Crypto has become a crucial part of the economy in the last 5-7 years. Just 10 years ago it was just some geek's entertainment. But today it's disrupting the financial industry making it transparent and inclusive. Cryptocurrencies have opened up opportunities for everyone, especially for people with low income in first-world countries or developing countries with limited traditional banking services.
But at the same time, this technology still faces challenges because of old monetary policies that don't accept digital currencies, high volatility, and regulatory and adoption challenges. So how does cryptocurrency affect the economy today, and what impact will it have in the future?
Impact of Cryptocurrencies on Traditional Financial Systems
Blockchain is slowly but surely disrupting the finance industry landscape. This technology is already challenging traditional institutions like banks, credit bureaus, trust funds, etc.
Cryptocurrencies are not controlled by any central authority. Just 10 years ago various governments tried to prove to us that the only way to create a secure finance system is by using official intermediaries. But the rise of P2P transactions proved them wrong. As of today, cryptocurrency users can make international transactions without any intermediary. If a user wants to use traditional services like SWIFT, they must wait at least 2-3 days until the receiver gets this money. Cryptocurrencies reduce waiting time to a few hours, sometimes even minutes.
Other cryptocurrency advantages are financial inclusion and the ability to work 24/7 without holidays. People from any part of the world can participate in the global economy without relying on traditional services or asking permission from a central authority.
But at the same time, the modern crypto industry can become even more law-abiding than traditional finances. Banks can hide their transactions due to client's privacyâ€, and some people may take advantage of it, providing dozens of micro-transactions lower than finance monitoring requirements. Crypto shows every transaction in the blockchain. It's anonymous, so if you are a law-abiding person, no one can reveal your identity. But if you receive money from a wallet that is part of a money-laundering scheme, your wallet becomes associated.
It's easy to track the money movement from one wallet to another with special AML (anti-money laundering) tools. Once police reveal at least one person from this scheme it becomes easy to identify others.
Cryptocurrencies and Global Trade
As I said before, blockchain provides various opportunities for cross-border trade. The benefits of cryptocurrency show us that it is a great and fast alternative for conducting transactions between people or businesses in different regions.
Classic international transactions involve multiple intermediaries. It makes the process slow and expensive. Cryptocurrencies run direct peer-to-peer transactions, removing intermediaries and their fees.
Cryptocurrencies also offer faster transaction times. Cross-border operations on banks could take days or even weeks until they pass all intermediaries. Cryptocurrency transactions are processed and verified on a blockchain network, enabling near-instantaneous digital transfers. It can help businesses in global trade to settle transactions within a few hours.
Blockchain services can also provide greater accessibility and inclusivity in global trade. Traditional banking systems have various restrictions that make it difficult for low-income people to participate in global trade. Cryptocurrencies are accessible to anyone with an internet connection, allowing people worldwide to engage in cross-border transactions and participate in the global economy.
Influence on Developing Economies
Blockchain is slowly but surely becoming a life-saving technology for people in developing countries. One of the main cryptocurrency advantages is the ability to unlock new levels of financial inclusivity, such as wide accessibility. All you need to have is a device with internet access. The cryptocurrency platform BitPesa was inspired by the Kenyan mobile payment system M-Pesa. BitPesa was founded back in 2013 and for 10+ years it provides cross-border payments across Africa. It supports the most common international cryptocurrencies and a few digital coins popular only in Africa.
Another great example is the Philippine-based Stellar blockchain platform. Through partnerships with local financial institutions, Stellar facilitates low-cost remittances, allowing Filipino emigrants to send money to their relatives on the islands more efficiently and affordably. This initiative has positively impacted the livelihoods of families in the Philippines, improving access to funds and reducing reliance on expensive remittance channels. Many people in developed countries prefer to use widely known wallets such as Binance, Defiway, or Coinbase. It eases collaboration with users from another region due to the usage of wallets from the same provider.
Regulation of Cryptocurrencies
Each country has its regulatory approach. But in most cases, governments try to group and create a rulebook with a set of international laws for all countries involved. These regulations are crucial for maintaining safety in the community.
Back in 2009-2013, there were no crypto laws, so even when criminals stole money from people's wallets there were no consequences for it. But now every month will get us some new laws from different regulatory bodies. There are dozens of investor protection initiatives, market transparency regulations, innovation rules, global coordination guidelines, and adaptation blueprints.
The United States has a complex cryptocurrency regulatory environment. It involves multiple agencies, like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Sometimes their initiatives don't match even with neighborhoods in countries like Canada or Mexico.
The European Union (EU) has adopted a more harmonized regulation approach. They have the FATF (Financial Action Task Force) that acts as the main anti-money laundering watchdog.
The Fifth Anti-Money Laundering Directive (AMLD5) includes cryptocurrency exchanges and custodial wallet providers under its regulatory framework.
Risks and Challenges
The current market is still a risky place despite all the benefits of cryptocurrency. Crypto is a highly volatile asset where the coin's price could drastically change in less than a day. There are still hacking risks. Bank applications have them too, but in most cases, traditional financial institutions are ready to compensate you with at least some money.
But if hackers steal your money from a crypto wallet (due to a phishing attack or by hacking service's smart contract) , you mostly get no compensation. Check out the terms of services of chosen wallets to find out in which cases they compensate money to their clients.
Crypto is often used as a budget-friendly investing opportunity. So it has some amount of market manipulation and insider trading deals, like any other industry. Considering the rapidly changing nature of crypto it is just happening faster than in usual investments.
These activities can lead to unfair market conditions, investor losses, and a lack of market integrity. The most infamous rug pull scheme is the Squid Game coin case. In less than a week this coin's price rose from $0.13 to $2000+.
This price holds for a few days, so people start to notice its hype and start to buy Squid Game coins. Once they reach a solid capitalization of $500 000+, the smart contract administrator sold all tokens and disappeared. As of today, the coin's price is just $0,007.
That's why we will see even more regulations and legal acts. This industry needs to run on strict rules that are making it safe for everyone, even for the youngest or elderly investors who don't know that industry as well as tech geeks.
Cryptocurrencies and Future Economic Models
So how does cryptocurrency affect the economy and what we can expect in the future? Blockchain has the potential to reshape future economic models by introducing new possibilities and transforming existing systems.
It provides financial inclusivity even for the most vulnerable groups like college students, the elderly, or people from developing countries. They can control their finances and build their wealth by using their knowledge of business and economic processes. Cryptocurrency gives you a chance to start an investment career even with $10 worth of money in your pocket. The only thing that investors should have is a great knowledge of economics and human psychology. With it, you'll be able to find prospective non-scam coins and slowly but surely build your wealth with crypto investments.
Eventually, it will lead to the rise of various investment companies that work with crypto as one of their main assets. Blockchain also allows the tokenization of real-world assets proving your ownership of physical goods.
Once you buy something valuable like fine art, the gallery will provide you with a single copy of the NFT proving your purchase. If you want to sell it to another investor, they should buy the NFT too. I've already described this algorithm in the Blockchain meets artâ€ article. Another blockchain's distinctive feature is peer-to-peer transactions. You don't need any intermediary. It reduces transaction costs and friction, making economic exchanges more efficient.
Self-executed smart contract agreements have the potential to automate and streamline various economic activities, like bank deposits or insurance payments. They will eliminate the need for traditional contract enforcement mechanisms and reduce inefficiencies in sectors like supply chain management and intellectual property rights.
Cryptocurrencies have the potential to reshape the economic environment by transforming traditional systems and introducing new possibilities. They work on a decentralized blockchain basis, which makes this technology accessible to everyone: from Bay Area billionaires to African college students.
This decentralization opens up opportunities for greater financial inclusion, enabling individuals without access to traditional banking to participate in the global economy. The main distinctive feature of blockchain is the peer-to-peer transactions without any intermediaries. And it reduces transaction costs and friction, making economic exchanges more efficient. You can tokenize any asset, even the device that you are holding in your hands right now.
In the future, shops, and dealerships will not only sell you physical items (phones, laptops, cars, and even real estate) , but also a token that proves your ownership in the digital world.
The transparency and immutability of blockchain technology slowly but surely help us to create a trustworthy economic environment for everyone involved. Every transaction recorded on the blockchain is verifiable, enhancing transparency and eliminating the fraud and corruption potential. It will improve supply chain management, enable fairer resource distribution, and provide a foundation for trust in economic interactions.
However, there are still many challenges that we should overcome to build this great utopian-likeâ€ society. We should build a fair and reliable international regulatory framework, and educate people both about positive perspectives of blockchain and criminal tricks to steal as much money as possible.
Fine education leads to faster adoption. It will boost governors' attention, so we will get more regulations that make a new economy safer to work and live in. Want to be the most educated in your friends or workgroup? Subscribe to Defiway Twitter channel and read our blog, so you don't miss any big crypto news!