The pros and cons to the establishment of the cryptomarket in Latin America

The linguistic origins of the prefix -crypto date back to the Greek root kryptós, which means “hidden”. Although almost ten thousand kilometers away from Greece, Latin America is a region that has quite the background with secrecy ­– kryptós. From colonial times to populist dictatorships and modern extremist regimes, many Latin Americans were unwillingly kept in the dark and silenced when it came to their own homelands (and wallets).

This forced oblivion was perfectly captured in Eduardo Galeano’s masterpiece Open Veins of Latin America, which began with a statement not unknown to its people: “We have maintained a silence closely resembling stupidity”. In the book, Galeano analyzes the unbalanced power dynamics between Latin America, Europe and the United States over time, especially in terms of the global economy. Such imposed “silence” is attributed to the lasting exploitation, oppression and robbery of Latin America that began when Columbus first stepped foot on the exuberant land in 1492.

In fact, the timeless proclamation that opens the 1971 book was actually coined by a Bolivian revolutionary group a century beforehand, in 1809, during one of the first colonial attempts at independence from European control. Despite the 162 year gap, the silence was still loud.

With this in mind, it can be understood how Latin America’s historically peripheral position in the global economy, combined with its accompanying political instability, have led to its people’s lack of financial autonomy and awareness. Hence, Latin Americans would surely be interested in a monetary system that could serve as an escape valve to crises, inflation, corruption and poverty, while also keeping their state secure and facilitating international transactions – that is, a model that could decrypt decades of secrecy and dependency. As grammatically ironical as it seems, this system may just be based on cryptocurrencies.

The avant-garde benefits of blockchain finance and the cryptocurrency market have paved the way for a recent surge of crypto investments in Latin America. As per 2020, over 6 percent of all mined bitcoins, for instance, were held in the region, and in comparison to the rest of the world, it is currently one of the areas with the most active crypto users.

People were seduced by the possibility of their savings in a safer and verifiable system, the low transaction fees, the scope of trading opportunities, and the overall independence crypto can grant. These qualities are possible due to the decentralized essence of blockchain itself: hundreds of computers all over the world simultaneously make up the system’s network and can spot any new transactions, errors or changes made to the information it stores. Consequently, it is incredibly difficult to tamper with the encrypted data, which makes blockchain an extremely secure and transparent database. Additionally, behind the small fees and thousands of trade possibilities is the users’ autonomy to determine their own transaction conditions, as well as the absence of taxes or general regulations. 

However, with the market still so new and volatile, is cryptocurrency really the way to empower Latin America? Do the people have the necessary conditions to thrive within a crypto economy? Or is this just a momentary tendency that will ultimately lead to more issues?

Ask any of the owners of the over two million crypto trading accounts in Argentina and the answers to those first two questions will most likely be “yes”. After all, the country is well known for having taken shelter from its staggering inflation in cryptocurrencies. Blockchain finance has allowed many Argentines to circumvent the government’s intense financial regulations, trade in pesos for dollars over official exchange rates, and face minor transaction fees through peer-to-peer trading. Outside of the wave of new investors in the country, cryptomining has also increased, since the country proved itself to be an energy haven for miners. Besides the cold Patagonian weather, which allows miners to spend less cooling off computers, current residential energy costs are extremely low due to government subsidies. 

Argentina’s conditions are a wonderful example of how Latin America can offer a prime habitat for cryptocurrencies. Many other countries have been facing difficult economic times and unstable political scenarios as well, situations that only encourage the search for security and autonomy in crypto. A great example of how periods of hardship increase popular demand for these investments is the COVID-19 pandemic; according to a study by LatAm company Sherlock Communications, 75% of respondents across Brazil, Mexico, Argentina and Colombia (four latin countries that hold some of the largest volume of Bitcoin) were more eager to invest in crypto as a direct result of the global health crisis. Latin America’s renewable and cheaper energy generation potential is also particularly attractive to cryptominers, especially when it comes to wind, solar, geothermal and hydropower. After all, electricity makes for around 75 percent of total mining expenses and blockchain maintenance. Potential cheaper energy options would subsequently broaden the area’s natural aptitude to develop strong and competitive crypto-economies. 

Nonetheless, as favorable as crypto use may be to Latin America’s current economic, political and natural conditions, millions of Latin Americans will inevitably end up being left out of the blockchain economy. After all, one of the region’s main contemporary issues is its great inequality of technology distribution. For instance, 32 percent of the Latin American and Caribbean population, which makes up over 244 million people, have no internet access. Given that the two basic prerequisites to work with cryptocurrencies and blockchain are internet access and a device (such as a computer or mobile phone), those 244 million and more would not be able to partake in crypto activities, and the economy would be restricted to those with better access to the necessary equipment. 

Alongside this digital divide, the lack of access to information about crypto and blockchain is still a pressing matter when it comes to trusting the system – many Latin Americans reported they would feel more confident if they could read and understand more about blockchain and crypto. The volatility and instability of the market are also usually pointed out as reasons to avoid investing, since they compromise trust in its benefits.
All things considered, there is no doubt that the crypto market has not yet reached its peak in Latin America, especially because the area has already proved itself to be advantageous to this kind of technology and financial system. Possible consequences could include the strengthening of the regional economy, through significant increase in transaction security, trackability and accessibility. Notwithstanding, the proper establishment of a blockchain economy is still under the menace of the digital divide, the lack of confidence and scarce access to information about crypto. Could these factors turn the cryptomarket into yet another inaccessible system, only deepening the silence historically attributed to the region? All in all, whether cryptocurrencies are truly the best way to empower Latin Americans and overcome their historical peripheralization is still unknown — yet another kryptós aspect of Latin America’s history.

Special thanks to Professor Dr. Luís Fernando Massonetto, from the Department of Economic, Financial and Tax Law at the University of São Paulo Law School, for the input and suggestions on the topic.