Junk economies are in such a catastrophic state that there is little chance that the country will recover without substantial international help. Failed states such as Somalia, Yemen, and Venezuela have junk economies that will likely never improve unless they begin using another country’s currency.
Cryptocurrency cannot save an entire economy. However, it can provide a means for some individuals in these junk economies to escape poverty. If someone can buy cryptocurrency while its value is low and watch its value go up, they will start building wealth.
A decade ago, one bitcoin was worth less than a penny. Its value did not increase up to a dollar for a good while after. However, it did not look back once it began growing. There were bubbles and crashes along the way. Nevertheless, what was once a fraction of a penny is now worth tens of thousands of dollars.
The same holds with the Ether, whose growth has been slower and steadier than the bitcoin but has still trended upward. Litecoin and many other cryptocurrencies have also seen a positive change.
When you open a bank account, you have to provide your real name and documentation. Why? So that the bank can be sure that the person holding an account there really is you. With cryptocurrency, however, users remain completely anonymous. Users’ information is encrypted. But the blockchain’s data is publicly available. Furthermore, users have their own IDs rather than their own names associated with their accounts.
No one can track who a single cryptocurrency user is. Case in point? We still don’t know who Satoshi Nakamoto is, even though he has historically held a substantial number of the bitcoins in circulation. If we could trace a person’s identity through blockchain, we would certainly have identified who started the whole thing.
The Silk Road scandal provided a lot of exposure to the emerging world of cryptocurrency. At the same time, it also caused a lot of bad press. Silk Road was a website that exploited Bitcoin’s anonymity to sell illicit products, including illegal drugs. People who used the website could buy those products without divulging their true identities.
When the scandal came to light, those who had created the website faced prison terms. The government began to ask serious questions about how it should handle the emergence of the crypto-economy. People might have otherwise been interested in Bitcoin and other cryptocurrencies. But they decided that they did not want to be a part of it. You know, something that people might consider the black market. Still, in the years following the Silk Road scandal, studies have shown that most of the use of Bitcoin and other cryptocurrencies has been for basic goods and services, not illegal drugs.
One benefit that cryptocurrencies provide is that they are tax shelters. True, the dollars you earn and use to buy the cryptocurrency will eventually get taxed. But as the cryptocurrency itself increases in value, and as you use cryptocurrencies to buy more cryptocurrencies, they cannot tax that money.
Governments have tried to implement methods of taxing cryptocurrencies. Some wallets that people use to hold cryptocurrencies have conceded to tax laws and issue tax documentation. However, others have upheld the anonymity that is intrinsic to the crypto-economy and evaded efforts at taxation.
Despite the benefits of cryptocurrency, it is not a panacea for all of the world’s financial problems. There are certainly some enthusiasts who see it as the global market’s future. But people may overstate that usefulness. One reason why cryptocurrency benefits may be overblown is that many people buy cryptocurrency and hold onto it just to be part of its increasing value. If all that cryptocurrency does is increase in value, then it really is nothing more than a bubble waiting to crash.
Investors have to tie the value of cryptocurrency to its real-world usefulness, not just its ability to increase in value over time. As long as it is useful in blockchain transactions to develop blockchain apps and the Internet of Things, it will maintain value. But it will likely never overtake traditional currency.