Cryptocurrency in the economy: factors for development and the future of the system

Blockchain technology

Tokens are created and used exclusively on the Internet. They cannot be received in cash, but can be converted into rubles, dollars and other currencies at the current market rate. Essentially, a token is a digital code stored and transmitted from one computer to another. Transaction information is recorded in the cells of the block, which make up the entire distributed database.

To send a transfer, you need a public key (address). It is available to all users of the network. But to receive money will require a private code known only to the owner of the wallet. The cryptocurrency network is decentralized – no one can limit its circulation, interfere in transactions and set their own commissions for use.

Digital money is only one way of realizing the technology. Blockchain is successfully applied in such spheres:

• Logistics (delivery of goods and raw materials).
• Medicine (creating a unified database of patients).
• Law (copyright protection).
• Energy (optimization of production processes).
• Politics (anonymous online voting).

For example, IBM (a computer hardware company) has been using technology to work with cloud servers since 2016, offering customers to create applications themselves. And NASDAQ (American stock exchange) and the Estonian government launched e-Residency, a program of interaction between citizens and authorities. The platform allows residents of the country to receive government and banking services using digital keys.

Benefits for the global economy

Each new form of money has characteristics that help it gain a foothold and niche in financial relationships. Bitcoin and other cryptocurrencies contribute to the growth of the global economy, facilitate access to services in developing countries, and improve business processes, making them more reliable and faster.

Growing activity

In October 2021, the cryptocurrency market has a market capitalization of $2.2 trillion. It is a huge industry with millions of transactions and self-developed projects. Large companies are increasingly paying attention to the growing market:

• Electric car maker Tesla invested $1.5 billion in Bitcoin.
• Ethereum futures appeared on the Chicago Mercantile Exchange.
• Visa announced the release of its own system for buying cryptocurrencies.
• Bank of New York Mellon (American bank) is developing a platform for storing and using digital coins.

The growth rate of the cryptocurrency industry surpasses traditional sectors of the economy. Bitcoin has risen in value more than 100 million times during its existence. In 2009, New Liberty Standard set the coin’s rate at $0.000764, and 12 years later it was trading at $54.5k.

Digital money is gradually changing the global economy, offering private users and companies new opportunities for financial growth. According to CryptoProGuide, 68.42 million wallets were registered in the Bitcoin network in February 2021.

The amount invested in crypto assets has also increased. The capitalization of BTC in October 2021 ($938.9 billion) is comparable to the gross domestic product of Argentina ($915 billion), the Philippines ($952 billion) and the Netherlands ($970 billion).

According to Statistica, the total value of global equity trading worldwide at the end of the second quarter of 2021 was $37.69 trillion. At that time, cryptocurrencies had a market capitalization of about $1.4 – just 3.7% of that amount. Despite all the headlines and excitement surrounding the crypto industry, it still only accounts for a small percentage of global capital.

Impact on traditional markets

For several years, the new digital industry developed independently of other industries. In 2016, the first data on the correlation of bitcoin with gold appeared. At a time of uncertainty in the stock market, these assets are seen by investors as risk mitigation tools.

Digital technology simplifies international transfers, making them faster and cheaper. Token transactions do not require intermediaries and are decentralized. Blockchain also reduces business costs by allowing companies to send and receive payments through smart contracts. Production processes are performed automatically and recorded on the network, so they are easy to track.

In addition, cryptocurrency is becoming a new opportunity to conduct transactions independently of global politics. For example, the Iranian authorities allowed the use of tokens to pay for imports to neutralize the impact of sanctions on financial transactions with the outside world. China may become the main partner in cryptocurrency settlements. According to Russian expert V. Petrov, the decision of the Iranian Central Bank confirms the general trend of financial market development aimed at minimizing intermediary services and the impact associated with various restrictions.

Opportunities for countries with weak economies

More than a third of the world’s population does not have access to banking services. Many citizens of Bolivia, Guatemala, Kenya, Zimbabwe and other countries with weak economies cannot get loans to improve their financial situation. In most cases, people are forced to resort to questionable loans with high interest rates.

Digital coins solve this problem. In 2021 DeFi projects offer cryptocurrency loans at low interest rates, and developers are creating apps (Bundle, Crypto Loan) that facilitate the use of the technology.

The decentralized nature of tokens allows them to be traded freely across borders. Blockchain is facilitating a financial revolution in countries where local currency exchange rates are unstable.

In September 2021, El Salvador became the first country in the world to officially recognize digital currency as a means of payment. The country’s authorities now hold BTC worth more than $35 million (at the coin’s current exchange rate of about $51 thousand) and set prices in bitcoins. Tokens can also be used to pay taxes.

Opportunities for entrepreneurs

In 2020, specialists of the cryptocurrency payment operator Graft Network surveyed 65 business representatives to find out what companies expect from the introduction of digital money. It turned out that most entrepreneurs expect an influx of customers and wish to increase their status by being able to pay with tokens. In addition, businessmen are thinking about increasing the average check and creating new loyalty programs.

Blockchain technology can help entrepreneurs receive payments in a large number of currencies, providing better financial coverage. In 2021, companies are already working with systems that allow them to quickly convert tokens into the fiat money they need to scale their businesses.

An established financial institution faces many challenges. Slow payments, current currency restrictions and government sanctions are holding back entrepreneurship. Cryptoassets are breaking down borders between countries and facilitating the seamless integration of businesses.

Cryptocurrency in the Russian economy

The legal status of digital assets varies significantly from country to country. In Europe, tokens can already be used to pay for goods. China is developing its own cryptojuan and actively fights other coins, banning trading and mining.

In Russia, the situation is not so unambiguous. Since 2021, citizens can legally conduct transactions with digital financial assets, but it is impossible to use them as a means of payment.

Cryptocurrency in the economy of the Russian Federation is recognized as property. It can be bought, sold, exchanged, pledged, mined and stored.

However, for businesses related to tokens, the situation remains unchanged. Russian banks still do not provide opportunities to open accounts for crypto-enthusiasts. The legal uncertainty of the new asset class is one of the reasons why the ruble remains unclaimed in the world of digital money, unlike the U.S. dollar or euro. Tellingly, more than half of all blockchain startups are registered in the US.

In such conditions, the cryptocurrency economy of the Russian Federation is likely to develop based on the experience of other states. Some of them have already introduced a tax on profits from digital transactions. In Japan, the rate can reach 55%, in Germany it is 45%, in the United States – 37%. Russians so far pay 13% tax on income in general. Full-fledged regulation of digital currencies will require the creation of a blockchain platform, which will be partially centralized by the state. Sberbank has already estimated that developing the infrastructure will cost 2.025 trillion rubles.

The future of cryptocurrency and its impact on the economy

The global community has not yet adopted a position on digital assets. Warren Buffett has stated that he considers cryptocurrency to be a temporary phenomenon that is overpriced. Ilon Musk, on the other hand, supports tokens but periodically changes his opinion on Bitcoin.

The digital currency is versatile. It has characteristics that are particularly relevant in the context of current government restrictions and the influence of large financial structures (decentralization, security, fast and cheap transactions).

In hindsight, it can be seen that all new economic phenomena were met by the society “in the mouth”. Cryptocurrency is going through the same stages of formation as other forms of money. However, tokens are still unpredictable and risky, which can be clearly seen in the charts of their rates. It is impossible to estimate how long the period of uncertainty will last, but steps towards new assets are already noticeable. For example, NASDAQ is using the services of the Chain.com blockchain project as an infrastructure provider for cryptocurrency trading.

Experts differ in their assessment of the future of digital coins. Sergey Troshin, head of the cloud data center Six Nines, believes that in time tokens will be accepted by regulators around the world, but some of them will remain outside the new laws and will be used to circumvent government restrictions. According to Max Krupyshev, CEO of the CoinsPaid cryptocurrency project, one of the likely ways of development will be the penetration of digital and traditional markets into each other. This will create a common ecosystem where one sector of the economy will be represented in the other.

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