A decentralized monetary system built on top of cryptocurrencies like bitcoin (BTC) and ether (ETH) is the end game of the crypto industry. This possibility remains a distant dream and certainly not helped by the harsh crypto regulatory environment in the U.S.
The crypto story is more favorable in developing economies in Asia, Africa, and South America. These regions are becoming hotbeds of crypto adoption. Individuals here look to crypto as a tool to hedge against malfunctioning government monetary policies and hyperinflation, while others use crypto for foreign remittances and dollar exposure.
Let’s take a look at the ongoing cryptocurrency adoption in developing countries across the world.
Central Bank Digital Currencies (CBDC) development in developing nations
You may be forgiven for thinking that China has been the frontrunner in CBDC development right from the start. After all, Asia’s biggest economy has piloted its CBDC before the likes of the U.S., the U.K., and the rest of Europe. However, the first nation to develop and release CBDCs was the picturesque island nation of The Bahamas.
The Bahamas launched the world’s first CBDC called the Sand dollar, in October 2020. The Sand dollar functions on top of a blockchain network and is pegged one-to-one to the Bahamian dollar.
This digital token solves real-world problems in a nation spread across 700 islands. Some Bahamian islands are incredibly remote and sparsely populated, making them unprofitable for commercial banks to set up branches and ATMs. The Sand dollar makes it easier to serve underbanked citizens who live in these regions.
So far, the Sand dollar project is going well. Official statistics showed about 113,358 consumer wallets active as of August 2023 in The Bahamas, which has a population of 413,295 (according to U.N. estimates). Meanwhile, the value of the Sand dollar in circulation stood over $1 million – a figure that the Bahamian government hopes to improve through adoption incentives, education programs, and the launch of a new crypto wallet.
El Salvador: The Great Bitcoin Project
El Salvador made headlines in September 2021 when the Central American nation declared bitcoin a legal tender. The country’s outspoken president Nayib Bukele gained plaudits for the bold move from crypto enthusiasts, while economists called out his crypto experiment for endangering El Salvador’s economy.
How has El Salvador’s crypto adoption progressed? It has been over two years since BTC became legal tender in El Salvador, and crypto adoption in the nation is going as expected – slow and steady.
Crypto usage and wallet downloads of the government-endorsed crypto wallet called Chivo have fallen sharply after adoption incentives, which distributed BTC worth $30 for each downloaded, came to an end. However, crypto education is planned within schools, and it looks like the country is in it for the marathon, not the sprint.
A face-to-face survey by the National Bureau Of Economic Research (NBER) of 1,800 households in El Salvador conducted in February 2022 gave some insight into the general population’s views and use:
- 70% of respondents were unbanked
- 68% of Salvadoreans were aware of the Chivo Wallet
- Most citizens preferred to use cash
- 5% of Salvadoreans have paid taxes via Chivo
- 3% of respondents received remittances in bitcoin via Chivo
- 20% of firms that responded to the survey accepted bitcoin
- The majority of respondents did not show a preference for accumulating bitcoin and chose to convert all the bitcoin they received into dollars
- For over 50% of respondents, lack of understanding and trust was the main reason not to use bitcoin
- A young, educated, male, and banked individual (28% of respondents) was likelier to use bitcoin.
El Salvador knows that crypto adoption is a long and arduous task. The nation’s crypto industry is focused on educating the public and building trust over the long term.
In September 2023, El Salvador’s Ministry of Education teamed up with crypto education company Mi Primer Bitcoin to incorporate bitcoin education into schools by the year 2024. The path to mass crypto adoption could possibly take years or decades, but El Salvador is committed to this vision.
Crypto in the Face of Inflation
Bitcoin’s proclaimed properties of being a hedge against inflation is a big reason so many people are drawn to the cryptocurrency. This narrative is a significant driver of crypto adoption in developing countries suffering from the devaluation of their fiat currencies.
It’s happening in several African countries. People are turning to bitcoins and stablecoins in Nigeria, Kenya, Ghana, and South Africa. The phenomenon is most prominent in Nigeria – the most populous country in Africa. In 2023 alone, the Nigerian Naira lost over 40% of its value against the U.S. dollar as of 3 October 2023.
The steep devaluation of the Naira in 2023 serves as a timely reminder of the bitcoin community’s constant warning against centralized fiat currencies. This is because the fall in the Naira was a pre-meditated one, which came after newly-elected president Bola Tinubu made a series of drastic economic reforms after taking office in May 2023. One of which was forcing the Nigerian Central Bank to give up control of the Naira foreign exchange rates and introduce a free float exchange rate instead.
The fall in Naira value has made imports more expensive and has caused the Nigerian economy to suffer from its worst bout of inflation in over 18 years. Nigerians have turned to bitcoins and altcoins to shield their wealth. Nigeria is among the few nations to see year-on-year growth in crypto transaction volume in 2023, according to Chainlysis, despite the ongoing crypto bear market.
Similar scenarios have been observed in other nations suffering from hyperinflation, like Turkey and Venezuela. Extraordinary world events like the Russia-Ukraine war have also sparked crypto frenzies in regions affected by fiat devaluation.
While the U.S. gets the attention when talking cryptocurrency development, the hotbeds of crypto adoption are countries that see real-life utility in the digital currency.
In the 2023 Global Crypto Adoption Index by Chainlysis, the U.S. was the only developed nation in the top 10 list. India ranked first despite unfriendly crypto regulations in the South Asian nation, while economies suffering from inflation, including Nigeria and Pakistan, made the list.
While large parts of the world treat cryptocurrency as a speculative tool, its use cases are likely to flourish where crypto can make a difference in ease of use, low cost of transfer, or an inflation hedge against a devaluing fiat currency.