The world of cryptocurrency has been on the hunt for its killer use case, an application that will take it from being a speculative technology to a transformative infrastructure. Many ideas have been thrown around, from gaming to money laundering, but none have quite hit the mark. However, the most promising use case has always been cross-border payments. Latin America receives around $130 billion from the remittance market. Therefore, crypto adoption by Latin America can be beneficial.
The potential for cryptocurrency to revolutionize the remittance market is undeniable and could have far-reaching effects on individuals and economies worldwide. So, could cross-border payments be the killer app that catapults crypto into the mainstream?
Increasing Crypto Adoption in Latin America
Latin America has recently been experiencing a surge in crypto adoption, with countries such as Venezuela, Argentina, and Brazil leading the way. This is due to several factors such as economic instability, high inflation rates, currency devaluation, and a lack of trust in traditional financial systems.
Cryptocurrencies offer an alternative to these problems, providing users with a decentralized, secure, and transparent way of storing and transferring value. People can even use these cryptocurrencies to trade on Bitsoft360 & make profits. Here are some examples of Latin American countries that are embracing cryptocurrency.
El Salvador:
El Salvador made headlines in June 2021 when its President, Nayib Bukele, announced that the country would adopt Bitcoin as legal tender. This move makes El Salvador the first country in the world to adopt crypto as a national currency.
In a country where around 70% of the population is unbanked, Bitcoin offers a new way for people to participate in the financial system. El Salvador even Opened National Bitcoin Office in November.
Venezuela:
Venezuela is perhaps the most well-known example of a Latin American country that has adopted crypto. In Venezuela, hyperinflation has rendered the local currency virtually worthless, and Bitcoin has become a lifeline for many citizens, providing a way to store value and conduct transactions. The government even launched its own cryptocurrency, Petro, to circumvent US sanctions.
Stablecoin trades accounted for 34% of the total volume of small retail transactions in Venezuela.
Argentina:
Argentina is another country that has experienced economic instability in recent years. The government has imposed strict capital controls, and cryptocurrencies have become a way for people to circumvent these restrictions and access international markets.
Argentina has the highest number of cryptocurrency users per capita in the world. Stablecoin trades accounted for 31% of Argentina’s total volume of small retail transactions. Amid increased crypto adoption, Argentina’s Central bank banned payment providers from offering crypto transactions.
Brazil:
Brazil is the largest economy in Latin America and has seen a significant increase in crypto adoption. The country has a large population of unbanked or underbanked individuals who need access to traditional financial services. Cryptocurrencies offer an alternative way of conducting transactions and storing wealth, making them an attractive option for many Brazilians.
Stablecoin trades accounted for 26% of Brazil’s total volume of small retail transactions.
Mexico:
Mexico is another country that has seen a rise in crypto adoption in recent years. The country has a large population of migrant workers who send remittances back home. However, traditional remittance channels are often slow and expensive. Cryptocurrencies offer a faster and cheaper way of sending money across borders, making them an attractive option for many Mexicans.
In July, Mexican Senator Indira Kempis even proposed a bill to make a bitcoin legal tender in Mexico. Stablecoin trades accounted for 18% of the total volume of small retail transactions in Mexico.
Crypto as a potential disruptor in Latin America
Cryptocurrency has emerged as a potential disruptor in Latin America, offering an alternative to traditional financial systems plagued by corruption, inflation, and economic instability. In addition, the region has a large population of unbanked or underbanked individuals who need access to traditional financial services.
Cryptocurrencies, such as Bitcoin and Ethereum, provide a decentralized and secure way of conducting transactions and storing wealth, making them an attractive option for those seeking financial freedom.
One of the main advantages of cryptocurrency is that it allows for borderless transactions without the need for intermediaries such as banks or payment processors. In addition, cryptocurrencies also offer a level of transparency and accountability that traditional financial systems often lack, thanks to blockchain technology.
Advantages of using crypto for remittances:
Remittances, or transferring money from one country to another, are essential to the global economy. According to the World Bank, remittance flows to low- and middle-income countries reached a record high of $540 billion in 2020, despite the pandemic.
However, traditional remittance channels can be slow, expensive, and prone to fraud. This is where cryptocurrencies come in. Here are some advantages of using crypto for remittances.
- Speed: Cryptocurrencies offer a faster way of sending money across borders compared to traditional remittance channels. Transactions can be completed in a matter of minutes, or even seconds, depending on the cryptocurrency used and the network’s congestion..
- Cost: Traditional remittance channels are often expensive, with high fees and unfavorable exchange rates. Cryptocurrencies, conversely, offer lower fees and more favorable exchange rates, making them a more cost-effective option for remittances.
- Accessibility: Cryptocurrencies offer greater accessibility compared to traditional remittance channels, which require a bank account or other financial infrastructure. With cryptocurrencies, only a smartphone and an internet connection are needed.
- Security: Cryptocurrencies offer a higher level of protection than traditional remittance channels, which are prone to fraud and hacking. Cryptocurrencies use blockchain technology, a decentralized and immutable ledger that records all transactions. The improved security makes it difficult for fraudsters to tamper with transactions or steal funds.
- Transparency: Cryptocurrencies offer greater transparency compared to traditional remittance channels, which can be opaque and difficult to track. With cryptocurrencies, all transactions are recorded on a public ledger, making tracking and verifying transactions easy.
Challenges:
Despite cryptocurrency’s potential benefits, overcoming some challenges is imperative. One of the main concerns is regulatory uncertainty, with many countries in the region needing more straightforward guidelines on how to regulate cryptocurrencies. Unfortunately, this has led to a patchwork of regulations, with some countries adopting a more permissive approach while others have taken a more restrictive stance.
Another challenge is the need for better infrastructure and education, with many people in the region still needing to familiarize themselves with cryptocurrencies and how to use them.
Impact on local economies:
Cryptocurrencies have the potential to make a positive impact on local economies in several ways. Here are some ways how cryptocurrencies can benefit local economies:
- Financial Inclusion: Cryptocurrencies can help provide greater financial inclusion to unbanked or underbanked people.
- Increased Economic Activity: Cryptocurrencies can also help stimulate local economic activity. By providing an alternative means of payment, cryptocurrencies can increase the number of transactions undertaken within a local economy.
- Job Creation: The adoption of cryptocurrencies can also create new job opportunities within local economies.
- Cross-Border Trade: Cryptocurrencies can facilitate cross-border trade by providing a faster, cheaper, and more secure way to send and receive payments.
- Innovation: Finally, adopting cryptocurrencies can encourage innovation within local economies. By embracing new technologies, local businesses can develop new products and services.
Conclusion:
Despite these challenges, the potential of cryptocurrency to disrupt traditional financial systems in Latin America cannot be ignored. As more people in the region become aware of the benefits of cryptocurrencies, and as governments and businesses begin to adopt them, we may see a shift towards a more decentralized and equitable financial system that benefits all.
