Crypto Adoption Paradox. Part 2

    13 Sep 2021

    Cryptocurrencies, “the digital age money”, are commonly associated with the most advanced technologies and other features of a modern developed country. However, the reality of their mass adoption indicates quite the opposite: crypto is mostly in demand in poor countries with weak economies.

    Other countries in the Chainalysis ranking – Kenya, Nigeria, Venezuela, Togo, and Argentina – all have unstable monetary systems subject to severe inflation. Moreover, in these countries (except perhaps Argentina), the majority of the population does not have access to banking services. So for their citizens and small businesses, crypto becomes both a tool to protect money from inflation and the most convenient means of payment in transactions with everyday goods.

    Lastly, we have the United States – a country with a high standard of living and well-developed financial and stock markets, yet showing a high level of public cryptocurrency acceptance. Unfortunately, judging by the Chainalysis data, America is the exception that proves the general rule. Going down the rating, the Top 20 countries still mostly display low average incomes and volatile currencies.

    At the same time, the US fell from 16th to 109th place in terms of cryptocurrency use among the population. This, however, is unlikely to be due to crypto turnover decreasing in the States, rather much more rapid growth in other countries. In addition, cryptocurrency relations in America are becoming more and more professionalized and institutionalized. As a result, they are entering a level of adoption different from popular acceptance that Chainalysis experts are looking at.

    In turn, following the recently introduced bans on mining and restrictions on cryptocurrency operations, China has moved down from 4th position last year to 115th this year. There, the authorities are taking administrative measures to “make room” for the digital yuan.

    According to analysts at Chainalysis, the scenarios for growing cryptocurrency adoption differ between developed and developing countries. In the developing world, the process is still driven primarily by ordinary citizens. In North America, Western Europe, and Southeast Asia, however, the introduction of crypto into the economy is mainly attributed to large investment funds.

    To further prove the point, P2P exchanges are the main tool for working with cryptocurrency for users from poor countries, as they often have no access to big centralized crypto exchanges. Central and South Asia, Latin America, and Africa send more web traffic to P2P platforms than regions with larger economies such as Western Europe and East Asia.

    There is another factor explaining why people in developing countries more actively use cryptocurrencies. Many of their citizens are work migrants, so crypto is a convenient and cheap way to send money home to their families, avoiding taxes and bypassing states and banks.

    Finally, the financial authorities in many developing countries limit the amount of national currency that residents can take out of the country. In such cases, cryptocurrencies provide people the ability to get around the restrictions.

    Chainalysis experts also tried to predict the driving force behind the next wave of mass cryptocurrency adoption. In their opinion, centralized crypto exchanges, P2P platforms, and, most pronouncedly, DeFi will continue strong growth. However, all of them may soon have to compete with some new platforms and models that we have not yet seen.

    For us, there is no better way to finish our mass adoption tale as of mid-2021 than with final two quotes from the Chainalysis report:

    – The increasing volume of transactions within centralized services and the explosive growth of DeFi are driving the use of cryptocurrencies in the developed world, while P2P platforms are helping spread crypto in emerging markets.

    – Cryptocurrency adoption has skyrocketed over the past twelve months, and the differences in the countries contributing to it show a truly global nature of this phenomenon. […] Global adoption is up over 2,300% since the third quarter of 2019 and over 881% in 2020 alone.

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