Can Bitcoin Drive the Economic Growth of Developing Countries?
Recently, Bitcoin has undergone a major resurgence and its value has jumped significantly in the last month. With more excitement about the potential viability of the currency after various tools have increased its functionality (like the Lightning Network), Bitcoin has once again taken centre stage. We take a look at the impact Bitcoin is having on global financial markets as well as whether it has the potential to propel developing countries further with economic growth.
Cryptocurrency and Developing Countries
Bitcoin is not alone in the relatively untapped market of cryptocurrency in developing countries. In fact, it is playing catch-up to other cryptocurrencies that have already got a foothold in many third-world countries. Bitcoin is a global brand and this is working to its advantage when being implemented into financial markets overseas.
Why There’s a Need for Bitcoin to Expand into Developing Countries
Currently, Bitcoin enjoys a large user base in developed countries such as the US and the UK. The issue it faces in these areas though is significant. To be a viable currency, Bitcoin has to hold value, has to be trusted and has to be used widely as tender. In the US, UK and EU countries it is up against very strong currencies with both the US Dollar and Euro holding a lot of value, and the British Pound being incredibly strong and robust.
It means the citizens in these areas are likely to view Bitcoin as an afterthought rather than a go-to currency. When paying for products, they already have a strong and stable currency that is easy to transact with, and payments are made instantly. Bitcoin, on the other hand, is not easy to transact with, not as stable as the other currencies in terms of value and is not fast enough to make remote transactions instantly.
When all is said and done, in the developed countries, Bitcoin is a viable investment and a bit of a novelty currency compared to the respective competitors.
Developing Countries Operate in a Very Different Landscape
When you take into account the above issues, you can see immediately why Bitcoin has struggled to gain traction as a viable and functional currency in the most developed countries. Given that these countries themselves are becoming more digital, and a “cash-less” age is being heralded in, Bitcoin might never be able to realize any substantial usage in these countries.
In developing countries, the financial landscape is completely different. Many domestic currencies in developing nations are very, very weak. They hold little to almost no value and are influenced heavily by even the slightest economic change causing oftentimes very high inflation rates. That is why most third-world countries rely on large first-world currencies to complete transactions. It is not uncommon at all to visit a South American country (like Mexico) and be able to pay in US Dollars.
The issue for developing countries is that they often accept a myriad of different currencies for everyday transactions and at the end of the day a shopkeeper may be left with multiple currency types that he then needs to convert into a single currency that he prefers to transact in. This is expensive and hinders growth, as well as creates an altogether confusing dynamic.
Why This is Such a Fantastic Opportunity for Growth in Third-World Countries
Historically, third-world countries have suffered because their currencies are so susceptible to market changes and that causes rampant inflation.
By adopting Bitcoin or another сryptocurrency as the primary money in their country they immediately have a currency that won’t be influenced by changes within their specific economy. Because Bitcoin operates on a global platform it is only susceptible to global economic changes, and localized changes will have little to no impact on the currency’s overall value.
This reigns in the uncertainty attached to financial transactions in a developing country and inspires consumer confidence. When consumer confidence is high and people feel safe to spend money, it goes without saying that an economy will begin to grow.
What Challenges Does Bitcoin Face in Third-World Economies?
There are three main challenges that Bitcoin faces in developing countries, especially if it wants to flourish.
The single largest competitor of Bitcoin in the developing world, XRP has already got a huge amount of exposure in third-world countries and has many projects underway to further help developing countries grow on the global stage. Bitcoin will have to develop a proposition that is as attractive as XRP’s in order for it to gain acceptance over XRP.
Speed of Transaction
This has plagued Bitcoin from day dot. Although there is now a workaround to transaction speed provided by the Lightning Network, it remains to be seen how robust this system is. In order for Bitcoin to keep ahead of XRP (whose payments are instant), it will need to revamp the blockchain technology it uses to actually create a fix once and for all.
Transaction fees on the Bitcoin blockchain are high and they are rising. With every new transaction, it contributes to a higher cost to transact. Bitcoin developers have been creating various little fixes and workarounds for this issue but if Bitcoin were to be adopted as a primary currency in a developing country, scalability would be a devastating issue and fees could become astronomical.
Still, cryptocurrency can revolutionize the way traditional currencies are used in developing countries. It can provide a coherent single currency that is reliable and holds value to all who use it. It also keeps costs transparent for individuals, and with enough usage has the potential to become the primary currency in any third-world country. The only issue is whether the developing countries are ready to adopt it at this point.