It would be interesting to survey the world's largest digital asset holders to get their opinions on who they believe leads the world in cryptocurrency adoption. It is tempting to believe that countries like China and the U.S. would be on the forefront. But that is not the case.

According to the most recent data from the Chainalysis Global Cryptocurrency Adoption Index, three unlikely countries lead the way.¹

Those three countries are Ukraine, Russia, and Venezuela. Of them, Venezuela is the most surprising due to its current cryptocurrency climate and continued faltering economy. The fact that Venezuela's Petro has been a colossal failure only adds to the curiosity.

So now the question is, why? What is it about these three countries that makes them more open to a cryptocurrency economy than others? One possible answer could be in the way Chainalysis measures adoption metrics. But their metrics are not likely to tell the whole story.

Measuring retail activity

It is important to note from the onset that Chainalysis attempts to measure retail activity when ranking cryptocurrency adoption. They are purposely excluding large-scale investment among cryptocurrency whales who have a tendency to move large sums of coin around on a regular basis. It is reasonable to assume that their metrics also account for consumers whose only purpose in holding cryptocurrency is to keep it as a savings vehicle.

Chainalysis essentially measures retail activity by tracking four metrics:

• On-chain value received
• On-chain value transferred
• Number of on-chain deposits
• Peer-to-peer exchange trade volume.

Retail adoption includes things like remittances, retail purchases, online gambling, and the like. However, Chainalysis is not tracking individual payments to see who is paying for what with crypto. It is simply measuring volume. Thus, we have no way of knowing if people are spending their crypto on any one particular product or service.

Again, retail adoption is the key here. The U.S. and China lead the world in terms of sheer transaction volumes. But when you take out casual investors and crypto whales, they fall behind Ukraine, Russia, and Venezuela. For the record, China is fourth in retail transactions while the U.S. is sixth. Kenya comes in at number five.

Crypto in the Ukraine

Ukraine is a surprise because, as Yahoo! Finance's Anna Baydakova and Danny Nelson explained, the country doesn't get a whole lot of attention from the global cryptocurrency community.² It is not as if the industry is targeting Ukraine for development and adoption. Ukraine is attractive only because of its weak economy combined with a tech-heavy culture.

Both consumers and businesses in Ukraine are quick to adopt new technologies. Your average citizen is considered more tech savvy in Ukraine than most parts of Eastern Europe. So right off the top you have a consumer base that is not as suspicious of electronic payments as consumers in other countries.

Another thing Ukraine has in its favor, at least for cryptocurrency adoption, is onerous import and export regulation that makes international commerce difficult. Ukraine has no stock market, either. Combine all of that with a general weak economy and you have a picture of instability.

This could very easily explain why Ukrainian consumers are quick to adopt cryptocurrency. It explains why small businesses turn to crypto as a way to get around regulations designed to control foreign currency. They are joined by larger businesses in using cryptocurrency to facilitate cross-border transactions.

From the consumer's standpoint, cryptocurrency is also safer than fiat stored in the bank. Ukraine banks fail all too frequently and most consumers cannot afford to invest in property. So for saving and investing purposes, they put their money into cryptocurrency.

As a side note, Ukrainian lawmakers have finally legalized gambling after a nearly 11-year ban enacted in 2009.³ It will be interesting to see how many gamblers will prefer cryptocurrency deposits once online operations are fully up and running. Some operators could be ready to go in a matter of weeks.

Crypto in Russia

Like Ukraine, Russian businesses are more frequently turning to cryptocurrencies for cross-border transactions. In that sense, crypto acts almost as a shared currency that makes doing business easier than it otherwise would be when dealing in multiple foreign currencies. Buying and selling with crypto eliminates some of the headaches of dealing with different fiat exchange rates.

Small businesses can also avoid certain key business regulations by not dealing in foreign currencies. That streamlines their efforts and makes their businesses more profitable.

The Chainalysis data does not indicate a whole lot of cryptocurrency investment and saving in Russia. Most of the retail volume is limited to business-to-business transactions and retail investment. Knowing that, they must be moving quite a bit of volume to take the number two slot in Chainalysis' ratings.

Some have suggested that the coronavirus crisis has contributed to cryptocurrency adoption in Russia for the simple fact that Russia's economy has been hit especially hard. The country's economy is driven mainly by energy exports, with mining, forestry, tourism, and IT also contributing quite a bit.

A lack of tourism has undoubtedly impacted the country over the last six months. And with globally less tourism, the demand for energy has also dropped off. This seems to suggest that nervous consumers unsure of a future economic rebound could show more interest in cryptocurrency.

Crypto in Venezuela

Venezuela is the wildcard in all of this. Once boasting the most prosperous economy in South America, Venezuela's fortunes have been turned upside down. The country is now one of the weakest in terms of economic output, income, and individual wealth. Most striking of all is how the Venezuelan government is trying to fix the economy by exercising undue control over currency.

It was only a few years ago that the government announced a national digital currency to replace the bolivar. Knowing the bolivar was useless for both domestic and international payments, the government pinned its hopes on a new digital currency that would essentially reset Venezuela's economy and help them move forward from there.

It didn't work. The Petro, a digital currency so named because it is backed by Venezuela's petroleum assets, never took off. Consumers do not like it. They do not trust or use it, either. So where is all of the crypto activity in Venezuela coming from? Mainly from remittances.

Cryptos like BTC and LTC are sent to Venezuelan citizens from relatives and friends living in other countries. For example, a family member may leave Venezuela and move to Argentina where jobs are more plentiful and the pay is better. That person will work in Argentina and send his or her income back to Venezuela to support the rest of the family.

Smart expats are sending that money home with crypto remittances. Recipients can then sell their crypto for U.S. dollars or other acceptable fiats they can use to pay their bills. A small amount of crypto might even be kept aside for retail purchases.

The one thing that makes Venezuela unique among world leaders is that there, cryptocurrency truly is a fiat replacement. Venezuela's national currency literally has no value. It is pointless to have bolivars or petros because they have such little purchasing power. Crypto is a better option because it can be received through remittances that are not subject to the same types of regulations as fiat.

Weak economics a common theme

Stepping back and looking at the Chainalysis data reveals that Ukraine and Venezuela have something in common: their economies are not doing well. Russia is doing better but sanctions weaken its future prospects. Furthermore, consumer confidence in those economies is low. Consumers simply do not trust their national economics or fiat currencies. They turn to cryptocurrency to protect themselves financially.

This could explain why retail crypto adoption in China and the U.S. lags behind. The two countries boast the world's largest and most powerful economies. Consumer confidence is higher among Chinese and American citizens, thus they see no need to protect themselves against economic collapse.

Where economies are strong and fiat currencies are relatively stable, there is not a whole lot of incentive for consumers to adopt cryptocurrency as a retail payment system. Other than online gambling and sheer novelty, your average citizen on the street has no compelling reason to put money into crypto with the knowledge that volatility could ruin it all anyway.

On the other hand, cryptocurrency is extremely attractive where consumer confidence is low. It makes perfect sense. If you did not trust that your national fiat would have any purchasing power six months from now, wouldn't you attempt to convert what little wealth you did have into something more reliable?

The Chainalysis ratings show what very few other analyses bother to track: retail interest in cryptocurrency. While most of the rest of the world views cryptocurrency through the lens of either large-scale investing or decentralized finance, Chainalysis is interested in consumer adoption.

We need more data like this. We need to know more about how consumers view cryptocurrencies so that steps can be taken to improve retail adoption. Without such adoption on a large scale, cryptocurrency will forever remain a risky investment. That is not what it was intended to be.

1) The 2020 Global Crypto Adoption Index: Cryptocurrency is a Global Phenomenon

2) Ukraine Leads Global Crypto Adoption, Chainalysis Says in New Report

3) Ukraine: Gambling (re-)legalised