- Emerging markets are the first places in the world to use cryptocurrencies.
- Cryptocurrencies are seen as a safe place to go when the economy is in trouble and inflation is high.
- Many African countries are using cryptocurrencies to help more people get access to the financial system.
- Even in countries that don’t allow trading, NFTs and games are bringing in new users.
Even though there are problems in the global economy and the value of cryptocurrencies has dropped a lot this year, emerging markets are quickly adopting the technology. According to the Global Crypto Adoption Index from US blockchain analysis firm Chain analysis, the number of people using cryptocurrencies around the world in the first two quarters of this year was higher than in 2019 and 2020.
The Chain analysis index was dominated by emerging markets. Vietnam, the Philippines, Ukraine, and India were the top four adapters. Pakistan came in sixth, Brazil came in seventh, and Thailand came in eighth.
Even though the current bear market has made people less interested in cryptocurrencies in developed countries, the data shows that demand has stayed strong in emerging markets.
Causes of adoption
Rising US interest rates and inflation are making many fiat currencies around the world weaker. Cryptocurrencies and the decentralized exchanges where they are traded make it easier for people in emerging markets to deal with transactions and limit their exposure to macroeconomic pressures.
Long thought of as a way to protect against inflation, cryptocurrencies have had one of the biggest drops in value since the second half of 2021, when inflation rose around the world. This has led many banks and financial institutions to question this idea.
The COVID-19 pandemic sped up the development and use of new e-commerce solutions, as people looked for new ways to get access to financial services.
Emerging Markets Lead The World In Crypto
The World Bank says that the number of people who don’t have bank accounts (people who don’t have checking or savings accounts, credit cards, loans, mortgages, or other traditional financial products) will drop from 1.7 billion in 2017 to 1.4 billion in 2021.
Data from the UK research platform Merchant Machine shows that more than 65% of the people in Morocco, Vietnam, Egypt, and the Philippines do not have a bank account. On the Chain analysis index, three of these countries were in the top 15.
In the Middle East and Africa, 50% of people do not have a bank account, while the average for South and Central America is 38%, Eastern Europe is 33%, and Asia-Pacific is 24%. At the same time, 94% of people in Western and Central Europe have bank accounts.
Given these differences in financial inclusion, it’s not surprising that people in emerging markets are driving the adoption of cryptocurrencies and decentralized exchanges, which Chain analysis says is more important than the total volume of holdings, trades, or even price.
Weigh the risks and benefits.
Last year, El Salvador was the first country to recognize Bitcoin as a legal currency. President Nayib Bukele promised to build “Bitcoin City” as a tax haven for crypto investors, with an airport and residential and commercial areas.
But Bitcoin’s price dropped after El Salvador made it legal tender. In the 12 months after that, it went from $47,000 to less than $20,000. This has raised questions about these plans and El Salvador’s ability to pay back $1.6 billion in sovereign bonds that are due in 2023 and 2025.
Still, a number of African countries continue to support the use of cryptocurrencies as a way to bring more people into the financial system.
In April, the Central African Republic made Bitcoin a legal form of payment. Most of the cryptocurrency is held by people in Egypt, Kenya, Nigeria, and South Africa, the continent’s four largest economies.
Zimbabwe, on the other hand, has a Bitcoin ATM that is run by Golix, the country’s first and largest cryptocurrency exchange. This is the only place where people can buy or sell US dollars for Bitcoin in Zimbabwe.
Citizens skirt government bans.
One of the biggest risks to the long-term success of cryptocurrencies is that governments could stop trading them because they are used to pay for illegal things.
Last year, China made it illegal to mine and trade cryptocurrencies.
Last year, China made it illegal to mine and trade cryptocurrencies. Egypt and Morocco are two of the eight other countries with similar bans. Another 42 countries have implicit bans on these activities.
Even so, the Chain analysis index says that China was the 10th largest country to use crypto and Morocco was the 14th. In China, many people are getting around the ban, and it is said that the government is not taking it very seriously.
The country has, however, supported the use of non-fungible tokens (NFTs) that use blockchain technology, as long as they are traded on regulated exchanges.
Most NFTs are bought and sold with cryptocurrencies, which is helping them spread in Central and South Asia as well as Oceania.
People said that NFT marketplaces, like FanCraze, which sells cricket NFTs and is backed by US venture capital firm Sequoia Capital, were a big part of India’s big jump in the Chain analysis rankings.
Play-to-earn (P2E) games backed by blockchain technology are another big draw for new cryptocurrency users, especially in top-ranked Vietnam.
Even though the Vietnamese studio Sky Mavis’s NFT online game Axie Infinity was hacked and shut down earlier this year, many people in Southeast Asia are turning to new P2E options made in their own countries.
More sustainable mining
Because Russia is still invading Ukraine, there are energy shortages and problems with the supply chain. This has made the cost of energy to mine cryptocurrency even more of a worry.
The amount of energy needed to run the Bitcoin network depends on how much mining and trading is going on. At the time of writing, the Cambridge Bitcoin Electricity Consumption Index estimated that the Bitcoin network used about 92.7 TWh of electricity per year, which is about the same amount of electricity as Pakistan uses in a year.
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