Cryptocurrency: a panacea for rising prices? PrivacySwap Insider
We know that the pandemic and the international crises we are experiencing resulted in inflation. Oil, gas, and wheat prices, among others, significantly increased after Russia started invading Ukraine.
In addition, some national currencies, such as Russia’s Ruble, lost their value significantly. With the rising popularity of cryptocurrency, could it be the “panacea” for rising prices and a declining economy?
Cryptocurrency has been around since 2009. Since then, the issue of whether or not it should be considered legal money has been a source of heated discussion.
According to the International Monetary Fund, cryptocurrency might lower transaction fees, bring unbanked individuals into the financial system, and facilitate cross-border transactions. However, the risks associated with digital currencies could outweigh the benefits mentioned.
Recognizing cryptocurrency as a legal tender in any country could negatively affect that nation’s financial stability, financial integrity, consumer protection, and the environment. Not to mention the volatility of digital assets, the difficulties in establishing fiscal policy, and the severe environmental consequences that may develop if cryptocurrency were to become legal cash.
“Putting Bitcoin or any other privately issued crypto asset on par with a national currency can have serious negative effects on financial & economic stability.” IMF mentioned in a Tweet.
The unruled crypto market could bring danger to the economy
There are lots of problems in the crypto space right now. Some experts mentioned that these problems could endanger the national economy. For example, money laundering is a notorious crime in cryptocurrency. This illegal activity could lead to crimes such as tax evasion and fund terrorism.
Admittedly, there might be dangers to a country’s financial system, fiscal balance, connections with other nations, and relationships with correspondent banks.
Adoption of Cryptocurrency as a legal tender
Despite the risks connected with cryptocurrency, there are countries that legalize and encourage the use of digital assets. It is rampant in some Latin American countries.
Inflation had been an issue in the countries of South America. With that, people from these countries opted to invest in cryptocurrency to save their money from inflation, making crypto transactions a norm in the country.
El Salvador became the first country to legalize cryptocurrency and to use it as a national currency. Following that, more countries from such regions also started to use crypto as a form of payment. The main reason for the wide adoption is the easy and convenient P2P transaction and its permissionless ecosystem. However, this leads to our question, can cryptocurrency save an economy from inflation?
Cryptocurrency as legal money heralds the end of inflation
Any country can legalize cryptocurrency as national money. In fact, experts are predicting at least five countries will use cryptocurrency as legal tender in 2022. However, due to the risks mentioned, only a few countries will pay attention to regulating digital assets.
What are the benefits of legalizing cryptocurrency? The cryptocurrency market is viewed as a terrific safe haven by many — considering that the yearly inflation rate in the United States has surpassed 7.9 percent for the first time since 1982.
How can crypto solve inflation?
Inflation is dependent on the country’s economy. It is inevitable especially when the demand for goods and services rises at a faster rate than the supply of money in the economy. In addition, the money supply depends on the government. To cover up expenses, the central bank will print more fiats. Thus, the value of the currency decreases.
This is contradictory to cryptocurrency. This digital asset does not rely on any government institution. The supply grows algorithmically. This became one of our main concerns while we transitioned to PYDEX. Our PRV2 reached its maximum supply. The supply was set with the help of smart contracts that even our team do not have a way to solve right away. Thus, we ended up rewarding our users who staked in PRV2- rewarding pools with PRVG (our governance token whose minting hasn’t yet reached max supply).
Going back, If a government decides to adopt cryptocurrency as its official currency, the amount of cryptocurrency accessible to it will expand steadily and predictably. Because the government will not be able to increase the supply of Bitcoin, Ethereum, and other cryptocurrencies, there will be no more state-induced inflation.
On the other hand
There are also reasons why cryptocurrency could not defeat inflation. Firstly, relying on cryptocurrency is like gambling in a casino due to its volatility. Your money could go zero instantly. Despite how old cryptocurrency is, its smart contracts are still developing, untested, and full of bugs. In addition, one of its main problems, scalability, remains unsolved.
This means that cryptocurrency’s technology is still lacking. Thus, we cannot fully rely on crypto.
Secondly, lack of public education could lead to reluctance to adopt. Cryptocurrency, as mentioned, have so many risks despite its benefits. People who are unaware of cryptocurrency throw stereotypes to digital assets. By these, the majority will remain using their first legal tender as they are already knowledgeable on how the currency works.
As a result of this, while making crypto legal tender can be a good public relations move, it only results in a system where fiat inflation continues unabated for the majority while the tech-savvy minority (which includes members of the political establishment) benefits from the advantages of cryptocurrency.
Indeed, cryptocurrency is becoming increasingly popular, and more and more nations are beginning to pay attention to it. Its hazards, on the other hand, remain glaring. As a result, there are still some people who are hesitant to put their money into such assets.
It is yet unclear if cryptocurrency will be able to effectively resolve the inflation problem, despite the fact that the government is actively looking into the possibility of using cryptocurrency to do so.
As a platform that exists on the horizon between cryptocurrency and fiat currency, we want to build an environment that will facilitate transactions between the two ecosystems. As we get closer to the launch of our DEX, this type of content serves as an inspiration for us to continue building an ecosystem that will aim to bind fiat and cryptocurrency transactions while we wait for the government to impose sanctions and regulations on cryptocurrencies. Join us as we aim to transform the way the world does finance.
Before we end this article, we would also like to announce to everybody that we are extending our withdrawal phase. We understand that some of you may not have gotten the memo or have not withdrawn.
We are extending the withdrawal dateline before we take a final snapshot.
Please withdraw your staked tokens BEFORE 24 March 2022 2359hrs GMT+8.
This applies to EVERYONE regardless of the pool or farm you are staked in or if you have NFTs staked or not. Everyone, withdraw or emergencyWithdraw. We have snapshots of your staked amounts.
Your NFTs (if any) are fine, so just go ahead and withdraw your staked tokens. Instructions regarding them will come later. NFTs can be withdrawn later.