6/7/2022 - Technology and Innovation

Uses and uses of cryptocurrencies in Latin America

By Horacio Gustavo Ammaturo

Uses and uses of cryptocurrencies in Latin America

Jean-Baptiste Lamarck was a French naturalist of the late 18th century and early 19th, who among other fundamental contributions to modern biology raised the concept of “the function makes the organ”, in relation to development in the organs of living beings is in relation to their need for use.

The same way that happens with the physical organs occurs with the financial instruments.

Days ago we learned a report on the increase in the use of cryptocurrencies in countries such as Argentina and Venezuela, places where legislation and regulatory frameworks are far from encouraging the employment of digital assets, while in El Salvador, a country that adopted Bitcoin as a legal course currency, the government effort did not give the expected results in relation to the massive and generalized use that was expected.

The simple view seems to be that people go contrary to what governments propose, but if we analyze each case we will see how Lamarck's theory is confirmed in both cases.

Argentina and Venezuela are countries whose economies coincide among others, with these unfortunate characteristics:

  • High inflation rates over long periods of time, which destroyed the trust of its citizens in sovereign currencies (weights and bolivia).
  • Different exchange rates against other currencies, in general against the US dollar that distort the relative prices of things within the same market.
  • Restrictions on exchange transfers and turns, precisely because access to foreign currency within the formal system is hampered by the low supply of “cheap dollars”.
  • Enormous fiscal pressure that uses formal banking and financial systems as collection nodes.
This combination of unsustainable policies in time forced people to perceive weights or hails to quickly circulate their money, because if they keep it they lose purchasing power.

According to the income level of each, Argentine and Venezuelan, they are deprived of their sovereign currencies, those of lower incomes acquiring mass and non-perishable consumer goods, those of greater possibilities “eating their soft currency in hard currency”.

What is hard currency?

Anything whose value can be represented in US dollars in a stable and sustained manner, or at least it serves as a ramp to exit an economy whose monetary base collapses daily.

This is where cryptocurrencies come in.

Currently there are two profiles of digital asset purchasers, on the one hand the speculators, who, like a casino player or an investor in financial derivatives, seeks to gain profits by holding certain settings; on the other, people or companies using digital assets as a means of processing and attracting purchasing power, i.e. as a value reserve and payment system.

The first invest due to their propensity to risk in any of the thousands of digital asset projects that exist, from the traditional bitcoin to the Luna vapuleada, the others only seek to protect themselves against the likely loss of value from traditional currencies or other crypto.

The stable crypto currencies, which have support assets in dollars, are the ones that this market segment chooses. First of all, depending on its use and issuance, is Tether or USD T, followed very closely by USD C.

The stable currencies promise to meet some of the main needs of Argentine and Venezuelan citizens:

  • They can be bought in quantity and with local currency and sold against dollars.
  • The crypto transfer processing platforms allow you to transfer balances to the world's leading squares.
  • There is still no regulatory and regulatory format developed so that the crypto processing system serves to collect taxes, as it does with the banking system.
Clearly, these possibilities are very seductive so that hobbyists and investors will contemplate the critpo alternative.

El Salvador's case.

The President of the Republic of El Salvador, Nayib Bukele, has been a faithful exponent of the use of new technologies in the service of politics and public management.

Since the beginning of his campaign for the presidential race, he has used social networks and digital media as fundamental platforms to know and disseminate his proposals. That is why, for those who have followed him from his beginnings, it was predictable that they advance towards digital assets during his government.

This experience is extremely interesting for the analysis, since, from the point of view of usability, the results have been regular, there are aspects of diffusion and implementation that have been carried out in record times, unimaginable for any implementation of a new payment processing system as an alternative to the legal course currency.

However, despite the effort made by the El Salvador government to spread the use of bitcoin, which included among other actions the simultaneous opening of millions of portfolios with a balance of 30 USD free to spend on anything, its use is far from being considered massive or successful.

What happened?

It is likely that in the very near future most countries have digital proposals as alternatives of legal course currencies. That is, the State is the sovereign of a network of processing of digital balances and transfers.

However, it is very unlikely that this alternative is bitcoin or any other cryptocurrency, fundamentally on a fundamental issue, governance.

Depending on a decentralized network, with global geolocation, administered by third parties, proposes strategic vulnerabilities that make them unfit for government records.

Now, if we analyze Bitcoin, other factors are added to understand its little usability as legal course currency:

The bitcoin is not stable, only with observing the enormous variations that it registers homologously is evidence that a trader or industrial lacks the possibilities of absorbing the variations that experience the unstable cryptocurrencies in their activities.

The cost of processing is expensive as the more it increases the value of Bitcoin, the costs for managing transfers within your native network are increasingly high.

It is an inefficient network from the energy point of view and the teams (mines) are expensive.

Other aspects of the Salvadoran society were combined with the technical reasons previously expressed.

However, none of the previous reasons would be enough to discourage the use of crypto currencies.

The main reason for its use is to be used by Argentina and Venezuela, inflation, change control, restrictions on changes and abusive taxes based on the banking system. In El Salvador the legal course currency is the US dollar, all Salvadorans trust it and ensure its purchasing power saving in that currency, something that served them during the last 21 and a half years, that is why changing or adding another legal course currency lacks meaning and need.

This explains the uses and disuses of cryptocurrencies in Latin America. As Lamarck said, the function does the organ.

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horacio gustavo ammaturo

Horacio Gustavo Ammaturo

I am Gustavo Ammaturo. I have a degree in Economics. CEO and Director of infrastructure, energy and telecommunications companies. Founder and mentor of Fintech, DeFi and software development companies. Blockchain Product Designer.

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