The Blockchain and cryptocurrency concepts are very popular nowadays. You can also say that cryptocurrency is the latest trend in this modern world. From social media to news channel, everywhere you will find trending information about cryptocurrency. Mainly, the technology based organizations seem to be biased by the culture of cryptocurrency.
According to some organizations, cryptocurrency is a boon while the others consider it as a serious bane. In 2017, it has been observed that many entrepreneurs initiated the ICO campaigns and started selling the tokens of Blockchain Technology. It is true that they managed to raise hundreds of millions, but again, it is also true that, the global business process is affected.
As cryptocurrency is a digital form of money, there are also chances that it may affect the economy of a country. Cryptocurrency has no physical value and is maintained in a decentralized manner. Thus, there is no control and regulations over the transaction of cryptocurrencies. To understand the major effects of cryptocurrency on a country’s economy, just go through the below described information.
Challenges the value of Dollar
Do you know that US dollar is the reserve currency of Global economy? As the United States dominates the world regarding political and economical affairs, US Dollar is termed as the ultimate Global currency. Thus, United States Treasury has a huge contribution to maintaining the Global Central Bank. So, any up and downs in the US financial sector can greatly affect the Global economy.
The Financial crisis of 2008 is just a perfect example of US dollar dominance. In 2008, it was observed that the economy of different countries had been affected due to the fall in US economy. In simple words, it can be said that, if the economy is the internet, the US Dollar is the web. It is like, US dollar is controlling the global economy and hence the economy of other countries.
Thus, a centralization form is highly assured with the implementation of US dollar. But with the introduction of Cryptocurrency, it seems the centralization system is highly disrupted. Cryptocurrencies like Bitcoins and others follow a decentralized mode of transaction, where there is no authority to regulate the transaction. Again, the decentralized transactions have nothing to do with the US dollar.
Because of this reason, there are high chances that, the culture of centralization transaction system may come to an end. Financial experts from countries, where cryptocurrencies have been adopted, stated that they had experienced changes in economic sanctions, diplomacy, foreign relations, and international trade. The experts also confirmed that their economy does not fluctuate anymore, as it is independent of US Dollar.
This leads to a situation of “De dollarize”. Well, some countries like Venezuela and Russia have understood the benefits of cryptocurrency on their economy and thus are planning to develop their cryptocurrencies. So, now if a country has its cryptocurrency, then the economy is independent of US Dollar. Indeed, this seems that there will be a growth in the economy with constant implementation.
Last year, Venezuelan President declared the launch of their oil backed cryptocurrency. The President stated the crippling inflation developed due to the economic sanctions from United States Treasury. Again, he also termed the Blockchain Technology as an escape route for nations from the economic instabilities. Out there, North Korea also developed its cryptocurrency to resolve the tough economic conditions.
Just imagine, if all the developed nations started developing their cryptocurrency, then US dollar will lose its dominance in the Global economy. Thus, cryptocurrency can reduce the value of US Dollar shortly. Well, at present, no such serious changes have been observed; but cryptocurrencies reflect a serious challenge to the value of US Dollar.
No more Middlemen
Whenever there is a financial transaction, it involves banks, clearing houses, and SWIFT. Well, for your information, SWIFT (Society for Worldwide Interbank Financial Telecommunication) refers to an organization which ensures safe and secure transmission of information among different financial institution. So, SWIFT is necessarily involved in a financial transaction.
As the financial transactions in a country are maintained in a centralized manner, it is compulsory to involve the participation of Middlemen. There is always a governing body associated with the centralized transaction. This is the reason, why the centralization system takes time for the processing. Apart from more time, the involvement of Middlemen also enhances the cost of the transaction.
So, the centralization transactions always come with the higher amount of charges and more time consuming issues. But the Bitcoins and other cryptocurrencies changed the traditional financial transactions with the decentralized method. In decentralization transaction, there are no middlemen to judge and validate the transaction. Again, here the information of both 1st party and 2nd party are also hidden.
Again, more than two parties can also take part in the transaction without any complications. As no middlemen are involved in the decentralized transactions, the financial transactions are now maintained in some seconds or minutes. The cost of transactions is also reduced, as the transaction is directly maintained between the parties.
Apart from low cost and instant transaction, the decentralized cryptocurrency transaction also ensures necessary privacy to the parties involved in the transaction. Yes, the above reasons are some of the important attractions of cryptocurrencies. But again, it is also true that the culture of cryptocurrency is disrupting the trend of the centralized transaction system.
In a centralized system, it is feasible to keep track of every transaction, and thus every type of illegal consequences is restricted. The decentralized financial transactions have no proof of transaction. Thus they arise typical issues like trading of ammunition and drugs, terrorist activities, money laundering and others. It is very difficult to identify the participants in the transaction, thus to trace the transaction is impossible.
Because of this reason, some nations rejected the cryptocurrencies and also warned regarding the effects on country’s economy. The Head of IMF, Christine Lagarde, highly warned that implementation of cryptocurrencies effectively disrupts the concept of money as well as Central Banking system. Thus, it will be the economy of the country, which will be affected the most.
Simplifies the concept of Crowdfunding
As you know that, crowdfunding is one of the effective ways to raise investments. The technology based organizations are always in an opportunity for crowdfunding. In such situations, the cryptocurrencies enhanced the modules of crowdfunding. With the introduction of Initial Coin Offerings, it is now feasible for the technology based start ups to raise attractive funds.
Without wasting time in convincing the angel investors, venture capitalists, and banks, the start ups directly prefer to try out the crowdfunding through cryptocurrencies. It has been observed that the technology based projects, which have no eligibility for availing funds, have got millions of secured funds with them. Because of this reason, the competitive market is imbalanced now. Thus, the economy of the country is greatly affected.
On the other hand, it seems good that the start ups are gaining back their popularity with the investments. There are many popular start ups, which have planned and appropriately executed their innovation. There is no problem in crowdfunding, but there is a problem in crowdfunding through Blockchain technology.
Here, the investor’s just overlook the validation of project and simply make the investments to earn good profit in future. So, if a company with no feasible projects is easily availing crowdfunding, then it may lead to disruptions in the country’s economy. This is the reason, why the government organizations are restricting the crowdfunding through cryptocurrencies. Even some necessary guidelines have been prepared by the experts to avail the crowdfunding.
Fiscal management is turned on
As the Bitcoins are electronic cash, it may lead to the reduction in the money printing press. Thus, the ability of a country to make money by printing the currency is also affected. Again, the risk of money laundering is also enhanced because of cryptocurrencies. Cryptocurrencies can greatly affect the usage of multiple currencies in a country. So, when the wages and prices go out of line in a country, then devaluation will not make any significant changes.
Thus, it will be pretty difficult to adjust the prices and wages as per the demand. There are also chances that the country will not be able to print currencies at the time of financial crisis. Well, all these issues can greatly affect the economy of a country. There is no doubt that, cryptocurrencies are of great use, but again its typical effects on the economy of a country, are some major things to keep in mind.
It is recommended to avail the benefits of cryptocurrencies, but only as per strict guidelines. Yes, you can give a try with cryptocurrencies, as the Blockchain technology seems to produce in the long term phase. So, keenly study all these effects of cryptocurrency on the country’s economy and accordingly design an appropriate structure. It is recommended to seek help from the leading financial experts to avoid any inconvenience in the future.