With 5.0% growth in 2017, and a projection of 4.5% for 2018, Georgia should take full advantage of new digital technologies to innovate and improve its services, says a new World Bank report titled Cryptocurrencies and Blockchain: Europe and Central Asia Economic Update.
Blockchain technologies are widespread in Georgia, thanks to a highly supportive environment for technological innovation and the mining of cryptocurrencies. The world’s third largest miner of cryptocurrencies, Georgia is home to one of the largest mining companies in the world, and surveys indicate that up to 5% of households in the country are engaged in cryptocurrency mining or investment.
“While many countries in Europe and Central Asia are experimenting with blockchain technologies, Georgia is at the forefront in mining of cryptocurrencies,” said Hans Timmer, World Bank Chief Economist for Europe and Central Asia, at the report launch in Tbilisi. “Georgia’s prevalent use of cryptocurrencies is driven largely by tax exemptions and low electricity prices. Going forward, therefore, it will be important for the government to ensure financial oversight, protection of consumers, and tax administration.”
The mining of cryptocurrencies has had a major impact on electricity consumption in Georgia, turning the country from a net exporter to a net importer of electricity. Estimates of the share of Georgia’s electricity demand devoted to cryptocurrency mining range from 10 to 15%. Per capita electricity consumption in Georgia in 2016 was almost three times higher than in countries with similar levels of per capita income.
A multi-billion-dollar industry today, cryptocurrencies continue to evoke widely divergent views, says the report. The extreme volatility of cryptocurrency values raises doubt about their viability as an alternative to legal tender, while the increasingly high electricity costs associated with mining cryptocurrencies are cause for concern.
The underlying blockchain technology, however, is being adopted more broadly, with several governments in the region already experimenting with blockchains to digitize and streamline public services, in order to make them more secure, transparent, and efficient.
“Blockchain technologies are putting competitive pressure on private financial sectors, while also triggering creative ideas and approaches within governments,” added Mr. Timmer. “At the same time, they have introduced a range of policy challenges for countries.”
Some of the key challenges include ensuring financial oversight and combatting money laundering, tax evasion and illicit transactions. In addition, governments need to address the massive use of electricity involved in the mining of cryptocurrencies, while determining how much they should support start-up companies that specialize in blockchain technologies.
The report finds that economic growth has been strong in Europe and Central Asia, the fastest growth in a decade. However, reduced unemployment and rising inflation indicate that growth in the region will likely decelerate going forward anyway.