Research from 2022 shows that cryptocurrency adoption is typically highest in developing economies across Asia, Africa, and Latin America. Among the top ten countries with the largest share of crypto users are low- and middle-income nations such as Thailand (20%), Nigeria, the Philippines, South Africa (each 19%), Argentina (18%), Indonesia, and Brazil (each 16%).
Furthermore, Bitcoin has been a legally recognized currency in El Salvador since 2021 and in the Central African Republic since 2022. In each case, the governments stated that they wanted to tap into the benefits of crypto, such as reducing the cost of cross-border remittances and expanding economic opportunities. However, the moves have been criticized by the International Monetary Fund, which states that the volatility of cryptocurrency can be detrimental to financial stability.
Benefits and Challenges of Cryptocurrency Adoption in Developing Countries
Crypto has several features that can be beneficial for people in low- or middle-income countries. Since it only requires an internet connection, crypto is relatively accessible with only a smartphone and a wallet app needed to transact. With its permissionless design, create a blockchain account doesn’t require any identity documents or KYC processes which addresses one of the critical challenges for many people in lower-income economies.
Peer-to-peer settlement on-chain can also be quicker, cheaper, and more reliable than waiting for a traditional bank transaction to clear, making it an ideal alternative to fiat currencies in developing countries.
Further, crypto can also provide a refuge to store value in jurisdictions with volatile local currencies and untrusted public institutions. Countries such as Venezuela, Zimbabwe, and Argentina have suffered from rapid currency devaluations in the past due to a rapidly rising inflation. In these cases, people have found their life savings become much less valuable overnight.
So, while cryptocurrencies may seem too volatile to act as an adequate store of value in more stable Western economies, in relative terms, they could prove to be a more reliable store of value under extreme economic conditions.
In addition to simply storing value, crypto offers the potential to generate additional income. Ways to earn returns on digital assets include participating in proof of stake consensus for rewards, finding airdrops and giveaways, or even through play-to-earn games.
While many of the challenges of crypto adoption apply both to developed and developing countries, users in developing countries may be less aware of the technology and associated risks and less equipped to handle adverse fallout. Furthermore, those running scams and fraudulent operations tend to prey on people in countries where regulation is light or ineffective and penalties are easy to avoid, as is the case in many lower-income countries.
One example of this is the OneCoin scam, which targeted users in rural areas of Nigeria, leading the government to warn against buying OneCoin tokens.
How Cryptocurrency is Changing the Financial Landscape in Developing Countries
Developing economies tend to be net exporters of workers, and as such, remittances often account for a significant proportion of their economies. The World Bank estimates that in 2019, nearly $550 billion worth of remittances were sent to low- and middle-income countries. One example is El Salvador, where remittances account for as much as 20% of the national economy with 95% of all remittances coming from Salvadoran workers in the United States.
However, cross-border remittance payments in local currencies can often be slow to settle and incur high fees from third parties, so sending smaller sums is uneconomical. Crypto offers a secure and fast way to send sums across borders without navigating third-party payment providers, and blockchain transactions can be settled for a fraction of the fees charged by remittance companies.
Some companies have started to explore the use of cryptocurrency networks to settle transactions. For example, remittance giant MoneyGram has previously experimented with stablecoin remittances on the Stellar blockchain.
Cryptocurrency for Financial Inclusion in Developing Countries
The accessibility of crypto means it has often been positioned as a tool for financial inclusion. There are still an estimated 1.4 billion people in the world without access to traditional financial services, and one of the biggest barriers to access is a lack of government-issued identity documentation. The permissionless nature of blockchain means that anyone can set up an address without undergoing KYC checks and begin transacting immediately, with instant settlement across borders.
Delivering a universal basic income (UBI) in cryptocurrency is one way that projects are leveraging crypto to support financial inclusion. One example is GoodDollar, which uses the principles of social investing to generate returns from DeFi deposits that are converted to tokens which are in turn distributed as a universal basic income to users in low-income countries.
However, researchers have found that, so far, there is a key practical limitation to the role that crypto can play in supporting financial inclusion. Crypto is not universally accepted as a payment method, and converting funds into fiat for payment purposes typically does require a bank account. Therefore, merchant acceptance remains a barrier to crypto’s utility in supporting financial inclusion.
Role of Cryptocurrency in the Global Economy
The emergence of crypto is undoubtedly having profound effects on the global economy. Along with the sizable market capitalization of cryptocurrency, the concept of digital money and the underlying distributed ledger technology are transforming the financial system.
Many governments are now researching and developing central bank digital currencies, and banking institutions are leveraging blockchain and permissioned alternatives to speed up settlement and tokenize assets, among other initiatives.
Meanwhile, there may be some challenges in leveraging crypto for financial inclusion, but adoption rates of digital assets in developing countries demonstrate that there is demand for crypto as an investment and payment vehicle.
Crypto adoption in developing countries essentials
- The highest rates of crypto adoption are typically found in lower and middle-income countries such as Thailand, Nigeria, and the Philippines.
- The reasons could include crypto’s utility as a store of value compared to a volatile local currency, low trust in governments, and the role of crypto in cross-border remittances.
- Crypto also has some potential to improve financial inclusion; however, adoption by merchants is a barrier to its success.