Latin America is fast becoming the world’s model for how cryptocurrency will permeate the daily lives of citizens in years to come. All heads have turned towards El Salvador –– as they will toward any country that adopts a cryptocurrency as legal tender –– to see how its economy and the quality of life of its citizens will be affected by it. What happens there will influence how other countries decide to proceed with regard to crypto.
Latin America is the ideal region for Bitcoin adoption for a multitude of reasons, many of which revolve around increasing financial inclusion for citizens and promoting financial stability.
For example, remittances are very common in Latin American countries, and they provide a perfect use case for cryptocurrency. In the beginning of 2021, these international transfers accounted for 20% of El Salvador's and Honduras’s GDPs and 11% of Mexico’s. But while they contribute a significant portion to Latin American nations’ GDP, remittances also involve high commissions (on average around 10% of the remittance amount) and long wait times (on average 2.4 days from the U.S. to other countries). Individuals who have left their home countries with the goal of sending money to their families back home are forced to pay debilitatingly high transfer fees only to have their families wait days or weeks to receive the funds. Bitcoin and other cryptocurrencies offer the ideal solution: Individuals can send money back to their families much more quickly and with minimal transaction fees.
Likewise, many Latin American countries also have volatile currencies, due to high inflation rates and political factors. This is the case for Venezuela and Argentina, which have seen rates as high as 1,575% and 69.5%, respectively. Even though cryptocurrencies are considered volatile, they remain more stable alternatives to some Latin American currencies. Indeed, while the latter have experienced hyperinflation, Bitcoin and Ether have dramatically increased in value despite their volatility. This appreciation adds to the case for implementing these currencies in countries experiencing inflation with regard to their own native currency.
Another reason Latin Americans feel crypto is safer than their fiat currencies is that it is decentralized and does not depend upon government-controlled institutions, banks or other third parties. With cryptocurrencies, Latin American citizens do not need to place trust in their governments, in which they often place very little trust, or third-party entities that may act in their own self interest. Instead, they can take advantage of the trustless nature of the blockchain.
Finally, possibly the most common argument for Latin American countries to adopt cryptocurrencies as legal tender is based on the number of Latin American unbanked citizens. In Brazil alone in May 2021, there were over 16.3 million unbanked citizens. Because so many Latin American citizens find themselves without bank accounts, they lack access to important financial services, such as the ability to take out loans, build wealth, earn interest and save money securely.
One result of the Covid-19 pandemic in Latin America has been a dramatic increase in online banking participation. The new emphasis on e-payments pushed many unbanked citizens to open accounts at banks or on fintech platforms. For example, the banked population grew by 26% in Colombia and 13% in Mexico. While these impressive figures indicate that Latin American countries are moving towards increased financial inclusion for their citizens, crypto has the potential to close the gap that still remains.
Bitcoin in particular is very attractive to Latin American countries because it is the oldest cryptocurrency and the most widely adopted as a store of value and means of exchange. In this respect it is akin to gold. Other cryptocurrencies don’t have the history or security Bitcoin has achieved. Even Ethereum, the second largest cryptocurrency by market capitalization, doesn’t have the universal appeal that Bitcoin does. Though it offers significant benefits as a platform for the decentralized applications that will form the basis for Web3, Ethereum does not offer the same simple solution that Bitcoin does for payments and saving. For countries looking to adopt a cryptocurrency as legal tender, Bitcoin offers a more ready and reliable solution than anything else that currently exists.
Bitcoin has a maximum supply of 21 million coins, which appeals to people who fear inflation in traditional sovereign-issued currencies. Its reputation as “sound money” with a hard supply limit is the antithesis of some fiat currencies whose value has been imperiled by the monetary and fiscal policies of the countries that issued them. Bitcoin also compares favorably on this score to other cryptocurrencies, such as Ether, which don't have its hard cap on supply.
El Salvador was the first country to implement wholesale adoption of crypto with its acceptance of Bitcoin as legal tender, but it won’t be the last by any means, and there are many things we expect to see from others in the region. Other countries will slowly begin enacting similar legislation, especially now that Bitcoin has stood the test of time. Already, Paraguay, Argentina, Panama and Cuba have started considering adopting cryptocurrencies as official legal tender.
As more countries move toward crypto, there will be increased focus on creating the infrastructure and services to support these decisions. More hackathons such as the ones hosted at Labitconf and the Bitcoin Bankathon will be organized to fuel innovation in the region, allowing for a more seamless transition to Bitcoin adoption and widespread usage. These new applications will also promote financial inclusivity as they provide a new array of services to the unbanked and banked alike.
New opportunities will arise for merchants who accept Bitcoin as payment for their goods and may open them up to more customers than before, especially those who embrace Bitcoin and who previously did not have access to the goods and services they offered. Transactions will also be more secure and verifiable, an added benefit to merchants and customers alike.
Additionally, Bitcoin adoption will likely empower women to be more in control of their finances and feel confident in making financial decisions. This becomes true as developers find creative ways to educate women on financial matters and provide them with access to funds through dApps targeted towards them. Already, women around the world have felt more empowered and financially independent, thanks to crypto. The possibilities that Bitcoin or crypto adoption could engender for women and any disadvantaged groups are endless.
Bitcoin and decentralized finance (DeFi) will open up a new array of services to Latin American citizens, not only in their respective countries, but also in the entire world. Many of the people who are going to transition to using Bitcoin to send and receive payments previously relied on cash and did not have bank accounts, meaning they were unable to take advantage of the global connectivity we have come to enjoy. Individuals who were once unable to purchase goods and services existing in other countries will soon be able to thanks to cryptocurrency adoption in the region. In an increasingly global world, it is crucial to have systems that work across borders, which Bitcoin does. The world will soon realize the positive economic impact Bitcoin and other cryptocurrencies have and implement them into their existing financial systems.
In fact, last week I visited El Salvador for the world’s first state-sponsored Bitcoin Bankathon. I was able to buy just about everything with Bitcoin. At El Zonte (Bitcoin Beach), I bought plantains from a cart vendor — using my mobile phone! In San Salvador, I sent Bitcoin to an ATM at the mall and immediately received the equivalent amount in U.S. Dollars. I can’t do any of these things yet in the U.S.
Everyone should have access to financial tools, irrespective of origin, class or bank status. Bitcoin will allow for a greater democratization of finance in Latin America and empower individuals to make important financial decisions in ways they haven’t been able to before. Latin America is the first region to take the step towards mainstream adoption, and El Salvador has led the way, but soon other countries will follow suit in order to provide their citizens with the same global and financial connectivity and resources.