How Economic Factors like Inflation Have Catalyzed the Crypto Movement

The rising price of commodities, combined with the emergence of global pandemics, has driven inflation upwards in many countries across the world. In 2020, there were over 20 countries in which inflation was more than 10% — with these numbers likely to rise. Inflation translates to devaluation of national currencies, and potentially significant losses of your hard-earned money — after all, with high inflation rates, every year your purchasing power decreases. Many people turned to cryptocurrencies to fight against devaluation of their salaries, so let us look into the role inflation plays in the crypto-powered world.

Disclaimer: This article is created for educational purposes only.

Global inflation is nothing new: every generation has seen a rapid rise of prices at least once. Yet, in an increasingly globalized world, devaluation of national currencies and changing prices are a source of great anxiety to many. More and more people begin to search for alternatives to traditional financial systems, and cryptocurrencies are among their top choices.

Many countries plagued by high inflation rates turn to cryptocurrencies. For example, Venezuela (a 2335% inflation rate in 2020) and Argentina (a 42.02% inflation rate in 2020) are among top countries for adopting cryptocurrencies. With such high inflation, it is safer for people to receive their salary in Bitcoins than their own national currencies. Which lends to the question — what is the relationship between cryptocurrencies and inflation? Which countries embrace cryptocurrencies with the greatest enthusiasm, and why?

In this article, you will learn about…

  • Countries with the greatest crypto adoption

The rate of crypto adoption around the world differs greatly depending on the region, but let us look at 20 countries, which made it to the top of The 2021 Global Crypto Adoption Index by Chainalysis. The list of crypto-enthusiastic countries goes as follows:

  1. Vietnam

All of these countries embrace cryptocurrencies for different reasons. For example, Afghanistan, Russian Federation, and Venezuela are subject to many political sanctions that impact the value of their national currency, making trading with other countries more difficult. Cryptocurrencies give nationals of these countries a chance to participate in global trading systems as they are decentralized and their value does not depend on national politics.

Photo by Alesia Kozik from Pexels

On the other hand, countries like Venezuela, Argentina, and Pakistan face high inflation rates, so people invest into cryptocurrencies before their salaries lose their value. Cryptocurrencies are subject to little (almost zero) inflation, unlike traditional currencies. The number of bitcoins will never be greater than 21 million coins, unlike the number of traditional money. In the face of financial difficulties, governments may print more money — also known as quantitative easing. However, this adds more currency into circulation, hence decreasing its overall value. Many investors see cryptocurrencies as a means of hedging against inflation, meaning that they invest in bitcoins, for example, to offset potential losses from other investments.

The higher the inflation around the world, the more distrustful of traditional financial systems people can become. In such a way, it comes as no surprise that the raging COVID-19 pandemics actually drove the growth of cryptocurrencies. In November 2021, both Bitcoin and Ether hit their all-time-high prices: when investors lost faith in prone to inflation of national currencies, cryptocurrencies proved to be an answer to their needs. Currently, any signs of growing inflation seem to positively influence crypto prices. Devaluing national currencies push investors to put their money in other assets, hence record prices of cryptocurrencies in recent times.

Inflation is not the only driving force behind the crypto revolution. In countries like El Salvador, the majority of nationals have never opened a bank account, but with the growing accessibility of technology, they are ready to join the world of decentralized finance. Traditional banks often charge large fees for international transactions or offer extremely unfavorable exchange rates between different currencies. Bitcoin and other cryptocurrencies eliminate both problems, since they are international and have low transaction fees. El Salvador was the first country to make Bitcoin legal tender to offer its citizens an alternative to traditional financial systems. Additionally, the country also plans on building the world’s first Bitcoin city, where there would be no taxes but value added tax (VAT).

El Salvador is not the only country which sees cryptocurrencies as an answer to high transaction fees. Kenya, which is the most crypto-friendly African country, began to embrace cryptocurrencies because of devaluing national currency and expensive international money transfers. International transactions are more costly in Africa than on any other continent, and cryptocurrencies with their low transactions costs could change it. Kenyans typically use cryptocurrencies for smaller transactions, typically transferring less than $10,000 worth of cryptocurrency.

Interestingly enough, cryptocurrencies in Kenya help certain communities trade with more ease and more profits. Kenyan farmers use their own cryptocurrency Sarafu to sell their goods and monetize their resources: no fees are required to start trading with the cryptocurrency. It is enough to have a Kenyan phone number. In this way, anyone can enter the market, offer their services, and earn Sarafu coins. This is how cryptocurrencies can promote equality in local communities.

Short summary

  • Vietnam, India, Pakistan, Ukraine, and Kenya are 5 top countries with the greatest crypto adoption

Start trading with ZB.com and leave the fear of inflation in the past!

Sources:

  1. https://www.statista.com/statistics/268225/countries-with-the-highest-inflation-rate/

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