The Impact of Cryptocurrencies on the Global Economy: Challenges and Opportunities

Cryptocurrency has been one of the most talked about things in the news since the start of the 2010s. While crypto is a staple of the financial sector now, it’s actually quite a bit older than you might think. In 1983, David Chaum created the first cryptocurrency called ecash, and crypto became a very niche form of currency for the rest of the decade and into the 1990s and the 2000s.

It wasn’t until the end of the 2000s that cryptocurrency started to get mainstream attention thanks to the creation of Bitcoin by an unknown developer who used the name Satoshi Nakamoto. Since then, Bitcoin has become an internationally recognizable name, and many other cryptocurrencies have joined the fold since then.

Undoubtedly, cryptocurrency has had a major impact on the global economy. Some of it has been good, and some of it has been bad. Let’s take a look at the challenges and opportunities that cryptocurrencies provide to the financial world.

Challenge: Volatility

When it comes to stability, the stock market is a lot less volatile than cryptocurrency. Any time that the stock market has gained or lost more than 7 percent in one day came during the Great Depression, COVID-19 pandemic, or the Great Recession of the late 2000s with a few very rare exceptions. The same can’t be said of cryptocurrency, which sees prices bounce up and down on a daily basis wildly.

Opportunity: Volatility

On the flip side, volatility is one of the greatest assets of cryptocurrency. When things swing upward in a hurry, it can make a lot of money for people who invested heavily. Bitcoin, for instance, has seen gains of more than 40 percent in one day that made some people into instant millionaires. The biggest single-day gain in terms of percentage was 67,000% for HuskyX in November 2021.

Challenge: Lack of Regulation

One thing that most financial experts agree on is that there isn’t enough consistent regulation of cryptocurrency. There have been plenty of efforts to place regulations, but those at federal and state levels are finding it hard to agree on how to do so. As it is now, those who trade don’t get a lot of rights like they would with, say, a credit union that’s federally insured for over six figures.

Opportunity: Fast Transactions

While regulations can be a hindrance for a lot of reasons, there is one major advantage that comes with it. When you’re dealing with a global crypto market, there is no waiting when you want to buy or sell your currency. On apps like RobinHood, you can finish a transaction within a matter of seconds instead of having to wait for the stock market to open up until a transaction is complete.

Challenge: Not Eco-Friendly

Those who aren’t too familiar with crypto might be wondering how a currency that’s entirely online can be bad for the environment. After all, nothing is being printed, so no trees are being torn down. However, cryptocurrency requires a lot of mining which has computers operating at full capacity. This, of course, requires a tremendous amount of electricity. Bitcoin alone uses more energy than the entire country of Norway.

Opportunity: Global Trading

When you’re buying and selling stocks outside of your own country, things can get a bit tricky due to all of the rules and regulations. Things can get held up when making an international trade, and you could end up losing money instantly depending on the currency conversion. That’s not the case with cryptocurrency, though, as it has the same value in every single country and can be traded in any country.

Challenge: Security Issues

Cryptocurrency is one of the biggest targets for online hackers, and there have been plenty of instances of these hackers gaining access to peoples’ wallets and taking their crypto. While some forms of crypto are much more secure than others, all of them are subject to the risk of hacking. What makes matters worse is that we mentioned the lack of regulation earlier, which means people who are hacked are likely out of luck.

Opportunity: Great Transparency

On the other hand, all transactions are made public record with cryptocurrency. This can help alleviate some of the fraud potential, even if there are some security issues. Being able to trace all of the transactions increases your chances of getting your crypto back if a potential fraudster does come around.

Challenge: Not Accepted Everywhere

Pretty much every online business will accept PayPal, a credit card, or a debit card. However, not many of them will accept cryptocurrency, and that’s mostly because of the volatility. Many of the larger retailers will accept crypto, but small businesses don’t want to deal with it too much. This, however, could change quickly and end up becoming a positive.

Opportunity: Accessibility

While not everyone is accepting cryptocurrency just yet, anyone with an internet connection is able to get involved in the crypto market. You could be in the most remote area in the world but if you have a solid connection, you can start trading in the blink of an eye.