Cryptocurrency around the world: Adopt or Ban?

22 Feb 2022

#Blockchain

#Cryptocurrency

In the last couple of years, cryptocurrency adoption around the world has grown by over 800%. This number is proof that the crypto world continues to engage more and more people. Its success can be partly attributed to the countries that not only accept cryptocurrencies but sometimes also change their laws in favor of Bitcoin and others. According to the 2021 Global Adoption Index, the top five countries with the highest level of cryptocurrency activity are Vietnam, India, Pakistan, Ukraine, and Kenya. 

Some countries have chosen to dip their toes into the market, a minority have dove head first, while others have decided to stay away. Let’s look at some interesting facts about some crypto-friendly countries and one that banned crypto altogether.

El Salvador — the first country to accept Bitcoin as legal tender

The Republic of El Salvador is located in Central America and has a population of 6.8 million. Once colonized by Spain, the country declared its independence only in 1821. One of the first priorities for the government was to reinforce monetary stability, but the former currency,  the colon, failed to provide it. That is why soon after El Salvador adopted the US dollar as its currency and as a result, the annual inflation rate declined considerably. 

But the country still has some economic issues, one of them is that more than 70% of citizens do not use traditional financial services and have no bank accounts whatsoever. That was one the reasons current president Nayib Bukele made Bitcoin the second official currency of El Salvador on September 7, 2021. Which was and still remains a very controversial decision because of Bitcoin’s volatility. 

The president claims that this will encourage more Salvadorans to get involved in the formal economy. One example is that many Salvadorians live abroad and send money home to their relatives all the time. Cryptocurrency transactions can make this process faster and cheaper.

So, what does the Bitcoin Law entail? The government created the Chivo, the national digital wallet and put 30 dollars worth of Bitcoin into every Salvadorian’s account. From now on citizens can use this money for shopping or paying taxes. Moreover, all companies in the country are obliged to accept the cryptocurrency, but once the digital money is received, it can be exchanged for dollars. Now, El Salvador’s treasury has at its disposal approximately 1120 Bitcoin, which equals nearly $66 million.

Not everyone has supported the law with many considering it to be a risky investment. In June 2021 anti-bitcoin protests began with some resulting in the destruction of newly installed Bitcoin ATMs.

Only time will tell whether it sets the country on the right path, in the meantime, Bitcoin wallets are more popular among Salvadorans than traditional bank accounts. Statistically, over 3 million people, which is 46% of the population, have already downloaded the wallet.

Venezuela and the world’s first state-backed cryptocurrency

The oil-rich South American country has high hopes that investing in cryptocurrency will help to revive its economy. 

In the last few decades, Venezuela has been struggling with an economic crisis that resulted in an annual hyperinflation rate of 686.4%. And to make matters worse, the country also has to deal with corruption, starvation, and, as a result, has had a massive emigration. Citizens’ frustration and dissatisfaction with the lack of democracy has eventually erupted into a series of protests, which were met with violent suppression. In response to these human rights abuses, the USA and the EU imposed sanctions against the administration of the current president Nicolás Maduro. Later on, the sanctions were extended to several industries such as petroleum, gold, mining, food, and banking.

Trying to combat hyperinflation, the government has adopted the idea of creating a native cryptocurrency. The Petro was developed in 2018 by Venezuelan activist and entrepreneur Gabriel Jimenez and was meant to cure inflation by avoiding sanctions that have walled off the country from entering certain international financial markets. The newly created cryptocurrency was supposed to be backed by Venezuela’s oil reserves. Facing cash flow problems, the government believed that Petro would become an attractive investment opportunity. 

Jimenez hoped that by designing this digital currency, he would help Venezuela combat corruption. The whole idea of Bitcoin, Ether, and others is that they are decentralized and transparent, therefore they operate without government interference. However, the Venezuelan government had some control over the Petro. For instance, they could halt or reverse transactions. This goes against the main principles of the blockchain. As a result, the Petro did not build public trust and remained unpopular until 2020 when it was shut down for “maintenance”. 

China has officially banned crypto

While some governments are thinking of accepting Bitcoin as legal tender, China has chosen to go the opposite route.  

Back in the early days of Bitcoin, China was one of the first to welcome cryptocurrency. Thus, in 2011, the very first national cryptocurrency exchange, BTC China, emerged. By October 2014 it became the second-largest bitcoin exchange in the world. Soon after that Bitmain sprang up, which is one of the first cryptocurrency mining equipment manufacturers. Interestingly, one of its founders, Jihan Wu, was also the first person to translate Bitcoin’s Whitepaper into Mandarin. 

The more Bitcoin grew in the country, the greater the government was concerned that it could literally replace their fiat currency. It’s worth mentioning that by 2021, China accounted for 70-75% of the world’s bitcoin mining. Having relatively cheap coal-powered electricity, the country was a rational choice for miners, who required a lot of computing power. When the government made the decision to ban Bitcoin, all activities related to it were made illegal. Crypto-related services are no longer provided inside the country and Chinese investors are not allowed to be involved in cryptocurrency trading. Moreover, the government imposed restrictions on information about the crypto industry and on Internet ads.
The good thing is that though Bitcoin relied on China for a lot of its business, the consequences of the ban were not very serious. In less than 6 months, the cryptocurrency has recovered and a lot of miners relocated to the USA, which now dominates the world’s bitcoin mining by owning around 35%. 

Even though the Chinese government has made it clear that they want nothing to do with Bitcoin, their plans for financial sector reforms gives the public some hope that it is not the end of the cryptocurrency era in the country. As the Chinese government is thinking of developing its own digital currency — e-CNY (China’s digital yuan). 

Summary 

Since the emergence of digital currencies, governments have been forced to make a choice whether to allow them or not. Most have chosen the former but a number have banned them. We’ll see how those decisions play out in the long term. What we already know is that Bitcoin and other cryptocurrencies are being adopted by some government institutions. It is yet to be seen if that number will grow but it’s exciting to watch those that are experimenting.

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