Buenos Aires, January 23, 2013: Following a sell-out Latin American Bitcoin Conference in Buenos Aires in December, regional enthusiasts for the world’s best-known digital currency were gearing up for another conference this weekend in Miami – at the Miami Beach Convention Center – to address regulation, security and volatility.
As central bankers, tech nerds and law enforcement alike debate its implications, the enigmatic Bitcoin seems to be catching on – and almost to have been designed with countries like Argentina in mind.
Economic history has taught Argentines and many other Latin Americans not to trust their currency or banks. Bouts of inflation and hyperinflation have devoured Argentines’ savings and, during the country’s 2001 financial crisis, many Argentines had their savings seized completely.
As a result Argentines have traditionally stored money in alternative instruments under their control. Wealthier Argentines have often invested in real estate or sent money abroad, while those with less to save usually exchanged their pesos for dollars and stored them under mattresses and in freezer boxes.
In late 2011, Argentina’s international reserves began to dwindle and the government tacitly banned the purchase of foreign currency. It is nearly impossible for Argentine citizens to buy dollars for saving purposes or to send money abroad legally. Instead, many buy dollars in the black market at 70% premiums and use specialty exchange houses to make foreign transfers also at the black market rate.
Enter Bitcoin. Many see the digital currency as a safer, more efficient way to deal with Argentina’s draconian restrictions.
JP Theriot, an Argentine-American entrepreneur who has recently started investing in a company aimed at eliminating Bitcoin volatility, explains: “Bitcoin essentially erases the government’s ability to use currency restrictions to manipulate the populace, or worse, grab existing funds and use them for political purposes.”
Adds Sebastian Serrano, the Argentine co-founder of BitPagos, Latin America’s first Bitcoin payment gateway: “It allows you the opportunity to be your own bank. For Argentines that is very attractive.”
Wences Casares, one of the pioneers in bringing the Internet to Argentina and a self-professed Bitcoin fanatic, maintains that people from Argentina and the developing world are more likely to understand and accept Bitcoin than in the United States and Europe. “They don’t understand the need for an alternative, whereas those in Argentina do,” he says.
The last time Casares was in Buenos Aires, he decided to sell a few Bitcoins to see who in Argentina was adopting them. When he arrived at a Starbucks restaurant to meet his buyer, he was surprised to find a retired older man.
“This is an experiment,” he warned the man. “Don’t put all of your savings in Bitcoin.” But the retiree’s response was: “I’ve already lost everything once. What else should I put it in?” Casares says that day he sold the man $40,000 worth of bitcoins that would now be worth more than $2 million.
Argentines are also less wary of Bitcoin’s association with unsavoury interests and financial chicanery arising from its use on the online drug retailer SilkRoad.
Argentina is a cash-based economy where tax evasion and money laundering are already rampant. Cash, much more than digital currency, is the most suspicious tender for Argentines – though it is ubiquitously used.
In spite of Argentines’ relative tolerance of less than transparent financial transactions, there are barriers to Bitcoin’s future growth. First, it is not yet a practical form of payment. As everywhere else in the world, only a niche population has begun to transact in Bitcoin.
According to CoinMap, just 92 businesses including restaurants, hotels, and a lone orthodontist have begun to accept bitcoins in the country. That said, 92 businesses is far more than in many other Latin American countries – Brazil has only 28 Bitcoin businesses, Mexico has only 24, Colombia 11, and Chile 10. Certain Internet firms such as Overstock.com have begun accepting bitcoins as payment, but Argentines are limited to $25 in purchases a year from online foreign retailers.
Bitcoins are also harder to come by for Argentines without an external bank account. Since international bank transfers are restricted by the Central Bank, Argentines without bank accounts abroad are limited to buying Bitcoins from other Argentines.
Mining – the process of producing virtual currencies, where computers solve mathematical equations and are rewarded with coins – is also fairly rare. Serrano estimates that only 300 people are able to mine in Buenos Aires. The hardware needed is not produced in Argentina and the government strictly controls imports.
Finally, Argentines share the concerns expressed by all potential Bitcoin users – that the currency is volatile, that it is susceptible to hacking, and that its anonymity allows people with dubious interests to operate freely.
Bitcoin fans insist that those problems will be resolved quickly. They compare Bitcoin to Napster and insist that even if it does fail, it has already begun to usher in a new era in finance, as Napster did for the music and entertainment industries.
Digital currency, they insist, will ultimately become like “email for money”. Meanwhile, however, Bitcoin is just starting to find its feet with a small minority both in Argentina and the world.