For crypto currencies the decentralization and the lack of collateral leads to the high level of price volatility. Forbes Articles The lack of back-up and centralization does not support a stable price level (Ammous, 2018). Figure 3 shows the summarized requirements and the opportunities of crypto currencies in developing countries. There is great potential to further strengthen the development of developing countries with the help of crypto currencies for example, by reducing corruption through enforcing social trust or by increasing financial inclusion of the population (Rothstein & Uslaner, 2005). This action shows that some states see crypto currencies as a real threat, which outweighs the advantages crypto currencies provide for those countries. The intention is to show decision-makers the possibilities to use crypto currencies to decrease developmental barriers. To achieve a more stable price level and lower fluctuations, many crypto currencies progress in the direction of a more formally regulated currency (Expert 5, 2018). Secondly, Ethereum is used as an example which is a blockchain-based, public, open-source, computing platform and operating system for smart contracts. Currently crypto currencies are mostly used for cross-border payments. The price volatility can be seen as the main problem of most crypto currencies (Expert 4, 2018; Expert 6, 2018), since the value of money has to be stable enough, that there are no huge financial fluctuations, during the value transfer (Expert 1, 2018).
Furthermore, the existing assets in developing countries are often extremely unevenly distributed (Bundesministerium fr wirtschaftliche Zusammenarbeit und Entwicklung, 2018). This process could be optimized through crypto currencies, which could make it faster and cheaper (Ammous, 2015). This money can often be transferred cheaper than with central bank-issued currencies, because using crypto currencies allows worldwide financial transfer without the need of an intermediary institution. It was invented by Satoshi Nakamoto in 2008 when he has published his white paper Bitcoin: A Peer-to-Peer Electronic Cash System (Nakamoto, 2008). These similarities are inadequate supply of food for large groups of the population, low per capita income and poverty, a lack of educational opportunities, a lack of access to quality health care which goes along with a high infant mortality rate and low life expectancy. Another problem of the limited access to financial services for companies and individuals is that they cannot participate in worldwide trade. However, when transaction costs are massively reduced or are even eliminated, such loans could become more widespread (Ammous, 2015). Based on the smart contracts, there are many applications, and for this reason, these contracts are an essential factor for the future use of crypto currencies (Wood, 2014). However, the importance for cross-border payments could in the future be overtaken by peer-to-peer lending through an even broader market since peer-to-peer lending helps to solve liquidity problems, specifically in developing countries. Countries in Africa are adopting cryptocurrency for international commerce and it is increasing by the day. Hard Money Loans with a Self-Directed IRA in 5 Steps, We don't share your personal information with anyone. In this sense, it has similarities with gold, where it is also unclear as it should be perceived as an asset or as a form of money. piacquadio Contrary to a bank account user, they do not have to get through a Know Your Customer (KYC) process, where the user must identify himself, to have access to the Bitcoin market. Therefore, no state can influence the flow of money, which limits governmental power. Another benefit of the decentralization of crypto currencies is that governments cannot manage them. Overall, crypto currencies can have a considerable impact on developing countries, by increasing financial inclusion of individuals and companies. It is the second biggest crypto currency in the market with a capitalization of over $18 billion[ii]. It compares the current status, with an estimated future status to see the development over the years from 2017 to 2025.
Using Bitcoins enables these parties to sell products in exchange for Bitcoin and thereby avoiding traditional e-commerce systems (Scott, 2016), which often involve having to set up a merchant account with a formal bank. This high price volatility does not only holds for Bitcoin but for most of the crypto currencies, which makes it hard to store money and to make contracts in crypto currencies (Lo, 2014). This would convert virtual things into one-of-a-kind cryptocurrency tokens that users could store in their digital wallets and trade or transfer to other platforms, such as personal property. The underlying blockchain technology uses consensus mechanisms, hash functions and public and private key encryption to control transactions, which leads to the fact that the user does not have to trust the counterparty. For the exchange procedure, it is often necessary to have a traditional bank account. While some governments continue to regulate the usage of cryptocurrency in their jurisdictions, others banned its use nationwide. The next problem in developing countries is the issue of corrupt government institutions. This wallet then can be used as a quasi-bank account, where people can conduct savings, and daily transactions (Scott, 2016).
The price volatility can be reduced due to the fact that only through centralization and support by economic policy decisions crypto currencies can grow substantially (Aisen & Veiga, 2006). However, it must be noted that realizing this potential is often significantly harder than it seems due to various limitations. Moreover, the decentralization and the lack of flexibility in the Bitcoin supply schedule results in high price volatility (Iwamura, Kitamura, Matsumoto, & Saito, 2014, p. 1). Books, Security This shows that developing countries have a rapidly growing interest in the internet and the related innovations. The participating experts vary widely with respect to their background knowledge from a Fintech start-up representative, a lecturer, to a consultancy ambassador. Miami Beach, FL 33139, Blog Videos & Webinars Crypto currencies could furthermore solve the problem of the participation in international trade without having a bank account. [i] Data from Coinmarketcap.com, Accessed at 5th of September 2019: https://coinmarketcap.com. Due to the loss of power for the government and the risk of terror financing some countries have prohibited the use of crypto currencies, for example, Indonesia. In addition, the speed of money transfer is increased by eliminating intermediaries. A specific case where Ethereum could be beneficial is the case of smart contracts, because crypto currencies are necessary to conduct smart contracts, as an incentive model, so that other people can operate the blockchains and the underlying infrastructure (Expert 5, 2018). The future development heavily depends on the regulations that will be introduced, the resulting price stability and adoption of crypto currencies. 
Secondly, it must be suitable as a medium to store value for saving wealth. This transaction might be for a small amount of money but could be life changing for an individual in a developing country. This is beneficial for remittance payments, peer-to-peer lending and international trade. Furthermore, no government or central bank can influence the supply of crypto currencies, because the supply is defined in the underlying protocol of the crypto currency (Nakamoto, 2008). An overview of the involved experts can be found in Appendix B. In the following, the main economic issues of developing countries will be explained. By eliminating some intermediaries, mobile payment operators and crypto currency transactions can reduce the costs and increase the speed of the transactions (Tapscott & Tapscott, 2016). Crypto currencies like Bitcoin could help individuals and businesses to facilitate small-scale international trade. With smart contracts, these bureaucracy costs could be eliminated. Using crypto currencies enables individuals in more developed countries to make small money transfers to people in developing countries. Due to currency controls, Venezuelan banks are cut off from the rest of the world; thus, Bitcoin is used to transit money in and out of the country via peer-to-peer markets where people can easily trade Bitcoin for cash. Check out our Privacy Policy for more information. To get political support, crypto currencies need to be limited by national boundaries, so that the governments can control the economic parameters to keep monetary sovereignty (Expert 6, 2018). In contrast, to traditional money transfers, the user in the Bitcoin system is pseudonymous. All rights reserved. The first advantage is that crypto currencies combine important properties to foster trust, such as accountability and transparency, which allows trust free interactions between counterparties. The lack of flexibility in the Bitcoin supply schedule results in high price volatility. Moreover, studies have argued that a low level of trust (Barham, Boadway, Marchand, & Pestieau, 1995) and corrupt government institutions harm the economic development (Olken, 2006). A solution to keep the financial sovereignty alongside with crypto currencies is to issue a central bank-issued digital currency (Lagarde, 2018). And in this new digital environment, crypto is the currency to be used for any transaction in the metaverse. The growth rate is especially high in areas with more developing countries like in the Sub-Saharan Africa region with a growth rate of over 90%. Therefore, Bitcoin can be used to provide low-cost money transfers, particularly for those seeking to transfer small amounts of money internationally, such as remittance payments (Scott, 2016). Consequently, crypto currencies face the same problems, which traditional banks are facing (Expert 5, 2018). The lower transaction costs for using crypto currencies will also leverage microcredits since only a smaller amount of each transaction will be deducted for banking and the conversion fees (Expert 5, 2018; Expert 6, 2018; Scott, 2016). A relatively lax regulatory system would increase price volatility and would make it possible to misuse crypto currencies for illegal transactions, like money laundering. There is no agreement which countries are categorized as developing countries. People without identity papers are therefore excluded (Expert 5, 2018). The social benefit payments could be linked to conditions defined in a smart contract (Expert 6, 2018). Another aspect of crypto currencies is that they support financial inclusion because they do not require high technological standards besides having access to the internet and a digital device (for example a smartphone) to engage in transactions (Dow Jones Institutional News, 2018). At every given opportunity, such people look out for potential security concerns about crypto and how it is not recommendable. Cross-border payments are currently the most significant use case for crypto currencies, due to the reduced transaction time and costs. One difficulty is that crypto currencies are not widely accepted and therefore have to be exchanged to the local fiat currencies, that their value can be used to purchase real-world items (Expert 5, 2018; Expert 1, 2018). In the News
Based on a literature analysis, the following part of this paper consists of a qualitative analysis based on expert interviews. In particular, by reducing the transaction fees and time, cross-border payments can be improved (Scott, 2016). Another problem in developing countries is a low level of social trust, because social trust tends to improve economic growth and the standard of living (Barham, 1995). The advantage of gold is that it is the best collateralized form of money because the exchange medium already carries value in contrast to banknotes or digital money. For this purpose, the example of two crypto currencies is used in this paper. Firms without bank accounts are excluded from a wide range of international services and are hindered in selling products outside their region (Scott, 2016). Bitcoin is gradually becoming a part of the Venezuelan economy.
Testimonials All these aspects lead then to higher unemployment in developing countries, and an overall lower standard of living. Podcasts Another way of how crypto currencies could help to increase financial inclusion in developing countries is by serving as a quasi-bank account, since everybody with internet access can download a Bitcoin wallet (Honohan, 2008). Examples of such limitations are illiteracy, financial illiteracy, unstable political situations, unstable job markets and price volatility (Expert 7, 2018). Based on the analysis of the economic problems in developing countries, crypto currencies can accelerate the development process potentially in various fields. The usage of crypto currencies has been prevented by different countries. powerful archangel The World Bank describes that the number of poor worldwide remains unacceptably high, and it is increasingly clear that the benefits of economic growth have been shared unevenly across regions and countries (World Bank Group, 2018, p. 23). Love podcasts or audiobooks? They should not be too strict that all benefits are mitigated, but the regulation must be strict enough that crypto currencies are politically supported, because only with political support it can come to a massive adoption of crypto currencies (Jaag & Bach, 2015). Expert 1 stated, that the regulation of crypto currencies is crucial for its future development and adoption because it determines which degrees of freedom and benefits crypto currencies can keep. Moritz Holtmeier is graduate of the Frankfurt School of Finance & Management. The logic of such a situation is that social trust will not increase as long as there is high social inequality. But despite what has been attributed to cryptocurrency, the way it is changing lives in United States and in the developing world is beyond measurable. Crypto currency themselves can be used without a KYC process. However, the realization of the benefits of the financial inclusion is associated with various issues. Crypto currencies could provide a significant benefit by overcoming the lack of social trust and by increasing the access to financial services (Nakamoto, 2008) as they can be considered as a medium to support the growth process in developing countries by increasing financial inclusion, providing a better traceability of funds and to help people to escape poverty (Ammous, 2015). The regulation of crypto currencies must be well balanced. To create a liquid market for Bitcoins some start-ups have been founded, such as BitPesa in Kenya, which provide liquid markets for some specific currency corridors, e.g. Crypto IRA Investors: Use a Self-Directed IRA LLC! One other possible application for smart contracts is the social security system. Thus, firms in developing countries are not able to generate as much revenue and profit as desired and therefore, support the local economy less through fewer jobs, lower salaries and an overall lower tax volume. Their customers can then pay companies from other countries in crypto currencies even if the firms do not have a bank account with an international identification. As Expert 2 (2018) mentioned in the interview the impact of crypto currencies on the improvement of developing countries is not noteworthy yet, because the technology is still at its infant stage. In the study World Economic Situation and Prospects from 2018, the UN delineate trends to show various dimensions of the world economy. Transactions conducted by intermediaries do not only take time, but they also result in a risk premium for the user due to higher transaction costs (Pilkington, 2016). In Figure 1 the internet user penetration rate of the total population is shown by region. However, the lending process is currently restricted to small amounts, particularly for individuals in the low-income segment, due to the fact, that the items they own are typically difficult to efficiently collateralize with traditional financial tools.
