BLOCKCHAIN IN LATIN AMERICA

Over the last few years, cryptocurrency has witnessed a consistent and massive rise. Many countries, including Latin Americans, have turned to virtual money as a safer and more profitable option following the fall in government-regulated currencies. Between 2019 and 2021, the use of cryptocurrencies in Latin America rose by 1,370%; about the same time, El Salvador approved bitcoin as an official legal tender, becoming the first country to do so.

The swift developments in crypto and digital assets have sparked startups in the region. Last year, the value of crypto firms in Latin America increased about tenfold from $68 million to $650 million. However, due to their volatility and the potential for criminal use, caution abounds over the proliferation of digital assets. For instance, the current crypto dip is being felt greatly by some countries in Latin America; El Salvador has reportedly lost almost $40 million with crypto since the September 2021 adoption. 

Overview of Blockchain in Some Latin American Countries 

Argentina 

Due to the instability of peso, the basic monetary unit of several Latin American countries, which is experiencing year-over-year inflation of over 55%, there is a need for an alternative. Cryptocurrency, providing better chances, appeals to the Argentines who have once been looking to keep their assets in dollars or euros. In 2021, the crypto flow in Argentina reached $103 billion; there was a 340% rise in the number of companies paying their employees partly in crypto thereby making Argentina the country with the highest percentage of crypto-paid workers.

As crypto grows in popularity, the mining process becomes more expensive; local governments have raised energy taxes as mining is highly energy-consuming. The country is also hesitating on introducing major cryptocurrency regulations as the central bank expresses concerns about crypto's vulnerabilities. 

Brazil

Brazil, being Latin America’s largest economy, is its largest crypto market, valued at $27.6 billion per year as of April 2022.  The first cryptocurrency unicorn in Latin America, Mercado Bitcoin, is based in Brazil and its valuation increased to over $2 billion in 2021. According to the 2022 Global State of Crypto Report Brazil, followed by Venezuela, has the highest percentage of its population owning crypto in Latin America.

Source: Newday Crypto

Brazil’s Congress is planning to develop a regulatory framework.  The Brazilian Senate, on April 26, passed a bill that governs virtual assets. The bill comprises provisions that both define virtual assets and create rules for day-to-day usage. It also puts in place penalties for fraud. 

Cuba

Although Cuba only recently introduced mobile internet, about 100,000 citizens use some form of cryptocurrency. Compared to the 11 million citizens in the country, this is not so high, however, it is a rapid development. 

Virtual currencies are popular in Cuba for remittance payments. In November 2020, then-U.S. President banned the use of Western Union, which was the main company facilitating remittances to Cuba. A few months ago, specifically in April, after having allowed crypto for personal use in 2021, Cuba’s central bank approved licensing of some cryptocurrency service providers.

Due to cryptocurrency’s anonymity and independence from national or multinational oversight, U.S. restrictions could be boycotted. Venezuelans and Nicaraguans have likewise enlisted cryptocurrency to circumvent sanctions.

El Salvador

El Salvador is the first country to adopt Bitcoin as an official legal tender. President Nayib Bukele framed his country as a pioneer and launched a state-sponsored crypto wallet, a utopic Bitcoin city, and volcano-powered crypto mines. President Bukele hoped citizens and businesses would adopt Bitcoin for everyday transactions and remittance payments. Meanwhile, rating agencies and the IMF warned against the adoption of Bitcoin due to its instability and vulnerability to financial crimes.

The recent Bitcoin crash has added to losses totalling $40 million, exceeding the $38 million El Salvador has to pay to bondholders in June. Crypto adoption by businesses runs low and technical barriers to its usage increases. In an attempt to stabilize the price of Bitcoin, President Bukele has dipped into state coffers,  buying over $105 million of the currency. 

Panama

A bill regulating eight cryptocurrencies was recently passed in Congress. The cryptocurrencies involved are Algorand, Bitcoin, Elrond, Ethereum, IOTA, Litecoin, XRP Stellar, and XDC Network. This would permit Panamanians to use any of these currencies in private businesses and for civil matters.

There are worries that crypto could be used for money laundering as Illegal financial activity is a problem Panama has struggled with in the past. Panamanian lawmakers however have assured that crypto will be regulated and overseen by a watchdog and that transactions will be subject to the country’s existing laws on financial transparency.

Blockchain Transforming Remittance in Latin America 

According to data from Americas Market Intelligence (AMI), the volume of remittances received in Latin America rose to 126 billion dollars in 2021, more than twice the amount it was a decade earlier. Sending money across borders, unfortunately, has very high fees in the market with Brazil topping the chart, having an average fee of 7% per transaction. Peru, Dominican Republic, and Colombia closely follow. Digitalization among remittances industry players, however, has been reported to be helpful, as it would open the door to blockchain technology, allowing money to be sent with zero fees. This mechanism would be of benefit to a poorly banked and more digital population.

Source: Americas Market Intelligence 

Although traditional banking has improved the traceability of its transactions, the mechanism is still expensive due to the need for interbank arrangements. Brokerage is usually excessive, particularly for those currencies that are not often exchanged. It is difficult for many traditional players to achieve optimized costs and rapidity at the same time. However,  blockchain, striking out the need for any intermediaries, allows for a single point of exchange, thereby making possible a cheap, easy, and fast transaction. 

At the beginning of this year, about 76% of consumers in Latin America had a smartphone, as against 69% that had a bank account. This shows a possibility of consumers skipping conventional banking and adopting a cryptocurrency wallet as it provides relatively better services.

Asides from the highly volatile cryptocurrencies like Bitcoin and Ethereum,  blockchain offers low-risk stablecoins (examples are USDC and USDT) that are bolstered by fiduciary currency such as the US dollar. These stablecoins or stable cryptocurrencies are alternatives that could evade the skepticism of investors or users of remittance.

Conclusion 

The swift developments in crypto and digital assets have sparked startups in Latin America. The region is at the forefront in its use of cryptocurrencies; however, more is yet to be known about how vast cryptocurrencies have taken over Latin America.