Do cryptocurrencies impact economic growth?

Cryptocurrencies have been a part of several heated debates since their inception, with policymakers seeking regulatory action on digital asset. Though a largely unregulated territory, digital currencies have had exceptional success as an independently functioning asset class over recent years, disrupting existing financial systems. These currencies have changed our existing notions about how economies function, inflicting some serious changes on the economy.

With new investors jumping onto the cryptocurrency trade, its subsequent impacts on the economy are largely being felt. While it is safe to say that the technology backing cryptos is a powerful tool to revolutionise financial systems, the widespread acceptance of such currencies as a mode of payment is still a long way off. Initiating the trend, El Salvador has adopted Bitcoin as a legal tender. However, some countries have sought a ban on the asset to promote safer forms of investment.

No doubt, cryptocurrencies are currently facing heightened scrutiny. Nevertheless, it is worth noting that cryptocurrencies’ link with economic channels and pathways can help to deliver greater economic output.

Let us see how cryptocurrency investments are contributing to the overall economic setup:

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A universal language of finance

Cryptocurrencies offer a common means of conducting business, which may not necessarily be affected by the economic events of a single nation. As we know, the USD is used as the base currency for overseas financial transactions in businesses due to the underlying strength of the Petrodollar system. However, cryptocurrencies go one step further and offer unbiased grounds for businesses to conduct international transactions.

This universality has encouraged some nations to adopt cryptocurrencies for trading platforms. With cryptos, businesses can have a smoother transition into foreign markets, which provides them an incentive to seek international opportunities. Thus, cryptocurrency adoption allows greater accessibility and a more streamlined flow of business, even in foreign lands. This has spurred economic growth for some nations, allowing investors to utilise different advantages of cryptocurrencies.

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Their Scope, Impact And Influence

Securing the financial ecosystem

Interestingly, cryptocurrencies symbolise a self-regulating system with a power ledger backing every transaction. This core system provides cryptocurrencies with widespread recognition. While some loopholes exist, such as the launch of unreliable currencies, a large space need not be checked every now and then.

The safe and secure technology has prevented financial systems from any crash-like scenario caused by cryptocurrencies. In essence, this has kept millions of dollars worth of investments tightly secured into an ecosystem that cannot be hacked easily.

Cryptocurrency investments are also considered as an ideal solution to the faults existing in the current financial system due to human error or greed. To some extent, cryptocurrencies have prevented the economy from landing onto a setting seen in 2008.

A financial revolution

Those familiar with the origins of cryptocurrency know that these digital assets represent more than just a form of tradeable asset. They represent the ability of the people to take financial power back into their own hands. Perhaps that explains why authorities are so hesitant in allowing cryptocurrencies to take over every aspect of the financial ecosystem.

Investment in cryptocurrencies can be riddled with extreme bouts of volatility, which can often result in major losses to investors. However, this unique asset class provides an opportunity for the masses to control the economy on their own.

So far, these cryptocurrencies have been largely adopted as tradeable assets. However, it marks a shift in economic power from the government towards an extremely reliable technological system. This may allow an even spread of prosperity across nations and faster economic growth.

The politicisation of money

One of the not-so-great impacts of the worldwide adoption of cryptocurrencies could be the exploitation of the potent financial tool. If cryptocurrencies are used for money laundering, they can handicap existing financial structures across nations. Meanwhile, some cryptocurrencies, such as Bitcoin, have a limited supply. Thus, changes in the demand-supply dynamics can often lead to high volatility in the currency’s price.

Additionally, the robust, anonymity-driven blockchain system could enable the secret conduct of certain transactions without leaving any comprehensive trail behind. This can incentivise illegal operations in offshore accounts, triggering economic volatility across nations.

It is important to be careful as such scams and large-scale financial irregularities often spread to other parts of the world quite quickly, as evident throughout history.

Cryptocurrencies offer a whole new world for investors and authorities to experiment with. Despite many advantages, such currencies face serious flak for being a highly volatile asset class. The impact on the economy has not been so adverse as of now. However, as individuals find loopholes in the system, governments might be compelled to ultimately regulate the asset class.

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