The relationship between the east and the west when it comes to crypto adoption has long since been mutualistic. According to a Bitcoin mining map by the University of Cambridge, over 60% of the world’s hash power is in China.
Meanwhile leading cryptocurrencies like Ethereum, Bitcoin, and Ripple are supported by companies and teams of developers from western countries. For instance, Ethereum (whose foundation is based in Switzerland) has most of its decentralized applications developed by teams in western countries. On the other hand, NEO, also known as the Chinese equivalent of Ethereum, is designed to create a platform for decentralized application with smart contracts similar to Ethereum.
However, with the emergence of fast-growing blockchain and cryptocurrency projects like NEO, Klaytn, and Terra that have a more Asian focus, determining which region has the upper hand in terms of crypto adoption has become complicated.
What Studies Reveal
In recent years, cryptocurrencies have seen their fair share of growth and acceptance across the globe. Statista reports that there are over 50 million blockchain wallets as of the end of June 2020.
However, while most reports show crypto adoption in terms of trading volumes by professional, retail, or institutional traders, Chainalysis recently released a report that goes beyond trading volumes as a metric for measuring crypto adoption.
In their report, Chainalysis emphasized on measuring the rate of crypto adoption by regular everyday users as a metric for determining adoption. After all, long term adoption of cryptocurrencies is predicated on whether cryptocurrencies can be used by everyday users as a tool of value transfer and payment.
With this in mind, the Chainalysis report used a formula that measured the cryptocurrency activity of a particular country while accounting for that country’s population and economic size.
The report highlighted that there is more adoption of crypto in the eastern hemisphere of the globe than the west, with Ukraine, Russia, and China leading the front as western countries such as the US and Columbia appeared in the bottom half of the top ten countries with the most adoption.
In the West
On the surface, one of the most common misconceptions is that crypto adoption is exclusively powered by the west. After all, the US, UK, Germany, and other western countries have crypto-friendly infrastructure that supports adoption. Plus, countries like the US are known for largely spearheading regulation and innovation in the crypto space.
That being said, regulatory uncertainty remains an obstacle even as developers continue to push the limits of the crypto and blockchain space.
Mixed reactions from regulators as governments in the west grow skeptical of cryptocurrencies amidst concerns over the rising use of crypto in illegal activities that have somewhat stagnated crypto adoption in the west.
Earlier this year, US president Donald Trump had a few proposals on his new budget concerning cryptocurrencies. According to the proposal, “technological advancements in recent decades, such as cryptocurrencies and the increasing interconnectedness of the international financial marketplace, have resulted in more complex criminal organizations”.
Overall, Trump maintained his skeptical stance on cryptocurrencies saying “Bitcoin and other cryptocurrencies are not money”.
On the other hand, there seems to be hope for increased adoption in the future given that a recent mandate by the United States Office of the Comptroller of Currency (OCC) granted authority to national banks to provide cryptocurrency custody to customers. Market watchers agree that this move will be a massive step forward for Americans in the crypto space, as banks will have to recognize cryptocurrencies as a valid vehicle for investment.
In the UK, even though no specific laws are restricting the use of cryptocurrencies, digital currencies are not considered legal tender and regulators have issued a tax treatment for cryptocurrencies based on activities and parties involved.
In the East
In the eastern hemisphere, the regulatory landscape is shifting in favor of cryptocurrencies. Even though China has openly declared its “no love” stance for cryptocurrencies, which are presumed to be censorship-resistant, last year saw China embrace blockchain technology.
In 2019, Xi Jinping promised that China would support blockchain research and development declaring the technology “an important breakthrough”.
Jinping’s remarks supercharge China’s already significant blockchain activity that now boasts of over 500 blockchain projects. Even though Xi Jinping’s remarks show support for blockchain and not cryptocurrencies, it is expected that the move will contribute to the education of the masses on crypto and drive awareness.
In Russia, President Vladimir Putin signed into a bill that regulates crypto transactions giving legal status to cryptocurrencies, but restricting their use as a means of payment. The law (which is set to come into force on Jan 1, 2021) explains that digital assets can be bought and sold, exchanged, and pledged however the law prohibits their use as a means of payment. Although some crypto-related terms were excluded from the final bill, regulators told reporters that a more detailed cryptocurrency regulatory bill will soon be introduced.
Another country in the eastern hemisphere that is fast adopting crypto is Ukraine. Despite its unstable political environment, Ukraine boasts of a tech-savvy population that is fertile ground for crypto adoption. Apart from its ranking among the top in terms of crypto adoption based on active users, the country is now passing a law that will categorize crypto as a type of property and legitimize procedures for crypto-related businesses.
Retail Drive and Crypto Friendly Infrastructure
The readiness of a country’s digital infrastructure affects that country’s ability to participate in the crypto adoption arms race. The overall conditions of the country’s digital infrastructure in terms of broadband, cybersecurity, and internet access determines the rate of cryptocurrency adoption by the masses.
According to the World Economic Forum, most western countries lead the pack when it comes to generating economic impact from investments in information and communication technologies.
Another study by Tufts University indicates that western countries like Canada, the US, and the UK have highly advanced digital infrastructures hence explaining their strong drive towards innovation. The Tufts University report also notes that these countries feature a slowing momentum in terms of the adoption of new technological innovations.
Eastern countries like China and Russia that have a low scoring in the state of their digital infrastructure are evolving rapidly and feature a high momentum in regards to the adoption of new technologies.
China’s ambition to become a global leader in terms of digital infrastructure has resulted in its possession of most of the blockchain patents in the world. Even though US firms dominate blockchain innovation, Alibaba (a Chinese based company) holds most of the patents. Also, in recent years, traditional banks in the country have ramped up efforts to create blockchain solutions, as the government moves to standardize and regulate the sector.
In Ukraine, for instance, political instability, the lack of a national stock market, and a relatively small economy have not derailed investors from showing interest in crypto. As it seems, these conditions have catalyzed increasing interest in crypto as malpractices in the country’s banking sector push investors to look towards crypto as an alternative.
Ukraine’s political and economic situation is similar to that of Venezuela and the country’s unstable fiat currency leaves most citizens gravitating towards crypto despite the lack of supporting infrastructure.
The FinTech Arms Race
Cryptocurrencies are not only changing the payment industry, but also leading the FinTech arms race that is ongoing. Bitcoin now ranks as the world’s sixth-largest currency in circulation after a decade since its invention with more cryptocurrencies increasing in popularity and valuation across the globe.
As much as Western countries that heavily invest in digital infrastructure and formulate crypto-regulations have an upper hand, it is the countries with higher use cases of cryptocurrencies that tend to lead in adoption.
Studies now show that most eastern countries lack regulatory clarity and are plagued by political and economic uncertainty, not to mention a lack of adequate digital infrastructure. However, it is these factors that make cryptocurrencies attractive as cryptocurrencies run on decentralized blockchains.
While most market watchers will agree that cryptocurrencies are poised to lead the fintech arms race of the future, it is countries with the highest user cases that are set to lead the front as regulation and infrastructure development catches up.