In spite of all fears about contagion and bankruptcies, 2022 will set records in the adoption of blockchain and cryptocurrency, especially in those countries with high inflation and where citizens are cut off from the global payment system.
Statista’s 2022 Global Consumer Survey showed, for example, that the adoption of cryptocurrency in Turkey (a country with the seventh highest rate of inflation) increased from 25 to 40 percent. In Nigeria, 60% of its population does not have a bank account, the adoption rate increased to new records of 45%.
In these areas, the payment and monetary infrastructures are also serious flaws in dominant banking systems. A recent Decipher panel of speakers agreed that because current banking systems are unable to reach unbanked people and maintain price stability, developing countries will lead the global adoption of blockchain. In order to preserve purchasing power, and make payments instantaneously, the primary use of the technology is.
Many central bankers are looking at ways they can compete against these technologies to maintain their position as the heart of the settlement system. While some countries, like China, have banned cryptocurrencies as part of their CBDC authoritarian rollouts other countries such as Italy are looking at a collaborative strategy that leverages blockchain security and the digital asset ecosystem’s interoperability.
Banks are exploring the use of blockchain technology
The Bank of Italy, in July of 2022 published a study evaluating the advantages of utilizing digital ledger technology (DLT), for settlement. It was the goal of this report to find a safe and reliable way to use central bank money to buy something such as a digital asset, tokenized security or cryptocurrency. Both TIPS Hash-Link settlement model and TIPS-Algorand were evaluated as viable solutions. Further experiments will be conducted. And on December 13th, 2022, Algorand announced that the Bank of Italy endorsed the launch of a national platform using the layer-1 blockchain to support a digital guarantees platform – marking a step toward blockchain and central bank integration
Federico Rajola, Professor at the Research Centre on Technology, Innovation and Finance, the CETIF, which coordinates this platform, explained in a release to the press: “We selected Algorand because of its unparalleled level of innovation and security among permissionless DLTs, as well as because of its leadership in sustainability… We believe [platforms such as the Digital Sureties platform supported by Algorand] can and will dramatically contribute to the country’s competitive sustainability for the benefit of all.”
This alternative approach is a response from the central banks to cryptocurrency. In place of forming a CBDC that would enforce strict censorship policies, the central banks are working with blockchain infrastructures to stay an integral component of settlement processes. The success of permissionless blockchain cryptos is not dependent on CBDCs and central banks. This partnership between Algorand Bank of Italy as well other Italian public institutions signals that the future of crypto money and central banks can be a mutually beneficial one.
It is the unbanked that are driving adoption of blockchain
The majority of countries lack the necessary infrastructure to effectively ban crypto-currencies based on blockchain. Nigeria was still the leader in Crypto adoption in 2022, even though it banned Cryptos in 2021. Bloomberg reports that less than 0.5% (out of Nigeria’s 217 million people) are using digital currency issued by the government one year after it was launched. As people increasingly use cryptos to access and preserve their purchasing power as well as to protect themselves from financial fraud, this may lead to central banks pursuing interoperable systems.
Even crypto faces challenges when it comes to serving the unbanked. In August 2021, when the Taliban took control of Afghanistan, it brought the nation’s banking systems to the edge of collapse. They remain in this crisis even today. Some people found that crypto-based and blockchain-based systems were a safer alternative than traditional methods of receiving aid or paying for necessities like food and medical bills.
Many people did not have smartphones, nor the necessary technological knowledge to be able to receive and send crypto. Sanzar Kakar created HesabPay to address this problem. He began using QR code cards. On the ‘Payment Revolution is Now’ Panel discussion at the Decipher conference, he stated,
“Our niche is not someone that necessarily understands [how to send and receive crypto] or have a smartphone and internet access. So we use QR codes. We recently provided 7500 of these to widows in Afghanistan – where they can use them to pay for things without understanding how blockchain works or having access to a smartphone. They just went to the shop every month with their QR code card and showed the shopkeeper who scanned it to deduct donated funds from their Algorand wallet.”
This QR code, which is linked to blockchain wallets protects against the risks of informal money transfer methods that still exist across the Middle East. South Asia and other parts around the globe. HesabPay allows anyone with a QR-code card wallet to receive donations from outside and remittances in the absence traditional banks.
The innovative model may be scalable enough to reach even the hardest-to-reach individuals and introduce them to blockchain payments. In order to increase interoperability, the government may want the CBDC in Nigeria and similar systems that are working well even with remote areas.
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