Why are South American countries more open to adopting crypto payments?
The economic prospects in South America in 2016 were significantly grim. While political instability plagued the nation, a steep slump in oil and other commodities, businesses facing depression, and Venezuela’s economic collapse contributed to the region’s plummeting economy.
In addition, the crash of the Chinese stock market severely impacted South American countries as China was the number one commercial partner for most of the countries in the region. Thankfully, South America has come a long way since 2016. Many South American countries have turned to bitcoin as legal tender, with El Salvador leading the way.
If you have been following the news, you must be aware that digital currencies and blockchain technology are on a meteoric rise in Latin American countries. The region’s rapid adoption of bitcoin stems from innovation and efforts to combat corruption while boosting the economy and promoting public policy.
Today’s blog will discuss why South American countries are more open to adopting crypto payments.
The Rising Popularity of Cryptocurrency in South America
In 2015, the adoption of cryptocurrency in South America broke records. The most momentous growth was noted by the crypto payment processor, BitPay, as they reported an almost 510 percent gain in merchant transactions. Brazil’s cryptocurrency ecosystem also showed that exchange trades had surged by 322 percent as Bitcoin wallet’s adoption grew by 41.6 percent. Exchange trading in Mexico also showed a breakneck rise of 600 percent.
Therefore, 2015 kickstarted the era of digital currencies in South America. El Salvador made history in September 2021 when it became the first-ever country in the world to accept Bitcoin as legal tender, alongside its national currency, the American dollar.
El Salvador’s move was unprecedented and historic, and it paved the way for other South American countries to adopt cryptocurrency. Crypto experts have regarded that Latin America is becoming the world’s role model in how digital currencies will permeate people’s lives in the future.
However, it is important to understand why crypto adoption began in South America and not anywhere else.
Why Are South American Countries More Open To Adopting Crypto Payments?
There are many reasons why South America is the ideal region for the institutional adoption of digital currencies. Many of these reasons are rooted in the region’s unstable political and economic history and the increasing need for financial inclusion.
Here are some of the reasons why crypto payments are becoming popular in South American countries:
The most common reason behind South America’s eagerness to adopt crypto lies in need for financial inclusion and the promotion of financial stability. According to a study conducted by Statista, the South American region is home to the world’s largest number of cryptocurrency users.
Countries like Brazil, Argentina, Mexico, Chile, and Colombia are among the top 10 cryptocurrency counties, while developed countries like the United States, Australia, and France are far behind. This is primarily because South America was wracked by financial chaos in the past.
The number of unbanked citizens in South American countries is significant. In Brazil, in May 2021, there were more than 16.3 million unbanked citizens. Since these people do not have bank accounts, they are also denied access to financial services such as taking out loans, making instant transactions, investing and trading, etc.
Increase in online banking
The COVID-19 pandemic dramatically changed the way the world conducts business. One of the effects of the pandemic was the rise in online banking and the emphasis on cashless e-payments. This motivated many unbanked citizens to open accounts on Fintech platforms. The banked population in South American countries rose by 13 percent in Mexico and 26 percent in Colombia. These figures indicate the rising rage of online banking and interest in digital currencies such as Bitcoin.
Images from Unsplash
Remittances are most common in South American countries, and they also provide the perfect excuse for the adoption of cryptocurrency and a secure method to send remittances. In the past few years, migrants from the Caribbean and Latin American countries have been sending remittances to their families back home using digital currencies.
Fintech startups like LaPlataForma of Chile allow migrants to transfer funds to friends and family in Latin America through blockchain technology. Colombian firm Valiu has created a similar blockchain-powered system that allows the instant transfer to remittances in less than an hour and without the threat of theft.
Remittances are a significant contributor to South America’s GDP. In 2021, these transfers accounted for more than 20 percent of El Salvador and Honduras GDP and almost 11 percent of Mexico’s. However, remittances often involve high commissions, and this problem has been solved by cryptocurrency’s minimal transaction fees and faster transaction rates.
Most South American countries have suffered from political instability, and inflation rates have plummeted among unemployment and falling reserves. This is especially true of Venezuela and Argentina, which have witnessed inflation rates as high as 1575 percent and 69.5 percent.
Although digital currencies can be volatile, they are much more stable when compared to the native South American currencies. While these native currencies have seen inflation, the value of Bitcoin and Ether have dramatically increased despite the volatility. This makes digital currencies a promising investment in these regions.
The growing confidence of citizens in digital currencies stems from the fact that crypto is safer than fiat coins. Since digital currencies are decentralized and don’t operate on the government or any third-party’s authority, citizens can trust crypto.
With the adoption of cryptocurrency, South American citizens don’t have to trust their centralized agencies, which have records of corruption. Instead, they can take advantage of the transparent nature of blockchain technology and reap the benefits of digital currencies.
These were some of the reasons behind the popularity of Bitcoin in Latin America. It must also be noted that the active participation of the government in the market’s regulation and promotion has helped normalize the cryptocurrency industry. Most of these governments are keen on adopting Bitcoin as legal tender and promoting blockchain technology.