The growth of bitcoin adoption in Ukraine provides a model for other countries where many people are looking for reliable stores of value.
Financial stability and economic freedom
This article describes the failure of central planning and government interventions in developing countries from the perspective of the Austrian school of economics. Many institutional and financial problems prevent ordinary citizens from achieving financial stability and economic freedom.
The example of Ukraine is used to demonstrate the positive transformation that can be achieved through the growing adoption of bitcoin. Relevant implications for personal finance, retirement pensions, capital accumulation, economic independence, and blockchain education are outlined below. This article explains the possibilities of reaching a compromise on the use of bitcoin among members of the public and private sector to radically transform the economy of Ukraine. The potential for promoting further positive change in Eastern Europe and the Commonwealth of Independent States (CIS) region is also specified.
The Austrian economy and the struggle of developing countries
According to austrian school of economics, capital accumulation and investment are fundamental prerequisites for sustainable economic growth.
All other things being equal, lower time preferences contribute to more complex production cycles and higher long-term output. However, most developing countries suffer from a lack of savings and investments. Furthermore, a high degree of socio-economic uncertainty and low financial stability lead to relatively high time preferences and insufficient capital formation.
Existing intergovernmental programs and International Monetary Fund (IMF) programs do not address the root causes of economic problems, which prevents these countries from realizing their socio-economic potential.
The rapid adoption of bitcoin by people in developing countries offers a unique, decentralized solution to most existing problems.
Ukraine as an example of using bitcoin
The case of Ukraine effectively illustrates both the problems associated with traditional economic policy solutions and the potential benefits associated with bitcoin. The predominance of the fiduciary paper system and centralized management has created the following problems in the country:
The average inflation rate in Ukraine over the past ten years is 11.2% per year. This high inflation has a negative impact on savings and long-term investments in strategic projects.
According to the index of economic freedom 2021, the Ukrainian economy is characterized by a predominant lack of freedom, with the lowest indices of investment and financial freedom. Under conditions of an underdeveloped stock market and an unstable banking system, ordinary citizens have few opportunities to effectively invest their funds.
The large-scale crisis of the post-Soviet “solidarity pension system”, intensified by demographic problems, has meant that 80% of single pensioners live below the poverty line. Prime Minister Denys Chmyhal has warned of the risks of the government’s inability to pay retirement pensions for 15 years. Such a situation directly affects both current retirees and all employees.
Ukraine’s Growing Bitcoin Adoption May Offer Unique Opportunities
While the inefficiency of traditional, centralized approaches is widely recognized, even by government officials, the growing adoption of bitcoin in Ukraine could provide unique opportunities for ordinary citizens and innovative start-ups:
Bitcoin helps achieve a deflationary economic environment for its owners. Since its creation in 2009, bitcoin has appreciated around 17,000% against the Ukrainian national currency, the hryvnia. Thus, each person has the opportunity not only to protect their savings from inflation, but also to enjoy a considerable appreciation of the funds invested in the years to come.
The decentralized nature of bitcoin makes it accessible to everyone around the world, although some governments impose restrictions in this area. However, most authorities, including the Ukrainian government, recognize the emergence of a new economic reality and have legalized bitcoin. This is the reason why, even despite the regulatory problems posed by the opening of markets in the country, Ukrainians can integrate effectively into the global financial and innovative system.
Start-ups can effectively present their innovations to foreign partners and strategic investors. Blockchain technologies contribute to the growing demand for new network-based projects peer to peer and crypto keys. Thus, capital accumulation rates can increase proportionally with positive effects for different sectors of the Ukrainian economy.
Bitcoin also creates additional opportunities to minimize the prevalence of corruption and government inefficiencies of various types. According to recent statements, Ukrainian officials own around 46,351 bitcoins, which means they recognize the unique advantages of bitcoin as a store of value and a decentralized blockchain system. The increasingly evident consensus on bitcoin among members of the public and private sector is crucial to transforming Ukraine into a more open society with the recognition of fundamental economic rights for all citizens.
Current wage earners can invest their funds in bitcoin to accumulate sufficient savings that will allow them to increase the purchasing power of their long-term assets, regardless of progress in implementing government reforms. The most important aspect is that each person becomes capable of ensuring their own financial stability independently and effectively, rather than remaining a passive object of government policies.
Bitcoin is having a huge impact on the intellectual climate in Ukraine, creating increased demand for qualitative analysis of cryptocurrencies. Bitcoin Magazine recently put together a information office in Ukraine, which could provide advice on bitcoin adoption in Eastern Europe and the CIS region. Bitcoin Magazine Managing Director David Bailey highlighted the important role of developing countries such as El Salvador and Ukraine in determining the future of the currency.
The above assessment shows that developing countries have the most urgent need to utilize the unique financial and technological opportunities associated with resident adoption of bitcoin. The case of Ukraine proves that the regulatory, institutional and intellectual environment can be rapidly transformed by innovative and decentralized solutions. Higher rates of innovation and capital accumulation can contribute to the growth of national and global sustainability with primary priority given to the economic freedom of each person.
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