Digital Currencies and the Syrian Future

Introduction:

The past decade has witnessed a radical transformation in the global financial system with the emergence of digital currencies (Cryptocurrencies), which rely on blockchain technology to achieve decentralization and security. Initially conceived as a revolutionary idea to challenge traditional financial systems, digital currencies have evolved into a global phenomenon that sparks debate between supporters who see them as the future of money and critics who warn of their risks.

On the other hand, after years of conflict and economic deterioration under Assad’s regime, Syria faces significant challenges in rebuilding its economy and achieving stability.

In this context, digital currencies have become a topic of interest as a potential means for economic growth and development. This article explores the reality of using digital currencies in Syria after liberation from Assad, highlighting the advantages and disadvantages of their use and assessing their potential role in halting economic decline.

Origins and Historical Development:

Digital currencies emerged as a response to the global financial crisis of 2008, aiming to eliminate the need for traditional financial intermediaries. In October 2008, a person or group under the name “Satoshi Nakamoto” published a white paper introducing the concept of “Bitcoin,” the first decentralized digital currency.

Bitcoin relied on blockchain technology, an encrypted and immutable digital ledger, to ensure transparency and security.

By 2010, Bitcoin gained traction with its first real-world transaction—purchasing pizza for 10,000 bitcoins.

In the following years, other digital currencies emerged, such as Ethereum in 2015, which introduced the concept of smart contracts. This innovation expanded blockchain applications beyond mere money transfers to sectors like decentralized finance (DeFi).

Current State of Digital Currencies:

Today, the digital currency market includes thousands of different types, with a total market value fluctuating between $1-3 trillion, depending on market volatility. Some of the most notable digital currencies include:

1. Bitcoin, which remains dominant and is considered “digital gold.”
2. Ethereum, which focuses on decentralized applications.
3. Stablecoins like Tether (USDT), which are pegged to the US dollar.

On the institutional level, major companies such as Tesla, Mastercard, and PayPal have started adopting digital currencies as a means of payment or investment.

Meanwhile, countries like El Salvador have introduced Bitcoin as legal tender, while China is working on implementing an official digital currency (CBDC).

On the regulatory front, digital currencies are experiencing varied and evolving regulatory developments.

Main Challenges:

Digital currencies face several challenges that hinder their widespread adoption, the most significant of which are:

1. Regulatory Challenges: The absence of a unified legal framework complicates global transactions. Some countries classify them as financial assets, while others ban them due to their association with illegal activities.
2. Security and Fraud: Trading platforms like Mt. Gox and FTX have suffered breaches or bankruptcies, leading to losses worth billions of dollars.
3. Environmental Impact: Bitcoin mining requires massive energy consumption, equivalent to that of countries like Argentina annually, sparking environmental criticism.
4. Price Volatility: Digital currencies experience sharp fluctuations. For instance, Bitcoin’s value dropped from $69,000 (November 2021) to $16,000 (November 2022).
5. Technical Challenges: Blockchain transaction speeds are limited (e.g., Bitcoin processes 7 transactions per second compared to Visa’s 24,000), hindering scalability.

Advantages and Disadvantages:

Economists agree that the digital currency market is filled with both advantages and disadvantages. The key advantages include:

1. Financial Inclusion: It provides access to financial services for millions of unbanked individuals.
2. Speed and Cost: Instant international transfers with minimal fees compared to traditional transfers.
3. Transparency: Blockchain prevents manipulation of financial records.
4. Innovation: The emergence of new applications like decentralized finance (DeFi) and non-fungible tokens (NFTs).

Disadvantages of Digital Currencies:

The disadvantages of digital currencies are due to:

1. Lack of Legal Protection: There is no guarantee of recovering funds in the event of a breach.
2. Use in Illegal Activities: Such as money laundering due to the ability to remain anonymous.
3. Energy Consumption and Threat to Environmental Sustainability: The high energy usage poses risks to environmental sustainability.
4. Volatility: Making them unsuitable as a store of value or a means of daily payment.

It can be said that digital currencies represent a technological and financial revolution, but they are still in a growth phase governed by technical and regulatory challenges. Their future depends on achieving a balance between innovation and risk management, whether through improving energy efficiency or establishing clear global regulations. While offering opportunities for financial inclusion and innovation, they require informed awareness from investors and governments to avoid setbacks.

The reality of digital currency usage in Syria:

After liberation from the Assad regime, some Syrian groups began turning to digital currencies as a means to avoid inflation and the collapse of the local currency. Some believe that digital currencies can play an important role in achieving financial stability and increasing economic interaction with the outside world. However, this usage faces many legal and economic challenges that require a solution.

The benefits of using digital currencies in Syria are as follows:

1. Mitigating inflation: Digital currencies can provide a means of preserving value compared to the local currency, which is deteriorating due to inflation. Syrians can use digital currencies as a way to trade and store money in a more stable manner.
2. Facilitating financial transfers: Digital currencies offer an easy and fast way to make financial transfers between individuals and businesses, enhancing economic interaction and contributing to increased financial liquidity.
3. Engaging with the global economy: The use of digital currencies can help Syrians engage with the global economy, as these currencies can be used for international transactions easily and at low cost.
4. Financial technology (Fintech): Financial technology based on digital currencies can contribute to the development of financial infrastructure, enhancing innovation and entrepreneurship.

The disadvantages of using digital currencies in Syria are attributed to:

1. Legal and regulatory challenges: Digital currencies face significant legal and regulatory challenges in Syria, where there may be a lack of legal frameworks to govern the use of these currencies and protect consumers.
2. Security and protection from hacking: Users face the risk of hacking and cyber theft, which requires raising security awareness and developing protective mechanisms.
3. Price volatility: Digital currencies are highly volatile in their prices, which increases the risks of using them as a means of trading and storing value.
4. Technological infrastructure: There may be a lack of the necessary technological infrastructure to support widespread use of digital currencies, requiring significant investments in this area.

Conclusion:

Some economists believe that digital currencies can contribute to halting the Syrian economic decline if properly adopted and regulated. Digital currencies can provide a means to mitigate inflation, facilitate financial transfers, and increase interaction with the global economy. However, this requires the adoption of appropriate regulatory policies and strengthening technological infrastructure and security. Digital currencies play a pivotal role in achieving financial stability and economic growth in Syria after liberation from Assad. Despite the significant challenges they face, financial technology and digital currencies can contribute to building a sustainable economy if properly adopted and regulated. It is crucial to enhance education and awareness about these currencies and develop legal frameworks to protect them and maximize their benefits.

We have supported this opinion earlier, as we presented a paper advocating the use of digital currencies in the liberated north, with the paper published on our website titled “Digital Banks: A Solution for Northern Syria” We also provided recommendations we find useful for the post-liberation phase, in addition to the following recommendations from the Economic Office of the Syrian Future Movement:

1. Regulating digital currency use: By creating a legal framework that ensures legal use and encourages investment. International experience in this field can be leveraged.
2. Community and institutional education: By providing training courses on the safe and effective use of digital currencies.
3. Strengthening digital infrastructure: Including the necessary internet and technology to support cryptocurrency mining, with a focus on environmental sustainability.
4. Managing volatility: By issuing a stable local digital currency or using stablecoins linked to physical assets.
5. International cooperation and coordination with global regulatory bodies: To prevent the use of digital currencies for illicit activities.
6. Developing digital security: To protect users from fraud and cyber theft.
7. Enhancing decentralized finance (DeFi): Decentralized finance can be used to provide open and transparent financial services without traditional intermediaries, helping improve access to financial services and reduce costs.
8. Encouraging startups and innovators to use digital currencies in developing new products and services, thus stimulating economic growth.
9. Regulation and oversight: Implementing strict laws and regulations to monitor digital currency use and prevent its exploitation for illegal purposes.
10. Raising awareness of risks: Organizing awareness campaigns for the Syrian people about the risks associated with digital currencies and how to avoid them.
11. Enhancing digital security and protection technologies to prevent hacks and cyberattacks that could impact the Syrian economy.

Digital currencies remain a golden opportunity for Syria to achieve economic stability and a new renaissance, but it requires careful planning and organization to seize this opportunity in a way that minimizes risks and maximizes benefits. Our recommendations emphasize the importance of infrastructure, education, and regulation as essential elements for the success of this transition to a digital economy, which we present to decision-makers. We are ready for any specialized study on this topic and for cooperation toward contributing to halting the economic decline and helping Syria rise to be a leader among economically advanced countries.

Economic Office
Research Team
Research and Studies Department
Studies
Syrian Future Movement

References:

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