Cryptocurrencies, for the most part, have revolutionized global finance. However, these virtual asset classes have also been a nightmare to many users, inciting global regulatory clampdowns. Nevertheless, the underlying technology behind crypto holds a potentially higher promise to influence and shape international transactions.
This piece explores the influence, prospects, and challenges of this relatively novel alternative finance to affect global trade in the nearest future. For gamers interested in using crypto assets for their gaming needs, consider visiting UK Bingo outside GamStop or similar gaming sites that accept Bitcoin and other cryptocurrencies.
Prospects for Blockchain Technology and Cryptocurrencies in Global Trade
Blockchain is the technology behind cryptocurrencies. It enables data to be secured and kept in a digital format by offering real-time data on transactions between counterparties. The deployment of new payment blockchain technologies like tokenization, encryption, and programmability over the last decade has immense prospects when applied to global trade. Cryptocurrencies can also help remove current challenges in international trade, such as currency fluctuations, the need for forex, low speed, and high cost.
Applying programmability to financial contracts makes writing and automatically executing them easier. Encryption, which decouples compliance checks from transactions and restricts information access to authorized parties, can help to facilitate transparency and trust. Additionally, the near-instantaneous nature of crypto transactions offers a viable alternative to traditional banking channels, where deals could take weeks to complete. Digital assets help to eliminate intermediaries like payment processors or banks, potentially reducing transaction costs.
By eliminating the need for foreign currency exchanges, cryptos provide smaller businesses that might not have the resources to execute complex forex transactions with easier cross-border transactions.
Cryptocurrency Adoption in the Private Sector
An increasing number of companies globally are adopting Bitcoin and other digital assets for transactional, operational, and investment purposes. According to a report from late 2022, about 2,352 businesses in the US accept Bitcoin (not including Bitcoin ATMs).
Another survey discovered that companies are adopting virtual currency transactions to stay or grow competitive in the market.
The revolution has already crossed various niches, from groceries to airline tickets, fashion labels, and real estate. Even gaming sites are adopting crypto as a transaction means. Meanwhile, some sports associations go beyond accepting cryptos to exploring the use of non-fungible tokens (NFTs) for a more relatable fan experience.
In highly publicized moves, some companies have invested millions of dollars into Bitcoin, affirming their hope in the assets’ viability. Not to forget that Bitcoin is also finding utility in various investment and commercial applications against tradition.
Threats to the Use of Cryptos in International Trade
While the private sector continues pushing the limits of customization and innovation, there are various threats to the positive influence of cryptos in global trade. Application of tokenization may not ensure that deals are safe, efficient, and interoperable, regardless of proper regulation. That’s because private companies may create client-only networks that permit settlements and asset exchange.
While we may see open ledgers merge towards bridging private networks, they may suffer from under-standardization and insufficient investment (due to their limited profit potential). Additionally, using private money forms to make payments could put counterparties at risk, especially since cryptos aren’t yet widely accepted as a payment method in cross-border transactions.
Of course, there’s no sweeping under the carpet the volatility of cryptos. The propensity of these digital assets to fluctuate in value can make users hesitant to use them as a payment method.
Increasing Adoption by Government Legislation
Bitcoin and other cryptocurrencies are legal in more countries than they’re illegal. While a few countries like Qatar, China, and Saudi Arabia still ban crypto, a few other countries are breaking legislative frontiers to adopt BTC as a legal tender.
El Salvador became the first country to adopt Bitcoin in September 2021. Central African Republic followed about seven months later, possibly encouraging other lawmakers to consider towing El Salvador’s broken jinx. Moreover, recent global conferences on finance regulations have open discussions on cryptocurrencies.
As with any novelty, the conversations around cryptos are multi-sided, with supporters and critics on extreme ends of the spectrum. However, what’s notable is that these digital assets are receiving more attention from global authorities, showing their potential to influence and shape international transactions even further in the coming days.
As digital currencies gain traction, central banks worldwide are not staying on the sidelines. Recognizing their potential to reshape the global financial landscape, various central banks are in the exploratory phase of issuing their own Central Bank Digital Currencies (CBDCs). CBDCs are essentially digital versions of a country’s national currency and can be considered a middle ground between traditional money and decentralized cryptocurrencies.
While CBDCs may not provide the same level of decentralization and anonymity as cryptocurrencies, they promise a higher level of stability and regulatory oversight. Countries like Sweden with their e-krona, and the Bahamas with their Sand Dollar, have been at the forefront of CBDC development. These efforts signify an attempt by governments to bridge the gap between traditional finance systems and the evolving digital currency world.
Another salient point of discussion is the environmental impact of cryptocurrency mining. Traditional cryptocurrencies, especially Bitcoin, have come under scrutiny for their energy-intensive mining processes, which have significant carbon footprints. As international transactions expand with the adoption of digital assets, the cumulative environmental effects of crypto mining and transactions cannot be ignored.
In response, there’s a growing interest in eco-friendly cryptocurrencies and consensus algorithms that prioritize sustainability. Proof-of-Stake (PoS) and other energy-efficient consensus mechanisms are being explored and adopted to reduce the environmental impact. Furthermore, companies and individuals in the crypto space are looking at renewable energy sources for mining operations.
Cryptos have huge prospects of influencing deals and their execution in both private and public sectors, despite their challenges. Notably, private institutions are leading this revolution with continued innovation and custom financial offerings. Some government organizations, on the other hand, are also either adopting cryptos as legal tender or easing regulations around them.
While the definite future of crypto may not be as certain, it’s clear that the world of global international trade can’t remain as it was before the introduction of digital assets and related emerging assets.