Bitcoin’s price plunged and entered bear market in 2018, leaving many wondering again whether widespread adoption of the decentralized digital asset is possible a decade after its inception. But emerging markets, especially those suffering from financial crises, are leading Bitcoin to deliver on its promise as an alternative to central bank-controlled fiat currencies.
From Venezuela to Turkey, Cyprus to Argentina, I’ve researched and traveled to learn firsthand how cryptocurrencies can be lifesaving in the midst of economic collapse – and an opportunity for bitcoin to recover.
Bitcoin itself was born in response to the global financial crisis that exposed serious weaknesses in our traditional currency systems. That crisis may have gone down in history, but the spikes in cryptocurrency adoption in emerging markets remind us that the ultimate lesson from Bitcoin – and the alternative coins that emerged from it – remains true: money is broken.
Despite the price drop in about a year from a high of around $ 20,000 to just $ 3,000 in December, active crypto users doubled in 2018, according to estimates by the Cambridge Global Cryptoasset Benchmarking Study. Most interestingly, most of this growth is taking place outside of the industrialized world. A recent analysis of the volume of transactions on the peer-to-peer exchange LocalBitcoins found that the use of cryptocurrencies, weighted by population size, was most common in developing countries that have experienced severe currency turmoil such as Russia, Nigeria and Venezuela.
In fact, multiple sources make it clear that digital payments, including cryptocurrencies, are “booming, driven by developing markets” – and particularly in several African countries. This is the result of the World Payments Report 2018, which was drawn up by the French banking group BNP Paribas and the IT consultancy Capgemini.
And in addition to the raw statistics, the on-site evidence shows how crypto is gaining momentum in emerging markets.
Huge billboards on the highways of Caracas, the capital of Venezuela, advertise a lesser-known cryptocurrency with the boast: “Dash. It’s more than money. “
Venezuela’s currency crisis has presented a unique use case for introducing cryptocurrencies into the real world. Capital controls, a huge population without a bank account, and staggering hyperinflation of up to 1 million percent have drawn Venezuelans towards crypto. That gave Dash, the number 15 cryptocurrency by market capitalization, the opportunity to break into the imploding economy. From late night bars to fast food chicken restaurants, Venezuelans are now using cryptocurrency instead of the practically worthless local currency, bolivar.
The situation is similar in Turkey, where around one in five Turks owns cryptocurrency – compared to less than one in 10 in the neighboring European Union. The lira crisis last summer and the young, tech-savvy country created an ideal testing ground for the search for alternatives to the fiat currency.
When a central bank devalues a currency or, worse, prevents bank withdrawals of savings, it’s easy to see why cryptocurrencies are gaining a foothold in unstable economies. So it should come as no surprise that after a devastating financial crisis of 2012-2013, Cypriots are hungry to explore alternatives to fiat currency, and the island has become one of the most advanced countries for cryptocurrencies. The University of Nicosia was one of the world’s first institutions to offer a degree in digital currencies and accept payment in Bitcoin.
User experience is the key to adoption
Put simply, in crisis-ridden developing countries, alt-coin volatility still beats fiat instability, meaning citizens are willing to go the extra mile to learn about crypto.
Still, one major barrier to adoption remains – the user experience. Getting on board customers who are unfamiliar with the specialized digital wallets and confusing private keys and who are not trained in managing money beyond a traditional banking system is a challenge.
This is where the crypto industry can learn from the successes of other pioneering digital payment programs. In China, Alipay and WeChat Pay are ubiquitous these days. But their progress was by no means automatic. Alibaba and Tencent used armies of people to educate and market their products street by street, business by business. They also offered rewards to users, employing a strategy that had previously brought Paypal its own success in disrupting an established financial industry. Crypto needs to pay equal attention to creating a winning user experience.
Some breakthrough companies are poised to take advantage of the cryptocurrency opportunities in emerging markets. One of the greatest benefits of increasing adoption is that crypto companies acquire the market insights, expertise, and incentive to develop tools to make transactions easier for their users.
This month, CoinText launched relatively simple offline SMS crypto transactions in the Philippines, a major country for cross-border money transfers. The system has already been introduced in troubled economies such as Ukraine, Turkey, Argentina and the Palestinian territories.
Dash is a perfect example in Venezuela. In November, the company launched Dash Text, a technology partnership that enables cryptocurrency transactions via SMS. More than half of the 3,000+ merchants worldwide who accept Dash (DASH) are in Venezuela, with an additional 200 joining the network each week.
The country also provides an example of how globalization works in crypto in a similar way to other industries – and announces further penetration potential. As hundreds of thousands of Venezuelans flee across the border, neighboring Colombia has seen its own surge in crypto adoption: a 25 percent increase in active digital wallets over the course of 2018.
Emerging markets rollout could be the next big driver for a bitcoin rebound. The difference is that, unlike in previous years, price gains are driven by real acceptance and demand, not just speculation – and that’s healthier and more sustainable.
Bitcoin may have suffered an annus horribilis in 2018. But the hotly contested emerging markets are ready to accept his promise to complement fiat currencies. The crypto industry must seize this opportunity by focusing on user adoption and helping make 2019 the year of the Bitcoin rebound.
Chance Du is a venture capitalist investing in blockchain technology to power new economies. She is a founding partner of Coefficient Ventures.