Those who live in developed countries like the USA and Canada got used to stable currencies and now take them for granted. The EU citizens have unfettered access to the euro, and Americans to dollars, and they may think that there is no urgent need for the emergence of a new price-stable currency. However, there are many countries with weak infrastructure, unreliable governments, and unstable currencies, so for them, the devaluation of local money is not something unusual. In such states, a price-stable currency is undoubtedly in high demand, and the cryptocurrency may be their salvation due to its independence from the government.
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Some may think that since global economic development is significant, nowadays there are only a few countries with serious problems. However, as of August 2019, Iran suffered an inflation rate of 35% while Sudan, Argentina, and North Korea – over 50% annual inflation (“Inflation Rate”). Surprisingly, these are countries with relatively stable governments – unlike Zimbabwe and Venezuela, the inflation rate of which is about 290% and 282,970%, respectively (“Inflation Rate”). As these countries’ local currency rapidly devalues and people’s savings continue to disappear, individuals begin to look for ways to survive and overcome the crisis.
Quite often, they turn to the more regular USD, and this process is labeled as the effect of dollarization, and it usually takes three forms. It may be using the dollar instead of local currency without any coordination from the government or officially switching to it, or demanding the dollar in spite of control of its transfer across the border (Ziyuan par. 21). Considering a cryptocurrency solution that allows transportation of thousands of dollars on one’s device, it is a significantly superior alternative to dollar banknotes in all scenarios of dollarization.
Sometimes Bitcoin and other digital assets are associated with profit-driven entrepreneurs and speculators, although it is not for what it was created. The essence of cryptocurrency is in “collaborative open-source principles and peer-to-peer networks that suggest a commitment to social solidarity and mutual aid”, and it is just what people in developing countries need (Scott 1). “Citizens of countries subject to hyperinflation can hedge their financial risk” by switching to cryptocurrency to replace the local currency or use it as a reserve or backup asset (Darlington 10). Introducing cryptocurrency is especially crucial for countries not only with high inflation rates but also for those with a strong presence of informal black markets.
Although finance is one of the oldest professions, central banking is among those that emerged relatively recently. In their history, central banks have undergone quite a few reincarnations, and cryptocurrency is a significant challenge for them, so they tend to deny its benefits (Blockchain Rev 296). However, it should not be a reason for people to think that the new type of money is harmful to an economy – quite the contrary. When an excessive amount of money is printed by a central bank, hyperinflation occurs, causing a surge in prices for primary products, but the nature of cryptocurrencies makes them mainly immune to hyperinflation.
Summing up, developing countries with weak institutions, central bank issues, and hyperinflation problems need a way to secure themselves from the risks. As cryptocurrency is regulated by the community of its users and is subject to decentralized regulation, it is secure from any supply shock and does not suffer from inflation. Citizens of developing countries may use it to escape their sinking national currency system and become independent of their corrupt governments.
Summary of Media Coverage
The Big Blockchain Lie
Nouriel Roubini, CEO of Roubini Macro Associates and a professor at NYU’s Stern School of Business, wrote an article “The Big Blockchain Lie” for Project Syndicate in October 2018. The main idea is that although blockchain is in everyone’s ears and is associated with liberty and decentralization, it turned out to be a big lie. There is no real decentralization and reliability, so no self-respecting company will operate on blockchain, and those who invested their real money in the cryptocurrency have already lost fortunes.
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Bitcoin has significantly lost its value since its peak in 2017, and as of 2018, it has fallen by approximately seventy percent. Moreover, EOS, XRP, Litecoin, Ether, and other leading cryptocurrencies have all lost more than eighty percent of their value. Although the statistics are quite astonishing, Roubini believes that “no one should be surprised by this: four out of five ICOs were scams” (par. 1). The same disillusionment goes with cryptocurrency trading, with almost all of its transactions occurring on centralized exchanges and being subject to regular hacking.
Blockchain is exceptionally overhyped and is usually associated with libertarianism since many people believe it to replace traditional financial institutions, central banks, and other ineffective concentrations of power. However, a majority of all crypto-mining community is controlled by only a few companies from China, Russia, and Georgia, and the crypto universe has an even higher level of wealth concentration than North Korea. Whatever its popularity and number of supporters, blockchain is a lie that enriches a few cunning people who plunder naïve sympathizers, and it does not benefit anyone as there is no real decentralization and reliability.
The $190 Million Dollar Question
Benjamin Vitaris, a crypto-journalist, and copywriter wrote an article “The $190 Million Dollar Question: The Known & Unknown About QuadrigaCX Exchange Mystery” in February 2019. The paper is about a possible fraud that the owners of the Canadian largest cryptocurrency exchange might have organized to get almost two hundred million dollars from their clients.
The CEO of QuadrigaCX died in December 2018 in India, Jaipur, or, at least, the documents and his wife say so. After his death, digital currencies worth $190 million that were kept at cold wallets of the exchange, became inaccessible as Cotten’s access to them was exclusive. The CEO’s will was set up just two weeks before his death, and the main inheritor of QuadrigaCX was his wife, who knew nothing of how to liquidate the money.
Moreover, documents are easy to forge in India, and the whole death story may just be a part of a huge scam. There are even more red flags in this case: it was reported that “a blockchain analysis has shown that the Litecoins were moved away from the cold wallets after Cotton’s death” (Vitaris par. 11). Also, there are rumors that the co-founder of the exchange committed credit card and identity fraud in the early 2000s. However, be it a scam or just an unfortunate death, the users of QuadrigaCX still have no idea if they will ever get their money, and only time will tell.
Darlington, James K. III, “The Future of Bitcoin: Mapping the Global Adoption of World’s Largest Cryptocurrency Through Benefit Analysis”. Chancellor’s Honors Program Projects, 2014, pp. 1-21, Web.
“Inflation Rate.” Trading Economics, Web.
Roubini, Nouriel. “The Big Blockchain Lie.” Project Syndicate, 2018, Web.
Scott, Brett. “How can cryptocurrency and blockchain technology play a role in building social and solidarity finance?” UNRISD Working Paper, no. 2016-1, 2016.
Vitaris, Benjamin. “The $190 Million Dollar Question: The Known & Unknown About QuadrigaCX Exchange Mystery.” CryptoPotato. 2019, Web.
Ziyuan, Lucia. “Think Piece: Fighting Hypeinflation with Cryptocurrencies.” Medium. 2018, Web.