Latin America’s Blockchain Revolution

Cryptocurrency is fueling LatAm’s economic boom

Decentralization, blockchain and cryptocurrencies have taken the financial world by storm. The biggest value proposition of blockchain technology lies within the distributed and immutable system of record, which stands to add a lot of value to industries and markets across the board.

But, it’s emerging markets like Latin America, where there’s government instability, corruption, and little participation in digital and financial markets, that will gain the most.

While developed nations struggle to regulate cryptocurrency trading, emerging markets have been steadfast in adopting new payment systems, banking solutions and other fintech innovations. There, bitcoin and cryptocurrencies have been met with the same optimism from the tech-savvy middle class and the underbanked and data-deprived working class.

In 2017, LatAm bitcoin holders realized jaw-dropping gains against the national currencies of Venezuela, Brazil, Mexico and Argentina. And, the bitcoin fever in emerging markets like LatAm is just warming up: bitValor saw bitcoin exchange trades in Brazil surged 322 percent last year. This follows in the footsteps of a Mexican exchange that saw its trading volume grow 600 percent during bitcoin’s rally to $450 in 2015.

According to Bloomberg, wealthy families in LatAm began buying bitcoin a few years ago as a way of “protecting their savings from rising consumer prices and currency controls.” For the working class, bitcoin became an alternative to traditional banking and payment systems like credit cards and bank accounts.

In Argentina, for example, bitcoin top-ups for debit cards and e-wallets enable consumers to make every day purchases and is a easier, faster and cheaper way to send and receive money from anywhere in the world.

With LatAm feverishly growing and sprinting toward the major players in the global economy, here are five benefits that other emerging markets can also realize from the disruptive power of blockchain technology:

1. Financial Inclusion

Latin America has historically been severely underbanked and, as a result, most of its citizens — not just the poor — cannot access basic financial services, such as secured consumer lending, digital payments, money transfers, and individual investing.

These problems stem from the painful bureaucracy often associated with opening bank accounts in Latin America and lack of public trust in financial institutions. However, anybody with access to the internet can hold a crypto wallet and participate in the plethora of digital financial services being developed. From consumer loans, to ICO participation, to safe and instant transfer of value between two parties, blockchain is bringing Latin Americans to the new age of finance.

2. Circumventing Censorship

Crypto’s first true minute of fame was when bitcoin became known as the currency of choice for anonymized transactions, or, was being used to circumvent censorship and political sanctions.

In Latin America, inefficient economic policy and political instability have created an increased demand for alternative solutions. One example is the currency exchange market in Argentina where consumers are required go through an inefficient exchange process that often does not allow them to trade at market prices.

This is largely circumvented by illegal exchanges that happen in person, where the impracticality is highlighted by the fact that larger dollar denominations are usually worth more, dollar-for-dollar, than smaller bills (because it’s easier to discreetly move cash when there is less paper involved). Already, there has been an explosion of online currency exchanges that provides a more liquid market with less of the potential risks of a face-to-face interaction.

Last year, our co-founder met with a Venezuelan businessman in Bogotá, who told him that when he gets paid Bolivares (local Fiat) in Venezuela, he immediately buys bitcoin from a community miners at a discount, and sends the money out of Venezuela. He also mentioned that bitcoin and Ethereum mining have been growing in popularity in Venezuela, due to cheap energy cost.

3. Transparency

By definition, a decentralized ledger is unchangeable and also available to anybody with access to the network. This means that any sort of system moved onto blockchain can be audited to see exactly which transactions have taken place.

In Latin America, transparency can be beneficial in two crucial ways: citizens auditing government, and government auditing citizens. If government transactions can take place on a blockchain, it could be reconciled by anybody to ensure that government funds are not being misappropriated.

4. Record-keeping and asset tracking

One of the perks of the decentralized and immutable nature of blockchain technology is that the ledger is unaffected by regime changes. This means that a change in government, no matter how drastic, can not erase or change records. In a region that sees lots of power shifts and regime changes, having asset ownership recorded on a blockchain serves citizens as insurance that they will not lose their possessions as a result of political upheaval.

For example, uncertainty over true land ownership is a problem worldwide, but stands out even more in Latin America where corruption, bad record-keeping, and land seizures caused by political instability make it hard to track down fraud and illegitimate land sales.

This problem not only increases the risk in real estate investment, but also makes it harder to access financial services such as taking out loans against one’s property.

5. Voting

Fair elections are an issue the region has faced for many years, whether it be tossed-out votes, bad counting or reporting, or difficulty allowing citizens to vote safely and conveniently. Blockchain-based voting systems were one of the earliest disruptive ideas for the new technology and are being developed at a fast pace worldwide.

Furthermore, in times of crisis, when governments and banks reach an abrupt halt, crypto has proven to be a life-saving technology. In places like Venezuela where hyperinflation made it almost impossible to buy food and basic necessities, its citizens turned to bitcoin.

Blockchain technology will replace every existing infrastructure that proves to be inefficient, underdeveloped, unstable or distrusted by consumers. It’s already happening in Latin America, Africa and South East Asia.

by Zev Bimstein, Growth and Strategy for Siglo