lecture recording on 13 February 2025 at 10.39.39 AM

Overview of Cryptocurrencies

• Cryptocurrencies are an emerging form of currency that operate independently of traditional financial institutions.

• They provide an alternative to government-controlled currencies like the US dollar and the euro.

• The rise of cryptocurrencies reflects globalization and the increasing importance of non-state actors in the financial sector.

Definition and Characteristics of Cryptocurrencies

• Decentralization: Cryptocurrencies like Bitcoin lack central regulatory authority, which means no single entity controls their value or circulation.

• Volatility: The value of cryptocurrencies can change dramatically over short periods, making them risky investments.

• Deregulation: Transactions are not overseen by any government, offering a level of anonymity but also potential for misuse.

The Role of Central Banks

• Central banks manage their respective country's monetary policy, including the regulation of currency.

• Examples: The U.S. Federal Reserve controls the U.S. dollar, while the European Central Bank manages the euro.

• These institutions regulate money supply and interest rates to stabilize economic conditions.

Bitcoin: The Leading Cryptocurrency

• Bitcoin is the most recognized cryptocurrency, created approximately 15 years ago.

• Its decentralized nature means no government or institution can influence or regulate its value, which presents both opportunities and risks.

• Bitcoin's price has fluctuated significantly over time, with reports of values reaching $96,000 at certain points.

Global Trends in Cryptocurrency Adoption

• Cryptocurrencies have become more popular not only among individuals but also among merchants and businesses.

• Governments worldwide are increasingly considering or implementing regulatory frameworks for these currencies.

• Adoption varies globally; for example, El Salvador has made Bitcoin an official currency.

The Case of El Salvador

• In 2021, El Salvador adopted Bitcoin as legal tender, essentially making it equivalent to the U.S. dollar for transactions.

• This move aimed to attract investment and improve financial inclusion in a country with high poverty and economic instability.

• Efforts included introducing a digital wallet for citizens and offering bonuses for its use.

• The country has a history of political conflict that affects its current economic situation.

Economic Impact of Bitcoin Adoption in El Salvador

• Initial enthusiasm met with challenges such as low understanding and slow adoption rates among the populace.

• A study showed that although 68% of potential users were aware of the digital wallet, only 20% actively used it after downloading.

• Concerns remain regarding the practicality and stability of using Bitcoin in daily transactions.

Issues and Challenges

• Understanding & Education: Many citizens lack knowledge about cryptocurrencies, which hampers trust and usage.

• Technical Challenges: The infrastructure needed for widespread cryptocurrency use (like internet access) is often lacking in developing countries.

• Concerns Over Human Rights: The government's aggressive approach to improving public safety post-Bitcoin adoption has raised human rights concerns.

Future Outlook

• The long-term success of Bitcoin as an official currency is uncertain; many see it as a potential failure due to technical difficulties and public skepticism.

• However, the trend towards digital currencies appears to be growing, indicating possible future transformations in how currencies function globally.

Conclusion

• Lessons from El Salvador's experience include the importance of education and gradual implementation in adopting new financial technologies. Other countries may consider these factors to avoid similar pitfalls in cryptocurrency integration.