While the world is growing as skeptical as it can possibly be of cryptocurrencies including countries like China and the United States (who are either working to shut it down completely or finding ways to curb its freedom) South America has been embracing it at various levels. According to a report published by Statista, the South American countries boast the largest number of cryptocurrency users in the world. But why is this happening? And which countries are getting ahead in adopting crypto? We’ll explore the answers to these questions in this article.
Anon money — anon activity
The most scrutinised use of cryptocurrency — one that also irks the regulators — is that it is a medium of sponsoring anonymous activities. These anonymous activities can vary from people simply transferring money between themselves illegally, or using it to facilitate criminal activities. And this is also one reason why the South American countries have become almost synonymous with crypto. You can get paid in crypto, without anyone having to know about it.
While this can potentially be considered true for the most part, there are other factors that have influenced the wider adoption.
Banking for the unbanked
This is probably one of the most powerful and agreeable reasons for cryptocurrencies being accepted at a much wider scale. The banking services in these countries are already skewed, and with rising inflation (Argentina’s inflation in 2019 was 53.8%) people in these countries are looking for alternative money investments so that it doesn’t lose value. Cryptocurrency is as volatile as it gets, but because it is not controlled by any centralised authority, no one governs its value.
We mustn’t also forget that the barrier for entry in case of cryptocurrencies are too low. You just need an internet-connected device such as a computer or mobile phone. The traditional banking services however have a complicated process, as a consequence of which only just over half of the population has access to those services.
Setting an example for crypto payments — Venezuela
Amid rising inflation, people in Venezuela have started to use Bitcoin as a self-proclaimed “legal” tender. People have now started to charge for payments in crypto, and even some traditional stores have started accepting that as a primary source of payment.
A study conducted by LocalBitcoins, a trading platform, found that in 2019, there were about 1.8K Bitcoin transactions each week.
Even Burger King now accepts payments in crypto in Venezuela.
For most of the South American countries, crypto is functioning as a solution to the major problems that they face especially when it comes to financial services. When almost half of the population in most South American countries are affected by access to banking services, this comes across as great news.
Share of Population with a bank account in Latin America in 2017, Source
While for the most of the world, regulations on cryptocurrency almost feel like a noose tightening around expression of freedom, for South American countries the state is entirely different. Here are some interesting facts that turn the regulators-against-crypto narrative on its head.
- Brazil’s Central Bank considers cryptocurrencies as an asset for the calculation of payments. During 2019, the Internal Revenue Service reported $3.5B in total cryptocurrency transactions for the year. This number has only increased since then.
- Government of Columbia is using blockchain technology to monitor and use various programs, including a school dining program. This step comes amid rising cases of corruption. Since everything is traceable with blockchain, this will be a useful step forward for the country in equal distribution of resources.
Thus, not only do these countries recognise the impact that cryptocurrencies have had in facilitating payments between their residents, but they also understand that this could potentially solve many problems including removing corruption. For the largely unbanked world, blockchain and cryptocurrencies have arrived as a knight in shining armour.
El Salvador sets an example
Especially when it comes to using Bitcoin as legal tender for daily usage. And not only has the suave president of the country, Nayib Bukele, revolutionised how people look at Bitcoin, but he has also increased his country’s reserves by always “buying the dip”. He truly believes in the potential of Bitcoin to change his country.
But, there’s a problem.
Using Crypto as legal tender
While the good news around crypto being adopted in the South American countries is certainly igniting hopes within us, it should be taken with a grain of salt. This is because while cryptocurrencies have, at times, proven to be useful — and some have even said that they are indeed the future — the problem lies in their volatility. The only reason why Bitcoin cannot and should not be used as legal tender is because of its extreme volatility.
If I could buy an apartment in a scrawny suburb yesterday using 5 BTC, that apartment would cost 5.5 BTC today because of the extreme volatility. Also, understanding how crypto works and how, in general, blockchains work is another challenge that these governments should not ignore.
While the people who have been in the industry for quite some time find it very easy to read up and understand the mechanics behind it, for the most part it still is a complex technology.