After a year like 2020, people have become more aware of issues with current financial systems. The economic stresses and disruptions of the pandemic have highlighted the cracks in how people bank, invest and send payments. Cryptocurrency could be the answer to many of these problems.
Crypto has become increasingly popular. In April, the cryptocurrency market topped $2 trillion for the first time, with Bitcoin alone rallying more than 100% this year. As it keeps growing, it becomes a more viable alternative to traditional financial systems.
Here are five examples of financial issues cryptocurrency can remedy this year.
Extensive government aid programs and economic disruptions have many people worried about inflation in the post-COVID economy. Even if it weren’t for the pandemic, inflation is an ongoing issue that faces all fiat currencies. Cryptocurrency could help prevent this, thanks to scarcity and built-in anti-inflation controls.
Cryptocurrencies have a hard-capped maximum supply, meaning people can’t keep mining crypto like governments can keep printing money. Supply and demand can dilute its value, but once everything is in circulation, only demand can influence it. Fewer influencing factors mean inflation is far less likely.
Some cryptos, like Bitcoin, have built-in anti-inflation measures, too. The number of bitcoins a block contains halves periodically, slowing how fast the supply increases.
2. Fraud and Corruption
Another advantage crypto has over traditional currencies is transparency. Anyone can see any transaction on a blockchain, but no one can change them since blocks are locked in the chain. This visibility makes it easier to verify where money is going, helping fight fraud and corruption.
For example, some services let people donate to charities with cryptocurrency. They can then track their gifts through the blockchain, ensuring it goes where the charity said it would. That way, people can be certain they’re donating to the cause they want and not a scam.
3. Limited Financial Access
One of the most predominant issues with traditional financial systems is that they’re inaccessible to many people. Roughly 1.7 billion people don’t have a bank account, and getting one isn’t always straightforward. Similarly, many people in need can’t get a loan because they require credit history, which not everyone has.
Cryptocurrency puts financial power back into the hands of users. Anyone can get a crypto wallet without much paperwork or any credit history, giving unbanked people a way to store and transfer money. They can send each other cryptocurrency as a form of peer-to-peer lending.
4. Foreign Exchange Fees
Doing business across borders is becoming increasingly common, but it’s not always straightforward. Exchanging between currencies can lead to losses from unstable exchange rates, and many institutions charge fees for converting currency. These fees are typically around 3% of a purchase price and can be as high as 12%.
Since cryptocurrency is borderless by nature, it doesn’t carry these same issues. One bitcoin is worth the same amount everywhere in the world. Since crypto transactions are intermediary-free, there are no fees when someone pays with crypto, either.
5. Economic Instability
Traditional economic systems like the stock market and even national economies are prone to instability. Prices and values can fluctuate wildly, leading to substantial losses in some situations. Cryptocurrencies can serve as a hedge against these fluctuations.
Cryptocurrency is typically decentralized, unconnected from the stock market or national economic systems. As a result, it’s less likely to fluctuate when traditional methods do, providing financial stability. This characteristic has attracted many investors in the past and could help protect less wealthy people, too.
2021 COULD BE A LANDMARK YEAR FOR CRYPTO
As more people invest in cryptocurrency, it becomes an increasingly versatile and useful resource. Consequently, it can better act as a remedy to traditional financial problems.
If current trends continue, 2021 could be a historic year for cryptocurrency. 2020’s instability and the growing understanding of these economic issues could push more people to embrace crypto. It could emerge as a viable replacement for fiat currency.