Cryptocurrencies have been part of several heated debates since their inception, with policymakers seeking regulatory action on digital assets. Although largely unregulated territory, digital currencies have enjoyed exceptional success as an independently operating asset class over the past few years, disrupting existing financial systems. These currencies changed our existing notions of how economies work, inflicting serious changes on the economy.
With new investors getting into cryptocurrency trading, its subsequent impacts on the economy are being widely felt. While it is safe to say that the technology that underpins cryptos is a powerful tool to revolutionize financial systems, the widespread acceptance of these currencies as a mode of payment is still far from certain. Starting the trend, El Salvador adopted Bitcoin as legal tender. However, some countries have called for a ban on the asset to promote safer forms of investment.
There is no doubt that cryptocurrencies are currently under intense scrutiny. Nonetheless, it should be noted that linking cryptocurrencies with economic channels and pathways can help provide greater economic output.
Let’s see how cryptocurrency investments contribute to the overall economic setup:
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A universal language of finance
Cryptocurrencies provide a common means of doing business, which is not necessarily affected by economic events in any single nation. As we know, USD is used as the base currency for overseas financial transactions in businesses due to the underlying strength of the petrodollar system. However, cryptocurrencies go one step further and provide businesses with unbiased grounds to transact internationally.
This universality has encouraged some countries to adopt cryptocurrencies for trading platforms. With cryptos, companies can have a smoother transition to foreign markets, which encourages them to seek international opportunities. Thus, the adoption of cryptocurrency allows for greater accessibility and a more streamlined flow of business, even abroad. This has boosted the economic growth of some countries, allowing investors to use different advantages of cryptocurrencies.
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Securing the financial ecosystem
Interestingly, cryptocurrencies symbolize a self-regulating system with a ledger of power supporting every transaction. This basic system provides cryptocurrencies with wide recognition. Although some loopholes exist, such as the launch of unreliable currencies, a large space does not need to be checked every now and then.
Safe and secure technology has prevented financial systems from any crash type scenario caused by cryptocurrencies. Essentially, it’s kept millions of dollars of investments tightly secured in an ecosystem that can’t be hacked easily.
Cryptocurrency investments are also seen as an ideal solution to existing flaws in the current financial system due to human error or greed. To some extent, cryptocurrencies have kept the economy from landing on a frame seen in 2008.
A financial revolution
Those familiar with the origins of cryptocurrency know that these digital assets represent more than just a form of tradable asset. They represent the ability of the people to take back financial power. Perhaps this explains why authorities are so reluctant to allow cryptocurrencies to take over all aspects of the financial ecosystem.
Investing in cryptocurrencies can be riddled with extreme bouts of volatility, which can often result in significant losses for investors. However, this unique asset class offers the masses the opportunity to control the economy for themselves.
So far, these cryptocurrencies have been widely adopted as tradable assets. However, this marks a shift in economic power from the government to a highly reliable technological system. This can allow for an even distribution of prosperity among nations and faster economic growth.
The politicization of money
One of the not so big impacts of the global adoption of cryptocurrencies could be the exploitation of the powerful financial tool. If cryptocurrencies are used for money laundering, they can cripple existing financial structures in any country. Meanwhile, some cryptocurrencies, such as Bitcoin, have a limited supply. Thus, changes in the dynamics of supply and demand can often lead to high volatility in the price of the currency.
Additionally, the robust and anonymity-based blockchain system could allow certain transactions to be conducted secretly without leaving a full trace. This can incentivize illegal operations on offshore accounts, triggering economic volatility in all countries.
It is important to be careful, as these large-scale financial scams and irregularities often spread quite quickly to other parts of the world, as history shows.
Cryptocurrencies offer a whole new world for investors and authorities to experience. Despite many advantages, these currencies are seriously criticized for being a highly volatile asset class. The impact on the economy has not been so adverse so far. However, as individuals find loopholes in the system, governments may be forced to ultimately regulate the asset class.
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