies such as the USD to crypto. And unsurprisingly, cryptocurrency seems to be overthrowing the USD from its longstanding position as the leading reserve currency.
To understand what the reason for such decisions could be and how crypto could help these countries handle high inflation, keep reading this guide!
Cryptocurrency Adoption in Developing Countries
Adopting crypto implies recognizing it not only as a monetary asset but also as the best risk-adjusted and most liquid investment opportunity. In addition, adoption means appreciating cryptocurrencies as a beneficial system for value storage and transfer.
These days, when the whole world is facing a serious recession due to numerous circumstances, digital assets are here to help us preserve wealth in the middle of accelerated fiat currency devaluation and hyperinflation.
While developed nations have been struggling with it for only a few years, hyperinflation has been raging in developing countries for decades. To fight what this unfair world has in store for them, citizens of developing countries have banked on cryptocurrencies as a lifeline to protect their purchasing power and store their resources.
Though considered too volatile to be a proper store of value in developed countries in the West, crypto is not as unstable as local fiat currencies in countries such as Venezuela, Lebanon, Zimbabwe, or Argentina. The galloping inflation and spiraling currency devaluation these nations have been facing drove them to become leaders in cryptocurrency adoption.
Over the course of 40 years, Venezuela has seen its inflation rate soar from 6.3% to a staggering 130,060.2%. Most recently, this country has experienced possibly the longest bouts of hyperinflation, lasting four years.
Led by President Nicolas Maduro, the Venezuelan government has ceased printing money following the widespread adoption of the USD as the preferred currency. Yet, besides USD, Venezuela has also adopted cryptocurrency.
Now ubiquitous across Venezuela, crypto is seen as the savior of the Venezuelan economy. It has enabled people to use it both as payment and to participate in peer-to-peer trading. The government has also founded the Decentralized Stock Exchange of Venezuela, where citizens can trade digital assets and fiat currencies.
Lebanon is yet another country whose economy is in shambles due to a mind-boggling inflation rate of 210%. Having lost confidence in the Lebanese pound (LBP), citizens have resorted to the USD as an alternative.
As a result, banks increased the exchange rate between LBP and USD. This drove many Lebanese people, regardless of their social status, to protect their savings by stashing them in cryptocurrency. Due to this, crypto has become more tangible than USD in their bank accounts.
Most transactions that are happening among crypto communities in Lebanon range between a few hundred and a few thousand dollars’ worth of stablecoins, whose value revolves around 1 USD.
4 Benefits of Developing Countries Adopting Cryptocurrency
Without a doubt, cryptocurrency adoption in developing countries can significantly benefit these nations and positively affect their economies and financial ecosystems.
Developing countries are frequently faced with poor infrastructure. Because of this, traditional banking systems fail to reach rural areas, leaving myriads of people bereft of fundamental financial services. Adopting crypto has the potential to financially include all the underbanked members of society, regardless of their location.
Raging inflation, which developing countries typically struggle with, is the primary cause of economic instability. It’s no wonder why citizens of these nations perceive cryptocurrencies as a hedge against (hyper)inflation, given that they have limited supply and cannot be manipulated.
Furthermore, crypto has created new investment opportunities that anyone with an internet connection and a minimal understanding of trading can take advantage of. This has allowed citizens to take hold of their finances and grow financially.
Developing nations typically rely on allowances from expats. Needless to say, traditional cross-border transactions are slow and involve high fees. Crypto transactions, however, allow families to receive money immediately at very little transaction cost. For this reason, numerous expats rely on crypto transfers to support their families.
3 Risks and Challenges of Developing Countries Adopting Cryptocurrency
Many crypto adoption challenges may apply to both developed and developing countries. Yet, developing nations may be at greater risk for multiple reasons—they have poorer equipment and may not have enough knowledge to deal with the fallout.
Due to their adverse financial states, citizens of developing nations may become easy victims of ubiquitous crypto scams and fraudulent operations. A good example is the OneCoin scam that hit users in Nigeria so badly that the government had to issue a warning against purchasing this token.
Cryptocurrency is not yet fully regulated in any part of the world. While the absence of central regulation is one of its main advantages, helping it to stay decentralized, it’s also a huge drawback. Not only does the lack of regulation hinder many people from investing in crypto, but it also leaves it prone to various crimes, ranging from scams and theft to money laundering.
Hacking and theft are typical risks associated with digital wallets, where crypto holders store their assets. Many times, crypto exchanges have been hacked, leaving users without their precious and hard-earned funds.
Future Outlook for Developing Countries
Developing nations that adopt cryptocurrency may overcome traditional systems and advance economic development. Despite lingering challenges, these countries perceive crypto as a way to crush obstacles, bolster economic growth, and empower their residents.
With the potential that cryptocurrencies entail, developing countries have a chance to reshape the future of their financial systems and defy the dominance of traditional currencies. In addition, the adoption of cryptocurrencies may at least reduce, if not eradicate, the corruption that is mushrooming in these countries due to poor financial conditions.
In the long run, an improved financial ecosystem might lead to better education, infrastructure, and overall quality of life.
Cryptocurrency adoption in developing countries has been on the rise in the past few years. Nations like Venezuela, Lebanon, Nigeria, and the Philippines have been adopting crypto to fight the raging hyperinflation.
The key reason why governments have turned to cryptocurrency is its high capacity to store value compared to extremely volatile local currencies, as well as high exchange rates and facilitation of cross-border transfers.
In addition to fighting inflation, the adoption of crypto may help these nations improve financial inclusion and stability, foster economic growth, reduce corruption, and regain trust in governments and authorities.