The Fringe Asset, Cryptocurrency, was used for high-risk investment purposes only by a few handfuls of crazy people, who used to be ridiculed by so-called intellectuals but are now getting popular in the Banking and Finance Industry, especially in the realm of international trade. In the ever-evolving landscape of world trade, the adoption of cryptocurrencies has emerged as a transformative force inside the realm of trade finance. Cryptocurrencies, most considerably Bitcoin and Ethereum, have disrupted conventional economic structures by supplying decentralized and green alternatives. This evaluation delves into the multifaceted components of cryptocurrency adoption in alternate finance, arguing that adopting these digital belongings isn’t only inevitable but also beneficial for the efficiency, transparency, and inclusivity of world exchange transactions.
Increasing Trends of Cryptocurrencies
The population of Emerging economies like Ukraine, the Russian Federation, Venezuela, India, etc. and Developed countries like Singapore, the United States of America, the UK, etc., started embracing the digital medium of exchange with embedded cryptographic technologies for security and anonymity. In 2021, more than 10% of the population of the three countries and more than 5% of the population of 13 countries were convinced of the cryptocurrency( Figure 1). They adopted this instrument as an investment tool.
By 2023, the global crypto market surpassed $2 trillion, attracting not only individual investors and tech enthusiasts but also businesses and governments recognizing its potential.
At the forefront of this revolution is Bitcoin, the pioneering digital currency, along with Ethereum and other altcoins. These digital assets provide a decentralized, peer-to-peer payment system, operating independently of traditional banking and government oversight. The appeal lies in the promise of reduced transaction costs, instant payments, and heightened security through blockchain technology.
However, cryptocurrency adoption is uneven, with certain regions showing a greater inclination towards this technology. Asian economies like South Korea and Japan, as well as Western nations such as the United States and the UK, lead in integrating cryptocurrencies into their economies.
In the context of international trade, these advancements could be transformative. Cross-border transactions, often burdened with high costs like currency exchange fees and handling charges, are ripe for disruption. As businesses globally realize the potential of cryptocurrencies, we observe a significant shift in international trade dynamics, with the promise of streamlined, cost-effective transactions and reduced reliance on traditional financial intermediaries.
Key Benefits and Challenges of Using Cryptocurrencies
Traditional trade transaction processing involves lots of manual checking by a variety of stakeholders such as Banks, Customs, and inspection authorities, which causes the surge of costs borne by exporters and importers. In addition to that, it is irrefutable that the execution of a trade transaction is a lingering process that increases payment risk, commercial risk, and foreign exchange risk for exporters and importers. Therefore, cryptocurrencies are the solution that eliminates the middleman and speeds up the whole process. Subsequently, it is capable of putting an end to clerical mistakes, hefty fees levied by financial institutions and other risks mentioned.
In the 21st century, as we are living in the era where Time is the Money, the capability of Cryptocurrencies to execute an International trade transaction instantaneously is truly palpable.
The advantages of cryptocurrencies extend beyond operational efficiencies.
They hold the promise of democratizing financial systems by providing access to financial services for unbanked populations, particularly in developing nations with limited banking infrastructure. Cryptocurrencies offer a decentralized and cost-effective method of transferring funds, potentially fueling economic growth and fostering financial inclusion.
However, Despite offering distinct advantages to Cryptocurrencies, it presents intricate regulatory challenges.
Their decentralized nature and relative anonymity have been associated with illicit activities like money laundering and terrorist financing, necessitating robust regulatory frameworks to monitor and control cryptocurrency transactions. Regulation, however, poses a delicate balance. While essential for security and investor protection, excessive regulation could stifle innovation and hinder the cryptocurrency market’s growth. Striking this balance is a complex task faced by regulators worldwide. According to the Statista database, the number of Cryptocurrencies increased from 4501 to 9024 within two years which constitutes more than 100% growth (Figure 2), which is extremely risky.