Paying For Groceries With Crypto — Case Study For Countries With Mass Crypto Adoption

An established financial system that’s been around for hundreds of years means stability and prosperity, and that’s why developed countries are as economically stable as they are. However, it also means a lack of flexibility and a lot of barriers to innovation. That’s why developed countries weren’t very fast with crypto integration. However, developing countries have much more room for movements in the economic sphere. Because of that, they are ready to take more risks and introduce innovations faster. Today I want to do a case study of the most crypto-friendly countries and see if there are any trends that can show themselves when Europe and the US will move further in terms of crypto adoption. 

An Overview Of The Leading Crypto-Adopting Countries

El Salvador

El Salvador made history by becoming the first country to adopt Bitcoin as legal tender in September 2021. The government's move has put this small Central American nation at the forefront of the crypto revolution. El Salvador has never emitted its own currency and has always used US dollars. However, right now Bitcoin and USD are both official currencies of El Salvador. Consequently, any business there must accept Bitcoins as a form of payment. According to Yahoo Finance, the latest statistics from 2021 show that El Salvador has over 200 Bitcoin ATMs operating on a daily basis. Moreover, El Salvador’s government is heavily investing in Bitcoin, with 2,381 coins in the portfolio at the time of writing. 

Venezuela

Venezuela has faced significant economic instability, and its citizens have turned to cryptocurrencies like Bitcoin as a means of preserving their wealth in the face of hyperinflation. In 2021, the inflation rate in Venezuela was 1,559%. Since buying foreign currencies is prohibited in Venezuela, the population turned to the only anti-inflation asset available: Bitcoin. It is estimated that currently, 2.9 million people in Venezuela own crypto wallets. That’s 10.3% of the total population. To put that into perspective, the global ratio of people who own crypto wallets is 4.2%. 

Nigeria

Nigeria has a burgeoning crypto community, with millions of citizens using cryptocurrencies for remittances, investments, and everyday transactions. Nigeria’s crypto transaction volume grew year-over-year and is currently $56.7bn. In its latest report, Chainanalysis said “In fact, Nigeria is one of only six countries in the top 50 by size globally whose crypto transaction volume grew year-over-year in the time period we studied.” Nigeria is also the leader in transaction volume in the Sub-Saharan region. 

Kenya

Kenya is a leading African nation in crypto adoption, with innovative startups and a growing number of Bitcoin ATMs making it easier for citizens to access digital currencies. 6.1 million people, or 10.71% of Kenya’s total population own crypto. Moreover, Kenyan start-ups raised $25.8 m. in 2022, which shows an incredible rate of crypto development in Kenya. 

Regulations

But what made that rise of crypto possible, and why the same thing doesn’t happen in Europe, at least right now? Well, the biggest reason is legislation. Currently, developing countries tend to have incredibly legal and transparent crypto laws. Let’s break down regulatory requirements for different market players. 

El Salvador

Exchanges (both DEXes AND CEXes) operating under the Bitcoin Law in El Salvador are required to complete registration with the Central Bank of El Salvador within 20 days of starting their operations. Furthermore, these providers must ensure their compliance with additional regulatory criteria, which include the following:

• Developing and implementing an Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) plan that adheres to the standards set forth by the Financial Action Task Force and the best practices in AML according to Salvadoran law.

• Employing mechanisms to safeguard clients' assets, encompassing protection against theft, loss, and depreciation of value.

• Maintaining thorough records of client accounts and transactions.

• Establishing a comprehensive cybersecurity program.

• Maintaining records for assets, liabilities, and equity.

• Setting transaction limits to aid in risk management.

• Developing and implementing a disaster recovery strategy.

• Creating a plan to ensure a smooth liquidation process in case of a company’s bankruptcy. 

As for AML policies, individuals using Bitcoin for buying or selling goods in El Salvador are not subject to Anti-Money Laundering (AML) regulations, and the same exemption applies to IT companies that do not serve as custodians of Bitcoin for their clients. Salvadoran banks are also permitted to offer banking services and open bank accounts for Bitcoin service providers. However, they are prohibited from imposing commissions on government-issued Bitcoin wallets to promote financial inclusion. The Financial System Officer (SSF) is responsible for overseeing the compliance of service providers with the Bitcoin Law. For more information, refer to the report on El Salvador’s crypto laws.

Nigeria

Another example is Nigeria. While not a part of the Nigerian banking system, crypto is still subject to regulations there. According to the recent regulations by the Nigerian Securities and Exchange Commission (SEC), all cryptocurrency exchanges operating in Nigeria must obtain a license, granting the SEC the authority to access their records. In Nigeria, these regulations pertaining to digital assets, often colloquially known as crypto assets, specifically outline a digital asset exchange (DAX) as "an electronic platform that enables the trading of virtual or digital assets."

In accordance with the SEC's regulations, these Digital Asset Exchanges (DAXs) will now be mandated to obtain a Virtual Asset Service Provider (VASP) license from the SEC. This involves complying with various requirements, such as application processing, registration fees, and other relevant charges.

Furthermore, cryptocurrency exchanges are obligated to furnish proof of a minimum paid-up capital amounting to 500 million nairas ($617,395), along with a current fidelity bond that covers at least 25% of the company's minimum paid-up capital.

A licensed DAX is also expected to adhere to SEC's regulatory provisions, which encompass providing an undertaking to guarantee the availability of records, ensuring the availability of necessary personnel and resources, implementing security measures, and establishing risk management protocols. Additionally, they are required to appoint a Chief Information Security Officer to mitigate cyber risks.

The situation in other developing countries with high crypto adoption rates (except El Salvador) is pretty similar to Nigeria: crypto is not a part of the banking system but is subject to pretty frugal regulations that target users’ protection. 

Impact

Crypto has been around for less than 15 years, which is an extremely small time frame when we’re talking about the long-term financial impact on a country’s economy. Additionally, Bitcoin was made the official currency of El Salvador only in 2021, and other developing countries joined the crypto adoption process even later. Because of this, we can’t really make any serious conclusions on whether that has been a profitable initiative. However, we can highlight some of the benefits:

1) Before the “Bitcoin law”, 70% of El Salvador’s population was unbanked. Being unbanked means that citizens don’t have access to loans, deposits, bank transfers, and a lot of other services that we’re so used to. They couldn’t send some money to a friend abroad, open a small business using a bank loan, or try to at least mitigate the inflation with bank deposits. Now, all these people have access to financial services through crypto. If a person in a country with an undeveloped banking sphere wants to send some money abroad, they can do it with a $0.001 fee and 5 minutes of their time. 

2) Tourism in El Salvador has grown by 30%, bringing more than $1,400m in foreign currencies. Making Bitcoin an official currency was breaking news for crypto enthusiasts around the globe, which led to a boom in foreign partnerships and relationships. El Salvador has opened 2 Bitcoin embassies in Texas, USA, and Lugano, Switzerland. 

Conclusion

There might be a lot of reasons why the crypto adoption rate right now is lower than we would want it to be: lack of infrastructure, lack of trust, and lack of technology. However, we see that it hasn’t stopped crypto adoption in the countries that really needed crypto. So, carefully, we can make a conclusion that the only thing that really stands between the EU and mass crypto adoption is the regulatory landscape. We see that the market doesn’t need to be unregulated in order to grow - on the contrary, it needs clear and transparent regulations that will leave it room to grow while ensuring a safe and secure economic space.