How crypto helps in building and protecting global economy? Crypto has a lot of potential not only for its own growth but also to change the existing financial system and build a much better global economy and protect it.
However, in spite of its ability to build a better financial future for the businesses, individuals and the global economy, crypto has been often debated and discussed on different forums about it being an effective financial tool.
While some die-hard connoisseurs consider it to be a useful means to make payments that is also very easy to access, there are others who think otherwise.
Typically, crypto has got everything in it that is necessary to ensure economic and social growth across the world, including in the developing countries.
It is due to the blockchain technology that offers easier access to a diverse range of financial services and capital and this affects the global market.
Most people consider crypto to be a safe haven asset and not a bubble because it conveys the ideals of decentralization and also offers potentially huge gains.
However, the volatility of the market may make you think it is riskier than any traditional asset.
If you too are caught between such conflicting beliefs, this is an article that will be most useful to you to get things right.
Through this article you will not only come to know about the qualities and effects of crypto but also the responses of different governments and its global appeal.
You will also know how transparency and trust of the technology underlying crypto may impact your investments.
With such comprehensive knowledge you will be more confident next time when you invest in or trade with crypto.
How Crypto Helps in Building and Protecting Global Economy?
Typically, crypto comes with a few fundamental traits that make it attractive to the users, especially the investors.
These fundamental attributes are:
- Its ease in use
- Its non-correlated nature
- Its potential to act as a hedge against risk and
- As a store of value.
Several investors and crypto analysts think that crypto is very much akin to precious metals such as gold and is a useful and a competent digital alternative to fiat money.
There is a good reason for them to believe this way.
They say that they and the economy of the world have already had a taste of what can happen when the centralized financial systems are trusted too much during the 2008 financial crisis.
It is this particular financial crisis that acted as a catalyst and computer scientists and cryptographers started developing ideas for a digital currency space.
It is the same year when the mechanism involving crypto was published by Satoshi Nakamoto in the white paper of the famous Bitcoin.
There are a few people who even go a step forward and believe that if this new technology or digital asset class existed before 2008, the financial crisis could have been avoided in the first place.
But, sadly, it is not possible to go back in time.
However, the good news according to a lot of members of the crypto community is that the DLT or Distributed Ledger Technology will prevent a lot of ensuing global financial turmoil.
Nevertheless, a few crypto analysts point out the issues with crypto with regards to trust as a community resource.
Indeed, a potential key issue of crypto is the breakdown of trust.
To substantiate their opinion, these analysts give the example of the 2008 financial crisis.
They say that the apparent cause of the crisis was short term liquidity but looking into it deeply they found that it was the result of some other important factors such as the imperturbable trust of the society in:
- The traditional financial institutions
- Their systems to maintain the records of transactions and
- Their practices.
It is due to their unwavering trust on these institutions that they could not catch the bankers when they manipulated the ledgers while reselling assets with little or no value for several years.
Therefore, the financial statements of the institutions were certainly far from reality.
This pointed out the vulnerabilities and complexities in the outdated bank accounting systems.
It is easy to take on shady accounting practices and hide facts.
Now with the digital or virtual currency that are secured by cryptography, serve as a useful and foolproof medium of exchange.
The underlying technology maintains immutable records that are verified by all participants in the network.
Creating new coins, transferring funds, or cashing out, everything on the blockchain network is safe since cryptography encodes everything and deciphers it easily with a key.
This means that without the key it will not only be impossible to decipher and create new coins, but it will also be difficult to verify a transaction.
Since the records are distributed and public, anyone can see the changes and it will only be accepted when the majority of miners confirm it.
Therefore, the blockchain technology makes counterfeiting transactions and coins almost impossible and also allows tracing the source and destinations of funds between anonymous user account and wallet by the law enforcement when needed.
All these ensure proper protection of money when crypto and blockchain is used which will in turn help in protecting the global economy.
Effects of Utilitarian and Disrupting Qualities
The world of business is shifting very quickly mainly due to the takeover of the payment systems by cryptocurrency and blockchain technology.
The speed at which things are changing clearly indicates that the conventional financial systems and institutions are no longer able to hold the fort as well as it did before.
Therefore, there is the need of an alternative system that will not only meet this need but also all others along with it that may be arising such as faster cross-border payments, complete and reliable social inclusion and more.
Crypto coins, Bitcoin in particular, are considered to be extremely utilitarian but it also comes with specific qualities that can disrupt the working procedures of the traditional financial system slowly but steadily.
This affects the global economy in more than one way as mentioned below.
Rise in economic activities:
The utilitarian nature of crypto causes a significant rise in the economic activities for the better.
The crypto industry of today has undergone a lot of changes as it was initially.
Now, the crypto industry is ‘in custody’ of the dedicated institutions that oversee all the crypto coin exchanges that operate all over the globe.
This is considered to be a good move in order to protect the crypto investors as well as the entire economy of the globe.
This is very much needed especially considering the rate at which this industry is growing and offering the early adopters a chance to become rich almost overnight.
Even the average users of crypto are offered with a lot of different ways in which they can grow financially.
While investing in crypto for a long term, especially in Bitcoin which is the most famous of all digital coins, is considered to be more profitable, these crypto coins also offer a valuable source of income in the short term through trading.
With all these possibilities and prospects offered by crypto, it is not surprising that the world economy is shifting slowly to adapt to them since these coins have a huge potential to satisfy all their needs.
Opportunities for inadequately banked countries:
Crypto offers easy access and a variety of financial products to developing countries as well as those that are poorly banked.
Such countries together make up a third of the world population. With crypto services now available, these people can now avail banking services such as:
- Checking accounts
- Loans and more.
Therefore, in spite of traditional banking services and systems not available, they can now effectively deal with their personal financial crisis.
The good thing apart from benefitting the world economy is that with crypto-based services available, these financially disadvantaged people are protected from financial hazards.
This is because they do not need to resort to dangerous and doubtful lending practices any more that come with interest rates that are anything but fair.
This means that these crypto services remove the instability among these disadvantaged classes of people needing a loan all due to the ease of use and volatility of crypto.
There are a lot of programs and apps facilitating the use of crypto that bring these people closer to a broader audience.
Small businesses can expand their operation by using crypto and its entirely decentralized nature of operation to conduct trades across borders.
They can also make or receive payments seamlessly and quickly without the need of any intermediaries such as a traditional bank.
With such additional benefits, blockchain technology and crypto will surely build and protect the global economy thereby causing a financial revolution across the globe.
It will help everyone to be connected more financially and be more empowered.
Reduced transaction costs:
Making any financial transaction through a traditional banking system is always expensive.
However, the good thing about crypto is that you do not need any services from a third party intermediary to make a transaction.
This lowers the cost of the transaction eventually.
Also, the crypto industry operates online and therefore does not need to maintain an actual brick-and-mortar structure like a traditional bank.
Therefore, this related cost is also eliminated from crypto transactions enabling it to keep the cost of transactions to the minimal level.
Moreover, just like there are no utility bills or rent to pay, there is also no need for paying employee wages in crypto.
All these morph into lower transaction costs.
Sometimes, depending on the particular crypto broker you choose, you may even be allowed to make transactions without needing to make any minimum deposits.
Therefore, it is natural that more and more people will be attracted towards crypto to start transacting making the best use of this new financial tool.
This will not only help them in particular but will also allow the global economy to become entwined more closely.
As you may know already, all crypto transaction records are maintained on the blockchain and these are transparent and immutable.
These are also digitized and automated and can be tracked or viewed by anyone participating in the network with the use of proper keys.
Therefore, it is quite hard to manipulate any transaction recorded on the blockchain.
If anybody wants to do so, all the entries of the previous as well as the succeeding blocks will need to be modified.
This not only needs a lot of computational power but is also quite impossible unless a hacker performs a 51% attack.
This means that crypto transactions are typically free from the risks of corruption or fraud.
This particular aspect of crypto is especially helpful for the underdeveloped countries because they get a greater and better chance to enter into the financial transactions game.
This eventually boosts the economy of that country as well as that of the globe and also heightens the social prospects.
Most importantly, people will be able to keep a track of the state funds and its orientation which will give them a greater say on the political climate.
Crypto will give more power to the entrepreneurs who will find that this is perhaps the best time to do business.
This is primarily because use of crypto and the innovative blockchain technology underlying it will enable them to receive payments in different currencies.
This means an entrepreneur from Africa will now be able to do business with American, European, and Asian companies.
This will help the small and medium sized businesses in any part of the world a great deal by offering them more liberal financial connection and a much better financial coverage while doing businesses with the rest of the world.
Using specific crypto platforms and apps all of these entrepreneurs will be able to convert Altcoins quickly into fiat money now.
They can redirect and reinvest these funds into their businesses or make purchases and payments.
Therefore, with crypto, millions of people all over the globe will now get the chance to invest, start a small business, and save or transfer money across borders much more easily and productively.
It is all due to the wonderful possibilities that crypto brings to the table.
With all these disrupting qualities and benefits offered by crypto, it is just a matter of time that it will find a way into people’s lives and daily transactions.
This will definitively shape up the future of the global economy for the better allowing faster and greater economic growth.
Transparency and Trust
As stated earlier, it is believed that lack of transparency among the banks regarding their financial status was the main reason for the financial crisis of 2008 to happen in the first place.
But, the people had a lot of trust in it.
This is less likely to happen in the case of crypto and blockchain. Challenging the trust and transparency factors of the traditional financial system, blockchain technology ensures that a high level of trust is maintained.
Typically, the nature and functionality of the blockchain technology has typically been able to do away with the transparency and trust issue in this digital financial system.
With such features, blockchain technology can prevent future financial crises from happening.
This technology will securely store the value as well as the ownership of every crypto asset on the blockchain which, being a shared ledger, can be seen by everyone participating in the network.
Along with such transparency, the immutable nature of the records prevents manipulation or hiding facts which are not possible in the traditional financial system.
In the traditional systems most of the jobs are done by humans and therefore there is a high chance of errors.
With such possibilities reduced significantly, blockchain technology can enhance the operation of the traditional financial systems as well which will prevent financial disasters and protect the global economy.
A central bank will now not have to go to separate banks to review their records and operations.
Since all these records are shared over the network, they can see it all from one place and monitor cash flows as and when each transaction is made on the chain.
The central banks as well as the regulators will therefore have a more realistic picture of how the risks are distributed as well as the liquidity factor.
In addition to that, the regulators will also have a fair bit of understanding about the behavior of each of the financial firms.
This will take out a major part of uncertainties in the process of evaluating the health of the entire financial system.
This means that the regulators will know well in advance about the times when things may start to become unfavorable and unstable so that they can make necessary adjustments in the financial system before a crisis situation develops.
The proponents of crypto and blockchain technology believe that these two together can offer a lot of other benefits to the health of the global economy.
These benefits include protecting the economy of the world from several aspects such as:
- Financial frauds
- Money laundering
- Identity and fund theft and lots more.
Therefore, crypto and blockchain technology seems to have everything to make exceptional promises.
It is therefore now left to the regulators to find the best possible ways in order to integrate this innovative technology into the mainstream financial setting.
The global appeal of crypto currency as an alternative to fiat currency is not surprising and nothing new.
It is primarily due to its ease in use and capability to make faster, safer and anonymous transactions.
Still, the world is divided which is why people in the United States and European Union view crypto as a novelty while people of several other countries do not.
Also, there are a large number of countries that have failed to manage their domestic currencies effectively.
For example, Venezuela followed a dictatorial regime which eventually resulted in skyrocketing inflation.
This had a serious impact on the living conditions of the people which plummeted significantly.
Millions of Venezuelans did not have access to external currencies.
Given such a situation in the country, the people of Venezuela are used to wild price swings and find it tolerable when their domestic currency experienced a sharp decline showing no signs of dwindling for several years now.
On the other hand, people of the United States find that the wild price swings of Bitcoin and other crypto coins to be extremely risky to invest in.
]Moreover, the United States and other countries have stringent capital controls in place.
This controls the flow of money. A few of these countries also charge high taxes on crypto.
However, crypto is viewed as a protective shield against inflation by most of the global consumers.
This is because these currencies have a finite supply and its circulation is also limited mathematically over time.
On the other hand, crypto may also be used to evade taxes and circumvent the capital controls, legal or not.
This has resulted in an increase in the demand for crypto both by individual consumers and businesses.
It is for this particular reason several countries have started monitoring unlawful uses of crypto such as for tax evasion and illegitimate purchases or sales abroad.
The most significant impact of blockchain and crypto on the global economy, according to several survey reports, will be on the GDP or Gross Domestic Product.
Report shows that the blockchain technology has the ability to boost the GDP of the United States alone by nearly two trillion dollars over the following decade.
This signifies the current and probable use of blockchain technology on different sectors which will facilitate building and protecting the global economy.
It will generate huge economic value over the years across several industries including and not limited to:
- Government and public services
- Finance and
In fact, blockchain technology has so much more to offer than simply being an aide to cryptocurrencies.
It will make both private and public organizations secure and facilitate sharing and using of data easily and quickly on a large scale.
After the COVID 19 pandemic and its effects on the global economy, blockchain technology and crypto have accelerated disruptive trends all over the world.
It is just a matter of time when it will be used extensively by organizations all over the world to reconfigure and rebuild their business and operations.
It will underpin transparency, trust, and efficiency across the society and organizations.
Industry research and a lot of precise economic analysis suggests that in 2025 blockchain technology will be adopted at a large scale across the entire economy of the world.
The blockchain technology however has a few notable application areas that will generate more economic value.
One of the most significant areas of application of blockchain technology is in tracing and tracking products and services or provenance.
This, in fact, will be the top priority of the supply chains after the COVID 19 pandemic. This has the maximum economic potential.
The application of blockchain technology could be varied and wide enough to support a diverse set of companies that may include heavy industries, fashion labels, and more.
This will be in response to the rise in investor and public scrutiny around ethical and sustainable sourcing.
It will also be used extensively for financial and payments services especially to support use of virtual currencies for making cross border remittance and payments for financial inclusion.
The next useful application of blockchain technology will be for identity management.
This may include:
- Personal IDs
- Professional certificates and
- Other personal and financial credentials.
This will help significantly in reducing identity thefts and frauds.
Another useful application of blockchain technology will be in the contracts and dispute resolution, customer engagement, loyalty programs and more both in the private and public industry sectors which will increase the utility of the technology.
However, the success of blockchain technology will typically depend on the supportive nature of the policy environment as well as the business ecosystem.
These factors along with an apt industry mix should be good enough to allow exploiting the new opportunities opened by this innovative blockchain technology.
If you consider the economic benefits that blockchain technology and crypto will offer to different continents of this world, be informed that Asia is likely to gain the maximum benefits.
And, if you consider the same based on individual countries, then China is more likely to have the maximum potential net benefits from blockchain technology in particular.
This will be followed by countries such as:
- The United States of America
- The United Kingdom and
The type of benefits offered to the countries will however differ based on their primary focus of business.
For example, China and Germany being economies focused more in manufacturing will benefit more in terms of traceability and provenance.
On the other hand, countries like the United States will benefit more in the terms of securitization, payments, identity, and credentials.
If you look at the sector levels, it is probably the public administration, healthcare and education sectors that will be the biggest beneficiaries of blockchain technology in terms of credentials and identity.
And, several others will be benefited in the broader sense to have more engaged consumers, better provenance and traceability.
- Smaller business services
- Construction services
- Communications and media.
Therefore, digital transformation is the top priority of businesses that want to prosper and for countries that want to build and protect their economy, which will have an effect on the global economy as well.
However, to be in the race of adopting crypto, organizations have to make sure that they do not make any mistakes.
One of the biggest mistakes made by the organizations while implementing this new technology is to leave the entire thing in the control of an aficionado in the team.
This should not be done because it is not an easy job and needs a lot of effort and considerations such as:
- C-Suite support
- Identification of strategic opportunity
- Evaluating the value and
- Facilitating the accurate level of collaboration within the industry.
With precise working and implementation, blockchain applications will be able to scale properly through the economic disruption and establish proof of concept use cases.
It will eventually help the business to identify the value and at the same time instill trust and ensure transparency in the solution so that the maximum potential of blockchain is reaped and delivered.
It is required by the businesses to realize the potential economic impact of blockchain technology and manage the energy overhead more efficiently.
Responses of Governments
When it comes to the government accepting the good things about crypto and their official responses to the use of it in the current financial system, it has been pretty lukewarm, to say at best.
Whether it is the central banks or the financial institutions, they have not been pretty appreciative about the potential of crypto.
They have been very cautious and apprehensive about the extreme volatile nature of crypto and its market.
This made them think that crypto will result in financial instability if it is used as a traditional currency.
Though a few specific organizations and countries were supportive of crypto, most of the central banks are worried about other significant issues including and certainly not limited to:
- Tax evasion
- Capital controls
- Anonymity in transactions
- Flow of funds and lots more.
Based on these factors, different governments of different nations ventilated their widespread concerns in different ways.
Here are a few of them that will give you a fair idea about how governments consider crypto.
- The United States Federal Reserve – The Chairman of the US Federal Reserve Chairman Jerome Powell said that the technical issues with cryptocurrencies still remain. Therefore, it will be very difficult, if not impossible to ensure proper governance and effective risk management if crypto has to be made a part of mainstream society.
- European Central Bank – The former Vice President of the European Central Bank Vitor Constancio termed Bitcoin as a ‘tulip’ with reference to the bubble in the Netherlands that was experienced in the 17th There were several other governors who corroborated his skepticism.
- People’s Bank of China – The PBOC or the People’s Bank of China considers it is the right time to embrace crypto with open arms but they want full control over it. That is why the government of China cracked down on the crypto ecosystem banning it completely from the country when they failed to control it and promoted their Digital Yuan instead.
- Bank of Japan – Simply put, the Bank of Japan does not see any potential in crypto or a market for it.
- Bank of England – The former Governor of the Bank of England Mark Carney refereed to crypto as a ‘revolution’ in the world of finance. The Bank of England is in fact one of the few governmental proponents of crypto and blockchain technology.
Therefore, as you can see, the world seems to be pretty divided on accepting and adopting crypto.
However, things are expected to change pretty soon because most of the countries are considering harnessing the power of digital currencies to build and protect their economy as well as that of the globe.
Impacts on Investments
Crypto has had some serious impacts on global investments as well, and for the better.
It is mainly due to its ability to allow making frictionless transactions.
Apart from that, it also comes with an attribute that helps in inflation control, which, however, is the primary reason for most of the investors to include crypto coins in their portfolio with an intention to diversify their investments.
The non-correlated nature of the crypto market in particular makes the coins an effective means to act as a hedge against inflation impacts and risks, pretty much similar to gold and other precious metals.
It is for this reason you will see a lot of crypto derivatives, Exchange Traded Funds, Non-Fungible Tokens and other products come up in the market recently.
However, it does not come without any risks as well. Quite a few crypto experts feel that crypto being volatile may result in a market crash.
If that happens it will have a wider negative impact on the economy on the whole, very much similar to the conditions when the mortgage-backed securities resulted in a widespread global financial crisis.
At this point, however, it is good to take note of the fact that as of now the total market cap of all crypto coins is worth between two and three trillion dollars.
This is pretty less than the worth of some of the major public companies such as Amazon and Facebook, which is now called Meta.
Therefore, if you consider simply the size of the market, crypto does not pose any systemic risk or threat as of now.
Still, cryptocurrencies is a new asset class that comes with lots of potential and dynamic prospects and can go in either direction.
It is for this reason a few investors take it as a vehicle for speculation while others consider it to be a hedge against inflation and very useful for economic use.
As of now, crypto is still struggling to become mainstream currency.
However, with the rapid pace in which it is evolving every day, it is just a matter of time when it will be used to build and protect the global economy, as pointed out in this article.
I have special interest in crypto and intend to help common people to gain knowledge about the digital asset as well as its potential. Follow Me at Linkedin.