Blockchain's Potential Impacts on the Global Economy | FTX.com
by Donald Gray
Originally published on FTX.com on September 14, 2022
In November of 2021, the cryptocurrency industry's market capitalization grew to an astounding $3.2 trillion. For comparison, that's more than the GDP of all but the top four countries in the world. With numbers like that, cryptocurrency has carved out an undeniable space in the global economy. Still, it will take time to pinpoint precisely how this burgeoning industry fits into the grand economic scheme.
In this article, we'll look beyond statistics to explore some of cryptocurrency’s economic implications and take a look at how blockchain technology may impact the global economy in the future.
The Economic Impacts of the Blockchain
When Bitcoin, the first successful application of blockchain technology, came online in 2009, no one could know how this novel computer protocol might one day change the way the world interacts with money. Over a decade later, blockchain technology is being implemented across many innovative applications. Still, the true extent of its potential implications is only just beginning to be understood.
To recap, blockchain is the distributed ledger technology that underpins cryptocurrencies and allows people to transact with each other without the need for intermediaries like banks and payment processors. While cryptocurrency is the most popular application of this tech, it has the potential to revolutionize a wide range of industries, from supply chain management to medical record keeping.
When talking about cryptocurrency and economics, people like to evaluate statistics like adoption rates, market capitalization, and engagement from institutional investors to gauge how the industry is progressing. While these metrics provide a valuable snapshot of industry trends, they overlook blockchain's practical applications and gloss over this technology's far-reaching potential.
Looking beyond cryptocurrency’s widely-publicized price speculation, the true story of blockchain technology's potential economic impacts comes down to its utility.
Low Cost, Secure Transactions
In 2021, the global remittance industry processed over $630 billion in transactions, which could reach close to $700 billion by 2023, according to the World Bank.
In 2021, the average cost to send $200 was 6.3%, with rates in some regions reaching close to 20% and transaction times ranging from several days in the best-case scenario to several weeks or even months in some cases.
These high fees and slow transactions disproportionately affect people in developing countries, where many individuals rely on remittances from family members working abroad to cover basic living expenses.
As banks and payment processors continue to raise fees, cryptocurrencies like Solana (SOL), Litecoin (LTC), and Bitcoin Cash (BCH) all process remittances for fractions of a penny, with transaction times ranging from a few seconds to 30 minutes.
So, what does this mean for everyone who needs to send money overseas? Potential savings to the tune of billions of dollars each year.
Even if only 20% of the global remittance market adopted cryptocurrency, it could represent a savings of nearly $10 billion in transaction fees, with many of the beneficiaries of these savings residing in developing countries.
By cutting out the middleman and democratizing verification, blockchain technology beckons us to rethink how we transact with each other in the modern era.
Increasing Transparency and Efficiency in the Supply Chain
The global supply chain presents one of the fascinating avenues for a blockchain revolution. By tracking materials and goods through an immutable, decentralized ledger, the blockchain could render the widespread issues of slippage, counterfeiting, and logistics fraud relics of the past.
A more efficient, less wasteful supply chain would affect nearly every trade sector and economy, and it's impossible to predict just how impactful this technology could be once implemented. Some industries that could be particularly transformed include:
Agriculture: The United Nations estimates that up to 30% of agricultural goods are lost or wasted yearly due to inefficiencies in the supply chain. Blockchain-based supply chain management would increase transparency and allow real-time food tracking from farm to table. This would decrease food waste while also helping to ensure that food is safe to consume and has not been tampered with.
Fashion: The fashion industry is responsible for 10% of all global carbon emissions, and it's estimated that only 1% of clothes are recycled yearly. Blockchain could increase transparency in the fashion supply chain so consumers know exactly where their clothes come from and how they were made. While also reducing instances of theft and fraud, blockchain could help make the fashion industry more sustainable by optimizing production and distribution.
Pharmaceuticals: The global pharmaceutical market is expected to be worth $1.12 trillion by 2023, and it's estimated that counterfeit drugs account for over 10% of the market. A blockchain-powered pharmaceutical supply chain would allow for each drug to be tracked from the point of manufacture to the patient, helping to ensure that counterfeit drugs are not making their way into the supply chain.
Whether it's increasing transparency in electoral politics or streamlining financial processes like getting a mortgage, blockchain technology offers a platform for transformative change in nearly every sector of the global economy.
Crypto and the Job Market
While the long-term effects of blockchain on the economy are impossible to predict, the short-term effects of cryptocurrency are already being felt in the job market.
Cryptocurrency's meteoric rise over the past decade has given birth to a whole new industry and a whole new set of job opportunities. On the development side, programmers and engineers are in even higher demand as startups, and well-established enterprises vie to capitalize on this technology.
Companies not traditionally associated with tech are also starting to invest in blockchain, which presents a wide range of new job opportunities for those with the proper skill set.
From compliance officers and risk analysts to marketers and salespeople, this technology creates demand for a whole new set of non-technical roles while also opening up opportunities for traditional tech roles in non-tech companies.
How Cryptocurrency Impacts Domestic Currencies and Centralized Banking
Beyond the remittance market, cryptocurrency offers an alternative to traditional banking systems, which is incredibly impactful in countries with high inflation or unstable currencies.
In Venezuela, for example, the bolivar lost over 99% of its value in just over ten years, leading many Venezuelans to turn to cryptocurrency to preserve their wealth and store their value in the early days of the crisis.
A similar situation unfolded in 2021 after Turkish President Recep Tayyip Erdogan fired the country's central bank governor. During the ensuing crisis, many Turks turned to Bitcoin to protect their savings and store value outside the country's banking system.
While it remains to be seen whether a cryptocurrency will ever replace the current centralized banking model, it's clear that it offers a viable alternative for those looking for an alternative to traditional banking systems.
Furthermore, the rise and success of cryptocurrencies have inspired central banks worldwide, from the Bank of China to the United States Federal Reserve, to explore issuing digital currencies of their own, known as Central Bank Digital Currencies (CBDCs).
It's too early to tell precisely how much cryptocurrency has influenced the macroeconomics of the world. Still, it's clear that it has had and will continue to significantly impact how we transact with each other in an increasingly digital world.
Investing in Cryptocurrency
Cryptocurrency is still a relatively new asset class; as such, investing in crypto comes with a degree of risk; however, for those willing to research and invest in this fascinating industry, it's still possible to be an early adopter of the future of finance.
FTX is a global cryptocurrency trading platform dedicated to helping new and seasoned investors thrive in this new digital economy. Created by veterans of Wall Street and big tech, FTX offers a comprehensive, user-friendly platform designed to help investors take advantage of this exciting space.
If you're ready to jump into this new digital economy, head to FTX.com and open an account today. For the latest industry news and analysis, follow @FTX_Official on Twitter, and check back for news and updates on the FTX Blog.