It is not a secret that cryptocurrency has been struggling to find its place in the world. The problem is not that it does not have any value, as many people are happy to use it for transactions without conversions into fiat currency. The issue is with governments and regulations.
Some believe cryptocurrency needs regulation, while others feel like regulating said financial disruptor will only stifle innovation and make things worse for everyone involved, from the miners to the investors. This article seeks to explore this idea of what lies at the heart of this debate – politics or economics?
Cryptocurrency Around the World
Despite its uses, some countries have accepted cryptocurrency as a legitimate form of payment while others have tried to ban it outright.
For example, the Chinese government has enforced a complete ban on bitcoin, prohibiting banks from transacting or dealing in virtual currency. The crackdown targets miners who make more money for themselves by mining bitcoins and then using it to buy goods online without using traditional payment methods like credit cards or the Chinese Yuan.
Meanwhile, El Salvador is the only country in the world to allow bitcoin as legal tender. In June 2021, President Nayib Bukele proposed, and Parliament approved, that Bitcoin be accepted as a form of payment for taxes and other administrative tasks – with full legalization coming soon.
While other countries – like the United States, Canada, and the European Union – adopt a more middle-of-the-road stance, here are two groups of countries with two radically different views on cryptocurrency. And so, it would be natural to ask the question: is crypto a political problem? Or is it a perception problem? Well, in truth, it’s a little bit of both.
The Perception Problem of Cryptocurrency
One of the perception problems regarding crypto is its volatility. Crypto is one of the most volatile investments that exist today, with some coins flipping from 0.1 to 100 dollars within hours and then back again in a day or two. The lack of governmental regulation means there are no safety nets for investors who lose money on their crypto investments.
This has led to many extreme highs and lows as well as an overall riskier market. Individuals, in a decentralized market, cannot trust when they will be able to get out without crashing their investment’s value more than it was prior to going into DeFi (decentralized finance).
However, this doesn’t mean the cryptocurrencies can’t be more stable in the future. The U.S. Central Bank is considering issuing a digital coin. A governor from the institution claims that if they were to do so, it would be their first major move in over 10 years and could put them ahead of other central banks around the world who are also looking into this option for currency circulation.
As such, The Central Bank’s interest in developing its own digital currency is a sign of how fast the financial sector is changing. PayPal and eBay’s introduction of online shopping made it easier to pick up items at the click of a button. Amazon simplified how people shop, period. Digital payment services powered by blockchain technology could be next on our list for upheaval in global e-commerce growth – making everything more seamless than ever before!
By adopting blockchain technology on the federal level, more people will begin to understand and trust the potential utility of digital currencies. For example, individuals would be more willing to invest in Bitcoin (and other digital currencies) if they had the financial support of their national government. Afterall, that is the sole engine behind the value of fiat currency: users believe it has value. With more involvement from the community, the prices of cryptocurrencies should largely stabilize – encouraging that market to grow even more. Trust, however, is only one side of the digital coin. It also comes down to education.
The Education Gap Between Investors
There also exists a gap between people who invest in cryptocurrencies and those who do not. In a study conducted by the Monetary and Economic Department, cryptocurrency investments hinge on a few factors. Firstly, the researchers discovered that people with higher education (a college degree or higher) are more likely to own a cryptocurrency. Similarly, if you are male-gendered, you are about 2-2.2 percent more likely to invest in a cryptocurrency as well. Knowledge of cryptocurrency is also higher among those with post-secondary education and a higher income.
Based on the evidence above, education and income are jointly linked to owning cryptocurrencies. Unfortunately, this flies right in the face of cryptocurrency and cryptocurrency investor’s stated goals of helping the unbanked and bringing the world out of poverty. Therefore, for more blockchain investment usership to increase, and for cryptocurrency to stabilize, people need to be educated on Cryptocurrency and how to use it.
Cryptocurrency education can be difficult, but it is essential to increasing adoption. As people learn about cryptocurrency and the possible benefits of blockchain technology, they will better understand why the utility of a regionless, restrictionless, and bankless currency.
Unfortunately, governments seem to be leaning towards non-education. For example, with the crypto space growing rapidly, countries such as the UK are still reluctant to add cryptocurrency education modules to the school curriculum. This is something that we believe should be done since it is important for students of all ages and backgrounds. Not everybody decides to go to college or have the means to do so, after all.
DeFi’s Accessibility Problem
Decentralized finance, or DeFi for short, is closely related to, but not exactly the same, as Bitcoin and other cryptocurrency. It’s a financial system enabled by decentralized blockchain technology. Fintech companies use this technology to offer savings accounts, loans, enable securities trading, provide insurance, et cetera. Theoretically, DeFi should be more accessible. But there are still a few obstacles in its path.
Unfortunately, few people actually use DeFi, according to a CoinGecko survey. The DeFi protocols have the potential to be useful in a variety of industries, but most people don’t even know what they are. The low usage rates could also arise based on how these products present themselves . For example, not providing enough value, or being difficult for users to understand, can drive them away from using it at all.
So what does this mean? Well, it goes back to the point of education presented earlier. People need to be educated on DeFi and how to use it in order for it to be successful. This will lead to increased adoption as a wider range of demographics both trust and understand DeFi’s utility. Therefore, there is a huge opportunity for DeFi founders and adopters to educate the public on their DeFi offerings. The better governments and DeFi players market and promote their blockchain activities, the faster they can claim dominance in this new field of technology.
And by marketing DeFi, they can also increase the service’s overall awareness. According to the same CoinGecko survey, only 11% of those surveyed said they had heard anything about DeFi. DeFi’s problem, therefore, isn’t so much a political one as it is an awareness and perception one.
Is Crypto’s biggest hurdle a political one? Well, yes and no. There are some political reasons, no doubt, but boiling it down to just politics would be a limited observation.
But politics do play a role. The outright ban of Bitcoin by the Chinese government is proof enough of the role politicians play in crypto’s eventual adoption. Furthermore, the refusal of governments to encourage cryptocurrency learning is another roadblock. An especially bad roadblock since this would leave cryptocurrency in the hands (figuratively) of educated people with money.
But Cryptocurrency and DeFi also have a perception problem among the general public. They are seen as volatile, and a way to lose a lot of money quickly. And let’s not forget about how DeFi protocols go largely unnoticed. With this in mind, adopters and developers would do well to educate the populace about DeFi, and to make sure people know exactly how to access their services and how to use them safely and securely.