To provide a comprehensive overview of the chances of Cryptocurrency in developing countries. It is necessary to understand the general advantage and loss of Cryptocurrency provided for users compared to the fiat currency issued by the central bank, such as the euro or US dollar, and discuss how they are Appearance from the underlying technology.
For this purpose, we use examples of two cryptocurrencies in this paper. The underlying technology of most currencies Crypto is blockchain technology. Blockchain is a decentralized database distributed in networks on various computers. It is characterized by the fact that the entry is summarized and stored in the block.
Cryptocurrency and Bitcoin
The Cryptocurrency discussed is Bitcoin, which is technical, “an algorithm that records the ongoing transaction chain between the countdown peer-to-peer network members and broadcast these records to all members of the network”. Bitcoin is the world’s largest Cryptocurrency, with a market capitalization of more than $ 189 billion. Satoshi Nakamoto discovered it when he published his white paper “Bitcoin: Peer-to-peer electronic cash system”.
Second, Ethereum is an example based on Blockchain, Public, Open-Source, computing platform, and operating system for smart contracts. This platform supports the modified version of the Nakamoto consensus mechanism and proposed in 2014 by Vitalia Beruterin (Beruterin Vitalik, 2014; Rizzo et al., 2016). The underlying Cryptocurrency is called “ether.” This is the second-largest Cryptocurrency on the market with a capitalization of more than $ 18 billion [II].
General Advantages and Loss of CryptoCurrency
This section presents the significant advantages and disadvantages of Crypto’s currency compared to the central bank’s Fiat currency and discusses how they arise from the underlying technology. Comparisons with existing solutions are provided to show the practical relevance of Cryptocurrency.
The first advantage is that Cryptocurrency combines important properties to foster trust, such as accountability and transparency, which allows trust-free interactions between partners. The underlying blockchain technology uses a consensus mechanism, hash function, and public-key encryption to control transactions, which leads to the fact that users do not have to trust partners.
However, users must trust the underlying network and blockchain. Thus, it is essential to secure blockchains against fraud and attacks. For the central bank currency issued, third parties established trust, such as intermediaries, and in almost every digital transaction in Fiat currency, an agent was employed to oversee the exchange. Transactions carried out by intermediaries not only take time, but they also produce risk premiums for users because of higher transaction costs.
Another benefit of cryptocurrency decentralization is that the government cannot manage it. Therefore, the Cryptocurrency is not limited to some geographical regions and can be traded throughout the world. Therefore, Bitcoin can provide low-cost money transfers, especially for those who want to transfer a small amount of money internationally, such as payment of money delivery.
This money can often be transferred cheaper than with the central bank currency issued because using Cryptocurrency allows financial transfers throughout the world without intermediary institutions. Also, money transfer speeds increase by removing intermediaries.
However, this independent border payment also has several negative aspects, which need to be considered.
Developing countries and poverty
The following section defines “developing countries.” It also provides an overview of which countries are classified as developing countries and, therefore, in this research’s focus.
Developing countries are countries with low human development indices and industrial bases that are less developed than other countries (O’Sullivan & Sheffrin, 2003). There are no agreements of countries that are categorized as developing countries. However, most countries stated generally as “developing countries” have various aspects of similarity, which can be seen as criteria for developing countries.
This similarity is the inadequate food supply for large population groups, low per capita income and poverty, lack of educational opportunities, lack of access to quality health care by high infant mortality and low life expectancy. All of these aspects lead to higher unemployment in developing countries and overall living standards. Furthermore, developing countries’ assets are often very uneven.
In the study of the “World Economic and Prospects” of 2018, the United Nations described the trend to show various world economy dimensions. The study of classifying all countries globally is one of three broad categories: advanced economy, the economy in transition, and economic development. I intend this grouping composition to reflect economic conditions in these countries.
However, many countries cannot be entirely placed in one category because they often have characteristics that can place them in various categories. However, the United Nations has created an exclusive group. I consider the complete list of all UN countries and this study a developing country with their geographical classification, can be found in Appendix A.