As cryptocurrency enthusiasts at Coinrule, we regularly observe trends and differences in cryptocurrency adoption around the world. To understand which countries are championing cryptocurrency usage, we need to understand the factors that lead to cryptocurrency adoption in the first place. What does ‘adoption’ mean? It is the ease of obtaining, purchasing, selling and using crypto assets without technological, regulatory or governmental barriers or restrictions.
Look at the growing number of options for customers to spend cryptocurrencies to buy goods and services, it may seem like adoption is growing at exponential rates. Yet, the picture looks quite different when looking at the amount of transaction paid in crypto, versus the global amount of trade still settled with fiat currencies.
Adoption is not only spending crypto
Typically, when we think of how widespread crypto has become in the global online space, we tend to believe that economically developed countries such as the UK and the US, as well as technology-savvy South Korea and Japan, are the leaders in cryptocurrency adoption. Many people perceive these developed countries as leaders in cryptocurrency usage, and that they have no difficulties adopting crypto into their legal systems. But reality is not that simple.
In fact, adopting digital assets is often easier in countries with economic instabilities and high rates of inflation. As intended by many Blockchain and Crypto advocates around the world, crypto can serve as an alternative to fluctuating national (fiat) currencies to mitigate financial difficulties. This is why countries such as Turkey, Brazil, Colombia, Argentina and South Africa have registered the highest share of usage or ownership of cryptocurrencies in the world so far with 20%, 18%, 18%, and 16% respectively. These results are impressive compared to the UK’s 6% of crypto usage, and the USA’s 5%.
Statista Global Consumer Survey also highlighted that in 2019, Latin America saw the largest usage of digital assets in the world. On 28 October 2019, as Argentina’s central bank opted to reduce the amount of US dollars citizens can purchase monthly from $10,000 to only $200, the value of Argentine Peso fell dramatically, making Bitcoin trading boom. For the week ending October 26, with a 50% inflation in Argentina, Bitcoin accounts traded 14.15 million ARS (240,000) – all thanks to the benefits of the decentralized digital currency surpassing the government’s monetary restrictions.
At the most recent Ethereum conference Devcon5 in Osaka, Mariano Conti, an Argentinian developer at the MakerDao Foundation, described how he is able to live almost entirely through the Decentralized Finance (DeFi) system to avoid inflation and monetary instability in his home country.
You may be wondering – why have less economically developed countries moved faster down the crypto adoption path than the wealthier nations?
Low government trust
Due to a system where trust in governments and banks is low, populations do not trust their government’s ability to manage the nation’s money. A case in point is the Turkish Lira (TRY) which is subject to high inflation due to political instabilities and governmental interventions into monetary policy that occur every year. With instabilities and unexpected decisions of Turkey’s President Recep Tayyip Erdoğan, Turkish people increasingly view cryptocurrencies as an escape route to protect themselves against government risk. Despite the apparent volatility of crypto assets, in a country where the technological scene thrives and welcomes innovation, investments in cryptocurrencies are an attractive option. As the Turkish government censors unfavorable online content and sends political opponents to jail, the crypto scene remains free to enter.
Closely related to the previous point, fluctuating inflation rates drive in and of themselves cryptocurrency adoption as a more stable alternative. For example, Brazil suffered its highest inflation rate in four years in April 2019. During the same period of time, Brazil had an estimated trading volume of 100,000 bitcoins within 24 hours – a record that is approximately worth $500 million according to Cointrader Monitor, which analyzes Bitcoin price movements in Brazil. As the country accounts for 18% of crypto usage in the world, growing inflation propelled crypto investments further. Brazilian cryptocurrency exchanges NegocieCoins and TemBTC posted record volumes of 57,099 BTC and 41,296 BTC respectively. This shows a growing reliance on crypto during hyperinflationary periods.
Brazil’s South American neighbours Argentina and Venezuela have also been seeing growing adoption of crypto. High rates of inflation and untrustworthy banking systems attract people’s interest to cryptocurrencies as they seek ways to prevent monetary losses. Moreover, crypto adoption is furthered as governments have started seeing opportunities in digital currencies. Argentina’s President Mauricio Macri announced a partnership with Binance to co-invest in 40 blockchain-related projects. To top that off, the Argentinian government will invest $50,000 into Binance Labs’ projects in the next four years, demonstrating interest in the topic of tokenization.
One of the major problems developing countries face is the lack of mechanisms to track fund transfers. This creates an inability to track corruption effectively. The International Monetary Fund estimates that the world’s public sector has seen annual bribes of between $1.5 to $2 trillion, or 2% of global GDP. To tackle this, blockchain technology and cryptocurrencies can help track transactions more transparently while smart contracts can help standardize certain decision-making processes.
Developing countries turn to blockchain to fight corruption. Thanks to blockchain, Brazil’s state-run tech firm Serpro fights corruption by allocating cryptocurrency on a network to those involved in its projects. Serpro’s transactions are verified through miners who are rewarded with cryptocurrency. This helps the Brazilian government to fight against fraud in Brazil’s outdated land titling system by bringing transparency to transactions.
“For people living under authoritarian governments, Bitcoin can be a valuable financial tool as a censorship-resistant medium of exchange,” says Alex Gladstein, Chief Strategy Officer at the Human Rights Foundation. In Venezuela, the Maduro regime is using the banking system to confiscate money sent from abroad. Thus Venezuelans turn to Bitcoin to evade harsh capital controls. The government in Turkey is similarly prohibitive with monetary restrictions on certain investments, meaning investors are keen to use Bitcoin as an alternative investment vehicle.
North Korea and Russia face American sanctions and embargoes which are being circumvented through cryptocurrencies. For example, North Korea is estimated to be earning around $15 million to $200 million by mining and selling cryptocurrencies, says Priscilla Moriuchi, a former NSA cybersecurity official. Russia has also expressed its interest towards crypto assets by developing CryptoRuble, a state-issued crypto currency which aims to attract foreign cryptocurrency investments to combat US sanctions.
It is interesting to observe that since 2014, the value of Brazilian Real (BRL), Argentine Peso (ARS) and Turkish Lira (TRY) dropped by 40%, 90% and 60%, respectively, while the value of Bitcoin’s price increased by approximately 1,400% vs USD in the same time period. Putting short-term volatility aside, it is no surprise that citizens of these countries are desperately looking for ways to preserve their holdings by investing in forms of decorrelated assets.
In Africa, interest for crypto is booming due to hyperinflation that reached 102% in 2016-2017 in states such as South Africa. Due to large amounts of printed notes of low value, many Africans prefer to send remittances online via cryptocurrencies, since other monetary transfers would be time-consuming and costly. For example, Kenya’s company BitPesa facilitates virtual remittances transfers to both African and international locations, to and from individuals’ mobile wallets that store cryptocurrencies. BitPesa is a digital foreign exchange and payment platform which ensures fast, cost-effective payments to and from African countries. This is the reason why Kenya, Botswana, Ghana, Nigeria and Zimbabwe are the frontrunners in crypto adoption on the continent.
As seen above, cryptocurrency adoption occurs at a faster pace in developing countries where citizens feel threatened by inflation, unstable monetary systems, where politics are prone to authoritarian restrictions and/or the economies are limited by sanctions. Cryptocurrencies serve as a financial alternative to cope in otherwise unstable circumstances and become a necessity rather than just an investment opportunity.
Many developing countries have so far taken an approach with minimum regulation to crypto usage. In countries such as Venezuela, Colombia and Zimbabwe, hyperinflation plays a major role in stimulating the populations to preserve their wealth via cryptocurrencies. The ability to send remittances abroad to help families is also a key factor that drives developing countries to adopt cryptocurrencies. This shows that developing countries focus on adopting crypto for everyday usage, as opposed to integrating it just as an investment tool.
Developed countries, on the other hand, have so far been more hesitant to adopt crypto assets more widely as legitimate financial tools because of strict financial regulations. For example, the Financial Conduct Authority in the UK monitors digital transactions closely and while it so far has a neutral stance on crypto assets, it does not yet recognize them as a viable financial tool. The US has the same stance – blockchain technology does get critical acclaim in the Senate and both the UK and the US welcome businesses that deal with blockchain technology and crypto assets. Yet, regulatory uncertainty for now still remains. For now, users in developed countries are more focused on investing in crypto as an asset class per se, e.g. buying crypto directly, or investing it in crypto companies that operate in the country.
Yet again, other developing countries such as India and Iran have taken a far more restrictive approach, opposing crypto usage altogether with plans of banning it to ‘prevent their economies from terrorism and fraud’. But here at Coinrule, we believe that adopting crypto is a modern and safe financial alternative that will soon be a key component for many forms of digital trade, transfers and investments.