TMCnet Feature
August 20, 2020

What Is The Future Of Bitcoin In Emerging Markets?



The news about the evolution of bitcoin is viral all over the world. Journalists, financial analysts, and experts are reporting how bitcoin has hit an all-time high. On the USD/Bitcoin exchange rate, it has exceeded the price of gold. The bitcoin craze is unprecedented, and many people are trying to capitalize on it. The private sector is trying to get a share of the valuable cryptocurrency.



Big companies in the emerging markets are trying to capitalize on this new way of doing business to exchange goods and services. Though many people were sceptical initially, they now accept bitcoin as the new means of doing business.

Countries in the Middle East and Asia, including India, acknowledge the new world that is being brought about by the digital currency. The emerging markets are making sure that they include bitcoin in their National strategic plans. Nonetheless, there is a need to separate speculation from reality. What is the future of digital currency? Will it work for those who want to use it daily? Will those who do not have bank accounts be able to do business? What will be the range of bitcoins' financial services? These are some of the questions of people concerning the cryptocurrency.

Understanding Bitcoin

Bitcoin is a decentralized cryptocurrency that uses peer to peer technology. This technology allows the issuance of currency, verification, and transaction processing to be done by one network. Whereas it is free from government interference or manipulation, there is no central organ to support its value or allow it to run smoothly.

Bitcoin is a digital currency that is created through "mining." It requires a fast and powerful computer that will be able to crunch numbers and solve complex algorithms. They are currently created at 25 bitcoins every 10 minutes and cap at 21 million, a level that will materialize in 2140.

These characteristics are what makes bitcoin different from the fiat currency. The fiat currency has the credit and full backing of its government. The central bank supervises the issuance of fiat currency with the full support of governments. Bitcoin does not have any support mechanisms, and its value solely depends on what investors will pay. Additionally, if bitcoin platforms were to shut down, there is no way to get them back.

Should you Invest in Bitcoin?

If you are considering investing in bitcoin, it would be best you be speculative as you would be with any other ventures. You should know it is as risky as any other investment. You may gain or lose. Essentially, the value of the coin is not intrinsic. It all depends on what the buyer is willing to pay at a given point in time.

It is very susceptible to changes in value, and you need to follow the emerging trends in the market closely. You need to be ready to entertain the volatility that comes with the changes in price. Nonetheless, the limited supply of bitcoin and its usage means it will continually grow in value.

The Future of Bitcoin

Some of the challenges that bitcoin faces, especially in emerging markets, are the fact that a single computer crash can easily erase it. Countries like India have many hackers who may still try your information, but they are working hard to overcome this through technological advances.

The good thing is that the more people use them, the more regulation from governments ensures they are safe to use. However, some feel that governments should not be involved in their control.

Though the number of businesses that accept bitcoins is increasing steadily, it largely remains in the minority. For bitcoin to become widely used, it needs full acceptance from consumers. Nonetheless, because of their complexity compared to other currencies will deter many people. Only those who are technologically adept will be able to use them.

Bitcoin will have to satisfy many different criteria if it will become part of the mainstream financial system. It will have to be mathematically complex but, at the same time, be easy for the consumers to understand. It should be decentralized but have enough consumer protections and safeguards.

Moreover, the cryptocurrency needs to maintain anonymity and stop be used for money laundering, tax evasion, and other illegal activities. Since it is possible to satisfy all these criteria, it might be possible that bitcoin will be acceptable cryptocurrency around the world.

Whereas this possibility seems remote as many banks are fighting to deny bitcoin a chance in the financial market, big multinationals' usage is a game-changer. It might change the fortunes of all other cryptocurrencies.

Ways Bitcoin Needs to Improve Before it can be Used in Emerging Markets.

1. Become less volatile

Too much of something kills its demand. The volatility of bitcoin is set to reduce once it becomes more of a currency and not a commodity. One of the best ways to ensure it maintains its value is to remove its currency risk and volatility. One way to reduce volatility is to increase its acceptance. Once many merchants accept it as a medium of exchange, its volatility decreases.

2. More liquidity

Once bitcoin has more trusted exchanges and becomes less volatile, it will become more liquid. More emerging countries will use it once its liquidity becomes acceptable. Virtual currencies could become the best option for emerging markets with inflation or sanctions from the superpowers.

Moreover, countries that cannot control their own currency, such as Panama, Iceland, Cyprus, or the Bahamas, could use bitcoin as their official currency. Bitcoin has a market cap of over US $ 1 billion, making it a good contender in Cyprus, where its monetary base is 0.6 billion dollars.

However, for bitcoin to facilitate imports in these emerging markets, it will need to have more liquidity. Besides, it will need to be more decentralized and less volatile. The decentralization must be for exchanges and miners who generate the currency through an algorithm.

3. It needs more startup investment.

What bitcoin needs the most is startups willing to invest in the currency. Without any system that will help develop products that will foster its usage, bitcoin will not flourish. There are several startups out there, including Bitprice and Bits of Proof. These two startups are working to ensure there is security, improve mobile use, and audit features for merchants.

Bazzi King have written an article stating that in India, where bitcoin is going through a phase or political discussion, the virtual currency has the potential to accelerate in ways it cannot in the United States. This is due to a large population who may not have access to more traditional payment methods.

4. It should be traded for cash.

Anyone who has done e-commerce in India knows that many customers do not trust using their credit cards online. Banking rates and credit penetration are quite low. Cash on delivery requests goes up to 80 percent of all the online orders.

The most appealing thing about bitcoin is that it allows users to transfer money in an instance with very minimal fees. That is why people in India can send the coins as long as they are connected to mobile networks. In other countries, Coinapult allows users to transfer their bitcoins over SMS.

5. It needs more exchange platforms.

To protect bitcoin from the failures of particular exchange platforms, it has to develop other trusted networks. The important thing is that the bitcoin market becomes deeper. There needs to be a merchant service and bitcoin wallet that will give bitcoin liquidity to businesses.

Some of the exchange platforms in the market fall under pressure. People will become afraid to leave their investment at such platforms because of regulators and operational reasons. Additionally, there have been reports of hacking scandals in some of the platforms.

Alternatives to bitcoin

The growth and visibility of bitcoin have made other companies unveil their cryptocurrencies. They include the following:

1. Ripple

Ripple, just like bitcoin, is a payment system and a currency. It was founded in 2012 by a technology company known as OpenCoin. Its mathematical component is XRP, pretty much the same as bitcoin. Its payment mechanism allows you to transfer money within seconds, unlike bitcoin, that takes 10 minutes.

2. Litecoin

Litecoin is designed to process small transactions faster. It first came into existence in October 2011. Unlike bitcoin, which requires massive computers for mining, you can easily mine Litecoin using your average desktop computer. The maximum limit of Litecoin is 84 million, which is four times that of bitcoin, which is 21 million.

Its transaction time is 2.5 minutes, which is a quarter of that of bitcoin.

3. MintChip

Unlike the other currencies, MintChip was created by Royal Canadian Mint a government institution. The currency is a smart card with electronic value. It can securely move from one chip to the other. Just like bitcoin, it does need any personal identification. However, unlike other cryptocurrencies, it is backed by currency, the Canadian dollar.

Conclusion

The introduction of bitcoin in emerging markets has sparked debate about the future of cryptocurrencies. It has inspired the creation of a cryptocurrency that will become an integral part of the mainstream financial system. While that possibility is not yet achieved, there is little doubt that bitcoin's failure or success will shape the fortunes of other cryptocurrencies in the future.



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