Bitcoin Set to Boom in Latin America
EspañolBitcoin is no longer insignificant.
Initially derided by most as a gimmick, the current market value of all bitcoins in circulation is an estimated US$10 billion.
On Friday, November 29, 2013, the value of a single bitcoin peaked at $1137. To put this in perspective, one bitcoin could have been purchased a year ago for roughly $13.
Critics argue that the price indicates a bubble, while enthusiasts would suggest that bitcoins are still undervalued even at current rates. Whichever the case, the price subsequently dropped from November’s all-time high, but is currently hovering around $730.
This substantial increase in market valuation stems from interest from both speculators and third parties making use of bitcoin as an innovative, decentralized, and technically secure (thus far) medium of exchange.
Released to the world in 2009 as the mysterious creation of a (presumably) pseudonymous developer, ”Satoshi Nakamoto,” bitcoin initially gained traction from enthusiasts because it managed to successfully resolve a few fundamental issues surrounding cryptocurrencies (digital currencies), including “double-spending” and decentralization. In addition, unlike traditional currencies, bitcoin is deflationary by nature, since theoretically only 21 million bitcoins will ever be created.
Bitcoins (BTC) are currently accepted at a range of establishments, including WordPress.com, OKCupid, over 13,000 restaurants in 3,150 cities listed via Foodler, and as of 2013, there is even a fully functioning Bitcoin ATM in Vancouver, Canada. Coinmap maintains a global database of establishments which accept bitcoins.
Adam Stradling, Founder at Coin4ce.com, which he describes as a Chile-based Bitcoin company supporting customers in Chile and Mexico, notes that while the Bitcoin ecosystem in Latin America is currently lagging behind the United States, he notes that “liquidity is a large piece of the ecosystem, and buying and trading Bitcoins is currently much harder to do in LatAm than in the USA.” Adam says that while there are now thousands of merchants accepting Bitcoins in the United States, there are only a few in Chile.
Tomas Alvarez, CEO of Coincove, opined to InsightSur that, “Bitcoin is thriving in the US due to its novelty factor (lots of willing early adopters), ideological factor (economic freedom, libertarianism, etc), and the investment culture (Wall Street) that heavily permeates this country.” He added that for Latin Americans, “the allure of Bitcoin mainly rests on its potential to protect us from governments that mismanage their economies (often resulting in currency debasement), a situation to which no Latin American is a stranger.”
At the same time, potential users in Latin America face technological and infrastructure barriers. According to an article published by Rachel Glickhouse for Americas Quarterly, only 43 percent of the population of Latin America and the Caribbean are internet users, with Argentina representing the region’s highest internet penetration rate at 68 percent.
In addition to technological and infrastructure barriers in Latin America, internet users in the region face governmental restrictions. According to the 2013 Freedom on the Net ranking by Freedom House, internet in Mexico, Brazil, Ecuador, and Venezuela is only “partially free,” while Cuba received the worst grade possible and was designated “not free.”
Those are not encouraging considerations for a monetary system dependent on technology. Yet, that same political turmoil could be a force that drives further adoption by individuals looking for a secure and easily transferable alternative to the US dollar. The dollar has a history as a popular reserve currency in Latin America, as a hedge against inflation, and is the official currency in more than one Latin-American country. However, it has become more restricted recently, especially in Venezuela and Argentina.
VentureBeat reported that 30 percent of Brazilians surveyed had heard of bitcoin, and only 16 percent of Mexicans had heard of the digital currency. That’s according to a study performed by Jana, a mobile platform connecting brands with emerging market consumers.
Rodrigo Batista, CEO of the Brazilian Mercado Bitcoin, notes that Brazil, Latin America’s largest economy, is unsurprisingly the most mature bitcoin market in Latin America. His exchange currently trades around $5 million in bitcoins every month, but he notes that Brazil still lags the United States for acceptance in physical stores. Rodrigo said he is optimistic that many stores will start accepting bitcoins and other virtual currencies as a payment alternative in Brazil during 2014.
Stradling of Coin4ce.com adds that while challenges in liquidity remain in Latin America, “companies are starting to emerge to connect LatAm to the global ecosystem.”
One area that may drive growth and support of bitcoin in Latin America is its potential for use in remittances. According to a 2011 report by the Multilateral Investment Fund (MIF), emigrants sent $61 billion to the region during the year of the study, with Brazil accounting for $1.9 billion, and Mexico with the lion’s share at $22 billion.
According to that same report, average remittance fees to transfer funds to the region are between 5 and 6 percent of funds transferred. Western Union, one of the largest providers of money wires and fund transfers globally, charges roughly $7 to send $100, according to data compiled by The World Bank, compared to bitcoin fees of between $0.08, and $3 per transaction.
Western Union alone saw over $5 billion in revenue in 2010; roughly half of Bitcoin’s current market cap of $10 billion.
However, if bitcoin grows as a tool for remittances, it is likely to come under increased scrutiny from a myriad of international monetary agencies.
Batista says that Brazilian regulators have not yet started talking publicly about digital currencies. He speculates that the main reason for this is that the Bitcoin market in Brazil is still relatively small.
“I expect that some conversations will start next year, but we don’t foresee any major change in the current status of ‘no regulation at all,’” said Rodrigo.
Michael Nielsen, author of Reinventing Discovery: the New Era of Networked Science, notes that, despite critics who point to bitcoins presence in illicit activities such as Silk Road, bitcoin’s publicly viewable ledger of transactions actually makes it more transparent than cash, and more traceable than many realize. He would be “extremely surprised if the great majority of Bitcoin users are not identified with relatively high confidence and ease in the near future.”
Stradling, told InsightSur that while the general consensus is that the US government is wary of Bitcoin, and will be keeping a close watch on the currency from a regulatory perspective, “they recognize the innovation and potential value in the system and do not want to put clamps on it.” Importantly, Adam notes that while many other countries are also beginning to lay out their own regulatory guidelines, no countries in Latin America have put out any official guidance yet.
The bitcoin network has work to do on infrastructure and education to support further acceptance in Latin America, but it is an emerging technology with extraordinary potential to overcome unique challenges in Latin America, from remittances to protection against erratic monetary policies. As 2014 begins, Latin America may be the region to watch if Bitcoin succeeds.
An earlier version of this article appeared on Insight Sur.
1. $9,800,000,000 was the total number of bitcoins in circulation on 1/1/14 according to Blockchain.info.
2. “Double-spending” is a flaw that allows the same digital token to be spent twice, since there is no physical coin, and digital files can easily be duplicated.
3. Adam noted that next week, “California Cantina” in Providencia, Santiago, will become the first restaurant in Chile and first nightclub in Latin America to accept Bitcoins.