COVID-19 has decimated the global economy. The shockwave it has unleashed across global markets came suddenly and unexpectedly, inducing an economic contraction unlike anything we have ever seen before. The situation is fluid, and projections are likely to be updated, but the World Bank is currently forecasting that the global economy will be 5.2 per cent smaller by the end of the year.
If those predictions come to pass, it will represent the deepest global recession since the Second World War. You have to go back to the 1870s to find another example of so many economies around the world beginning to slide into a deep recession at the same time.
Many of us can remember the last global financial crisis and its impact on the world. No one is eager to repeat the experience.
Since the 2008 financial crash, many people have advocated cryptocurrencies as a potential remedy for at least some of the current economic system’s problems. There is much debate about the issues that cryptocurrencies might solve and how effective they would be at solving them. However, the extent to which cryptocurrencies might alleviate the current ills of the financial system is up for debate. Below are some of the critical shortcomings that cryptocurrencies address and how they might help us out of the current slump.
Inflation
Numerous factors can lead to inflation. However, it usually arises out of poor policy decisions. When a country experiences inflation, its currency plummets in value. When a currency’s value falls, it means the currency is worth less internationally, which has knock-on effects for any business that needs to import or export goods. In the worst cases, inflation can wipe people’s savings out in an instant. Because there is no maximum supply on fiat currency, it is theoretically possible for a government just to print more and more of it.
Cryptocurrencies get around this problem by limiting the supply of coins. For example, the Bitcoin network can never have more than 21 million bitcoin. Once the 21,000,000th bitcoin is added, it is impossible to create new coins. Because of this, some people have proposed Bitcoin as a better global reserve currency than the dollar. Of course, for this to be a reality, we would need international cooperation.
Accessibility
Because cryptocurrencies are decentralized, you don’t have to open a bank account or undertake any other steps to start using cryptocurrencies. Technically, you don’t even need a computer, thanks to the ability to store your crypto on paper. There are no barriers to entry, no background checks, and no need to tie your identity to your cryptocurrency wallet.
It is also easy to convert your cryptocurrency into regular fiat money when you need to. Services like Chaingers let you see the latest Bitcoin street price, so you know you are getting the right amount for your coins. As well as an up-to-date Bitcoin street price, Chaingers lets you see how much to expect when cashing out your bitcoin via various payment methods.
Transparency
With trust in global governments and financial institutions at an all-time low, anything that can improve transparency and make people trust the financial system could be beneficial. Blockchain networks contain a record of every transaction that occurs. The core of many protocols, including Bitcoin, is one of transparency.
Some economists have proposed that Bitcoin’s open nature enables us to decouple it from other financial markets. Acting as a truly decentralized parallel market, Bitcoin offers us a way of verifying funds are being moved appropriately. Anyone can use a free online tool to view the Bitcoin network and check transaction details.
Safety net
In recent years, we have seen proof that cryptocurrencies can provide some relief to people living in areas that have been hit hard by natural disasters or other events that are economically damaging. For example, in Venezuela, where many people live in abject poverty, cryptocurrencies like Nano gained popularity as a medium of exchange. Even without a national bank or government’s backing, if people agree amongst themselves to accept cryptocurrencies as payment, the infrastructure is already there.
This current economic crisis is unlike anything the world has ever seen before. If we are going to make it out the other side with the economy intact, we will need to get creative in our approach. Cryptocurrencies have a lot to offer. They are by no means a magic bullet, but they do offer some hope for the future. If cryptocurrencies do form part of the COVID recession’s solution, they will almost certainly come from a government-backed digital currency.
That said, there is nothing to stop people from accepting and using cryptocurrencies on a local level, and we anticipate many people will do just that. COVID-19 might just be the major market shock needed to spur on the widespread adoption of cryptocurrencies.
