Cryptocurrency has an Impact on Economies

20.05.2022

Cryptocurrencies are altering the shape of financial markets overnight, making fortunes while influencing economic, social, and government operations. At just 13 years old, the crypto market is today's youngest financial market. This widespread popularity of cryptocurrency is due to its community-based characteristics (decentralization) and investment benefits.

impact of cryptocurrency on economy

Although the impact of cryptocurrency on the economy is vast, it's also very volatile, making it a high-risk asset to acquire. Regardless, investors are willing to explore crypto for various financial benefits.

The price of bitcoin is usually the key to determining the effect of the cryptocurrency market on the general economy. For example, In 2017, bitcoin's value soared from $1,000 to $19,000 before dropping to $3,000. And in 2021, bitcoin rose to $69,000 but now hangs around the 30k mark.

So, how does Bitcoin affect the economy? Bitcoin's price is usually the factor that controls the price of other altcoins in the crypto market. These fluctuations in price inadvertently affect any innovation tied to Blockchain technology.

Let us delve into greater detail about how crypto affects the economy.

How Cryptocurrency Affects Investing

How will cryptocurrency affect the economy? They say if you want a glimpse of the future, all you have to do is look behind you. While cryptocurrency faces many challenges, including market volatility issues, we cannot deny the benefits and innovations of digital currencies. Unsurprisingly, cryptocurrency and blockchain technology holds many possibilities for the future. Two reasons investors enter the crypto market are the ease of making transactions and the possibility of using cryptocurrency to hedge against inflation.

Another attraction cryptocurrencies have to investors is their noncorrelation with gold and other precious metals. Hence, several Exchange-traded funds feature cryptocurrencies on the stock market.

However, cryptocurrency's effects on the economy are diverse, as volatility can affect the market's performance.

The crypto market cap ranges between 1-2 trillion dollars, setting it among the rank of the top tech giants like Meta and Apple. But when considering the economics of cryptocurrency, it's important to identify the challenges to the current financial system. For example, most transactions with traditional banking done through intermediates might not be entirely transparent.

Furthermore, foreign payments are laden with high exchange fees and time-consuming hours to process transactions. Not to mention the amount of information sometimes ignored or misplaced. Blockchain technology solves these present-day problems tied to the traditional banking system.

The Positive Impact of Cryptocurrency on The Economy

Is cryptocurrency good for the economy? Let's answer this question by exploring how crypto contributes to the economy.

  • First, the creation of cryptocurrency birthed a whole new industry that now provides employment opportunities to thousands of people.
  • Blockchain technology powers the creation of various businesses that provide major services in the crypto industry.
  • Early users of Bitcoin got the opportunity to make profitable investments. Other cryptocurrencies present such potential returns today, driving the economy to adapt to cryptocurrency.

What are The Prospects for Poor Countries

cryptocurrency effect on economy

According to a report by the world bank, about 1.7 billion of the global population don't have bank accounts and are without access to financial services. Yet, 67% of them own mobile phones that could grant them such access. This category of people may find it difficult to get help in cases of personal financial emergency.

Blockchain tech provides simple financial apps which can be accessible to anyone with a smartphone across the world. It's one step toward empowering the financially challenged while providing equal opportunities. One major advantage of cryptocurrencies is that the governing power is not amongst a few representatives but is distributed evenly in the crypto community itself.

Transaction Costs are Low

Is there a negative impact of cryptocurrency on the economy? When considering the ease and cost of making transactions, cryptocurrency has positive impacts compared to other alternatives.

The transaction fees in crypto are usually low compared to traditional banking, where exchange rate fees can attract high costs. The low crypto transaction fees are due to how scalable and cost-efficient the blockchain network is.

Increased Transaction Transparency

Now, let's explore the effect of cryptocurrency on the economy while considering transaction transparency. All transactions on the blockchain are open and public as they are all recorded automatically on the blockchain. Hence, reducing fraud and unethical financial dealings.

Citizens can monitor public funds affording the government to prove the prudent use of government funds, thus providing a platform for the citizens to have a voice in the political jurisdiction.

Anonymity of Cryptocurrency

One of the characteristics of cryptocurrency used to frame crypto as bad for the economy is its anonymity. A report from the Central Bank of Russia clearly stated the anonymity of cryptocurrencies as the enabler of several illegal, fraudulent and terrorist activities like money laundering, drug trafficking, and financing of terrorist operations. Is cryptocurrency bad for the economy? Or is there more to the anonymity of cryptocurrencies rarely spoken of?

Let's take a look at how transactions on the blockchain work.

  • Each buys and sells cryptocurrency transaction is recorded on the blockchain.
  • Whether buying or selling Bitcoin or any other cryptocurrency, each transaction on the blockchain is kept public.

Cryptocurrencies are not 100% anonymous; they are pseudonymous. A person's identity connects to their wallet address through a point such as a centralized crypto exchange or an email address. And as such, the exchange or government can track the ownership of the wallet to an individual.

Some governments also partner with private blockchain analytics companies to monitor their citizens' wallet addresses and transactions to reduce the risks of financial fraud.

Give Entrepreneurs More Power

Blockchain technology brought revolutionary innovation to all aspects of the conventional financial system. The numerous extensions of the use of cryptocurrencies make it a preferred choice for global financial transactions, mainly because the transaction fees are far lower than the cost-intensive ones charged by traditional banks.

With cryptocurrency, financial transactions can take place across America, Europe, Asia, and the rest of the world at lightning speed and at a low cost. Blockchain technology provides this possibility, thereby creating a good entrepreneurial opportunity for business persons. Entrepreneurs can use finance applications to convert crypto to fiat currency while maintaining a wide financial coverage with the rest of the world.

Cryptocurrency helps to reduce and save extensive costs from small and medium-sized businesses, which the company can redirect for other purposes such as investments and expenses. The investing field is rapidly changing due to the cryptocurrency effect on society today. The rapid adoption of crypto in many countries with a corresponding increase in investment opportunities and employment for the people is a good sign that crypto has many positive benefits to offer the economy. So, is cryptocurrency good for the economy?

Society can achieve more social and economic inclusion in government dealings with public funds using blockchain technology. And more interestingly, individuals are open to saving with higher returns, investing for the long term, or launching a new company in the crypto industry.

Effects on the Environment

economics of cryptocurrency

The effects of cryptocurrency extend beyond the economy to the environment. While terms like Bitcoin, Ethereum, or crypto trading may not be new to you, other technical terms like cryptocurrency mining might not be something you're fully familiar with. While we cannot underestimate the importance of the crypto industry, certain environmental effects might negatively affect the purpose of cryptocurrency.

Some tokens use the proof of work mechanism where miners mine cryptocurrencies using high-powered tools. The energy requirements of proof-of-work coins are so massive that, in some instances, they can be as large as the amount of power used by certain nations such as Argentina. The high power requirements of crypto miners and mining software are due to the complex computer calculations they solve at blazing speed.

The following corresponds to crypto mining facts.

  • Bitcoin emits as much as 36 metric tons of CO2 into the atmosphere each year.
  • Scientists project that Bitcoin can raise the global temperature by 2° Celsius in the next thirty years.
  • China, Russia, Kazakhstan, and the United States stand out as the nations with the highest number of miners and mining activities.
  • Research shows that more than 70% of the energy source for Bitcoin mining is from renewable sources.

The Impact of Cryptocurrency on Future

How will cryptocurrency affect the economy? The effect of crypto on the economy is tied majorly to legislators' views on cryptocurrency. Some countries legalize cryptocurrency, like Singapore and Malta, while others, like China, ban it. And some other countries have made it legal tender or are planning to.

Although proof-of-work cryptocurrencies need a good amount of energy for mining purposes, other coins with consensus methods such as proof-of-stake do not pose any environmental pollution risk. One of such, SolarCoin, actively rewards solar energy use and helps improve energy use in the environment.

The future of cryptocurrencies is hard to predict, but the industry will undergo rapid innovation to fulfill the original mandate of Bitcoin.

Policy Will Determine Future Directions

Cryptocurrency continues to be a sought-after investment option for portfolio variety among investors and a booming industry with business opportunities for entrepreneurs. The widespread impact of cryptocurrency on the economy is due to the several technological infrastructures built into the blockchain. But, how will cryptocurrency change the world? The answer to this question is largely a subject of cryptocurrency economics and, more specifically, policies regarding crypto in different countries.

The subject of cryptocurrency is becoming a buzzword in policymaking. As such, several public policy debates constantly take place to determine the fate of the laws and regulations binding on the use of cryptocurrencies. For example, China and Russia hold negative views on the use of crypto, reflected in their blockchain regulations to ban and restrict crypto trading.

Other countries like the UAE, India, and Malaysia hold positive views on cryptocurrency's effect on the economy, with their policies supporting crypto trading and mining. Research also has shown that countries with a positive outlook on cryptocurrency have improved economic opportunities.

What's the Bottom Line?

Cryptocurrency is affecting the world positively in several ways; it's an alternative investment option to hedge against inflation, seek employment opportunities, and provide access to financial services across borders.

The blockchain network facilitates low transaction fees and speedy transactions across any part of the world, and it doesn't end there. Transactions are kept plainly in public sight, which helps reduce fraudulent activities.

Also, entrepreneurs can explore the crypto industry for relevant and much-needed business ideas. And with more thriving businesses in a nation, the better the economy.

All blockchains should operate on better, greener, and more efficient consensus mechanisms in the long run. Proof-of-work coins like Bitcoin negatively affect the environment, including air pollution and climate change. This negative effect does not apply to all tokens, and most are working on switching to a non-mining consensus like the proof of stake consensus.No one can predict the future of cryptocurrency accurately. Nevertheless, policymakers across different countries will influence how the crypto industry turns out in the coming years.

But for now, it's clear that Cryptocurrencies provide a great way to make money, and mining is at its core. Minery helps you tap into this lucrative market without worrying about the complex logistics by providing crypto hosting services. We've got all the information and tools you need!

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