And while these crypto flows are minute compared to, say, those of Australia or the United States, that they are rising is significant. They are a signal that citizens see volatile assets such as bitcoin as viable alternatives to their own weakening fiat currencies.
“People are just hungry for capital they can use to better their lives,” says Dr Salampasis. “They’re hungry for new forms of money, and they can see so much of it moving around the world, and they want to have a slice of that.”
Bitcoin ‘more real than lollars’
In Lebanon, where central bank mis-management and systemic corruption has robbed people of their savings and triggered annual inflation of 120 per cent, cryptocurrency activity has soared. Young people appear to be increasingly turning to digital assets to shield themselves from currency depreciation and to move wealth in and out of the country.
“It’s funny when people say crypto isn’t real, because what we found out in Lebanon is that this digital currency is 100 times more real than the ‘lollars’ we have in the bank,” one young man recently told Reuters, using a slang term for the US dollars stuck in Lebanon’s collapsed financial system.
In early September, El Salvador became the first nation to make bitcoin legal tender for its 6.4 million people. Shops, bars and car dealerships must all now accept bitcoin as payment. El Salvador has used the US dollar as official currency since 2001.
Dimitrios Salampasis, lecturer at Swinburne University, says cryptocurrencies are used by people in unstable economies to store and move wealth. Elke Meitzel
Dr Salampasis argues this is a confusing and risky development for the people of El Salvador who weren’t consulted before the change, but it does indicate the frustration emerging and developing countries have with systems that are failing people.
“A lot of what El Salvador has done doesn’t make sense. Let’s hope it ends well, but really it’s just an experiment,” says Dr Salampasis. “It’s a problem when you have something as serious people’s livelihoods mixed in with the celebrity economy, where a Tweet from Elon Musk or an Instagram post by Kim Kardashian can introduce waves of volatility into a country’s currency.”
While much has been made of El Salvador’s acceptance of bitcoin as legal tender, the country’s move towards bitcoin mining is another signal of how cryptocurrency is emerging as a geopolitical tool.
El Salvador’s President, Nayib Bukele, has said the country will direct its hydro-powered energy sources towards mining bitcoin and maintaining the global blockchain, to build up its bitcoin reserves and develop an industry.
Until recently, China was the world’s largest bitcoin miner with the most sophisticated equipment and, thanks to state-run enterprise, reasonably low-cost energy.
But given bitcoin’s borderless nature, and the Chinese government’s own experiments with programmable money as part of its surveillance economy, authorities shut down Chinese mining and banned it from the mainland.
Mining opportunities open up
Thanks to the decentralised nature of the blockchain, the absence of the world’s biggest miners didn’t cause too much disruption – but it has opened up opportunities for other players to set up mining operations.
Earlier this year, research house Elliptic estimated that Iran contributed 4.5 per cent of all bitcoin mining, giving the oil-rich country a way of circumventing trade sanctions.
Waves of blackouts caused by excessive mining saw the Iranian government temporarily ban the practice, but the shifting geopolitical and macroeconomic climate has seen crypto’s influence grow.
“Who has bitcoins matters more now,” says Dr Salampasis. “There are very large risks in world trade moving to an unregulated, decentralised system, and while it might not be happening mainstream yet, crypto is taking its place as an option in the global community.”
Young people in economically unstable jurisdictions are becoming more comfortable allocating wealth to digital assets despite wild volatility, and the chief economist at the Bank for International Settlements, Hyun-Song Shin, points out the waning trust in institutions could get worse.
“To understand [crypto] you have to start by asking how trustworthy is the central authority – do you have good governance and an accountable central bank?” writes Shin. “If you are in an unstable or authoritarian system or if you have a failing state, you are better off with a robust decentralised system, but you pay a cost.”
