Rio de Janeiro, Brazil ()
By Nathan Lustig; he is an entrepreneur and Managing Partner at Magma Partners, a seed stage investment fund with offices in Santiago, Bogota, Mexico City, Los Angeles, and Beijing.
In March, Venezuela launched the “Petro,” the first-ever cryptocurrency created by a national government in Latin America. The currency is supposedly backed by Venezuelan oil production and worth a barrel of crude oil from the country’s Orinoco Region. The Venezuelan government said that, in connecting the Petro to a natural resource, it hopes to create a stable currency that could provide an alternative to the Bolivar, which is experiencing crippling inflation.
While correctly panned by the vast majority of crypto experts and many human rights activists as a money grab by a corrupt regime, the launch showed how cryptocurrency, and blockchain technology that supports it, could revolutionize the financial infrastructure of countries in Latin America if executed correctly and by a non-corrupt institution. In a region where 70 percent of the population still has no access to formal banking institutions, blockchain could enable widespread financial inclusion.
Many countries in Latin America face cyclical political and currency fluctuations, undermining trust in local currencies as well. Countries such as Argentina and Brazil have become fast adopters of cryptocurrencies. Buenos Aires, Argentina is listed in the top 10 cities in the world leading bitcoin adoption. In Brazil, bitcoin trading surged when the country faced political turmoil last year, increasing peer-to-peer trading in Latin America’s largest economy by 450 percent in 2017. Venezuela saw an almost 1,000 percent rise in peer-to-peer transactions in 2017, as citizens turned to cryptocurrencies to avoid crippling inflation and tighter government controls on access to U.S. dollars.
The region still faces many local challenges from powerful government regulators and the financial sector, which is one of the most profitable in the world. Here’s an overview of the state of blockchain technology in some of Latin America’s biggest markets.
Argentina
Argentines have been some of Latin America’s earliest adopters of cryptocurrency, with 6.1 businesses that accept Bitcoin per million people in Buenos Aires. However, the use of blockchain-backed currencies is not necessarily sanctioned by the Argentine government. Instead, citizens have adopted the technology as a safety net against the extremely unstable Argentine peso, the restrictions on foreign currency exchange within the country, and the 32 percent yearly inflation rate.
The Argentine Parliament recognizes cryptocurrency as property, not as currency, so for now, the exchange of coins is legal. The government even permitted the installation of 200 Bitcoin ATMs in October 2017.
As one of Latin America’s top destinations for software development, Argentina has also become a hotbed for blockchain startups using new technologies to revolutionize contracts, financial exchanges, and fundraising. One notable example is CoinFabrik, which provides several blockchain technology development resources as a service to other companies. RSK Labs is also active in Argentina’s blockchain development ecosystem, creating Rootstock, a smart-contract platform connected to the Bitcoin blockchain. RSK recently partnered with the Universidad de Buenos Aires (UBA) to provide courses in blockchain technology as part of the Information Engineering program. They have been active in the blockchain network since 2013 and raised a $3.5 million Series A round in 2017.
One of Latin America’s most prominent blockchain startups, Ripio, is also based in Argentina. Ripio provides electronic payments solutions for businesses in Latin America, allowing merchants to process payments from international credit cards and Bitcoin using blockchain. Ripio raised a $400K Series A round in 2017, and its coin, the Ripio Credit Network, currently has a $40.44 million market cap.
The founder of Xapo, a cryptocurrency wallet that is the largest custodian of Bitcoin in the world, is also from Argentina. Wences Casares is now building Xapo in Silicon Valley and has raised over $40 million to support the venture. After building the first Internet Provider in Argentina in 1994, Casares has founded countless technology companies that revolutionized Argentina’s tech ecosystem even in the early 2000s. He now sits on the board of PayPal, Endeavor, and Kiva.
Brazil
Latin America’s largest economy has adopted blockchain technology to reduce corruption, legitimize legal decisions, and even track votes. In a country of 215 million people, dealing with land titles, citizen petitions, and voter registration can be overwhelming, and the government is looking to blockchain technology to eliminate discrepancies and corruption.
In January 2018, state-run technology company Serpro launched a blockchain platform to regulate land titles in the world’s fifth largest country. The platform is meant to reduce corruption by recording every action taken in the system so officials cannot delete files unnoticed. U.S. blockchain startup Ubitquity is also active in Brazil, helping to prevent deforestation by fighting the corruption that allows land titles in the Amazon to be renegotiated.
Last year, Brazil’s Central Bank began exploring blockchain options to back the country’s financial infrastructure. It is currently testing four platforms: Ethereum, Quorum, HyperLedger Fabric, and Corda. The plan is to back up the central bank's current real-time gross settlement system (RTGS) to keep up with other central banks that are beginning to innovate using blockchain technology.
Some other notable blockchain startups operating in Brazil include Bitcoin to You, which sets up Bitcoin exchange centers across the country, and CoinBR, which offers services for mining and exchanging cryptocurrencies. Chilean-founded Cryptomkt also expanded its operations to Brazil in March 2018, allowing for exchange of Ethereum and Stellar Lumens.
Chile
In 2015, Chile’s first Bitcoin exchange called SurBTC, now called Buda.com, was founded with support and funding from development organization Corfo. This decision made it clear that Chile would accept and regulate the use of blockchain technology for financial transactions, as SurBTC is currently governed by Chile’s Financial Intelligence Unit, which monitors money-laundering. Chile is also the home of CryptoMkt.com, one of the region’s largest exchanges of Ethereum and Stellar Lumens.
Chile was one of the first countries in the region to open its doors to blockchain technology and cryptocurrency exchange. However, Chilean banks closed and then reopened cryptocurrency companies’ accounts, sending mixed signals. Buda.com and CryptoMkt are currently in court fighting the banks’ decisions to shut down the cryptocurrency market. It is unclear whether the decision came from the government or from the banks themselves, but for now, the future for cryptocurrency exchanges remains a bit unclear in Chile.
Nonetheless, in early March of this year, Chile’s National Energy Commission announced it would begin using blockchain technology to authenticate information from the national energy grid. The plan is to add regulatory strength and security to the data collected by the agency, building trust with consumers and key stakeholders.
Further, in 2017, Chile’s largest stock exchange, the Santiago Exchange, partnered with IBM to integrate blockchain into the country’s financial services sector to increase the accuracy and security of transactions.
Chile’s government has been open and welcoming to blockchain technologies as a way to revolutionize payments and contracting across the country. The question remains whether banks will follow that lead.
Colombia
While Colombia has not adopted blockchain technology as readily as its counterparts, the Colombian government has been exploring opportunities to use blockchains to improve security and prevent fraud. The Colombian Central Bank was one of the first to meet with blockchain development firm R3 in 2017 to discuss opportunities for partnership.
However, government has yet to recognize cryptocurrencies officially, meaning Bitcoin exchange platforms like LocalBitcoin and Colbitex are on shaky ground, although some local merchants already accept Bitcoin as payment.
Citizens have also begun to ask when Colombia will implement blockchain to help authenticate electronic voting, following in the footsteps of Sierra Leone. And we could see a number of finance-focused blockchain startups thrive in the coming year, since Colombia is one of the world’s top adopters of electronic invoicing, with the government enforcing mandatory e-invoicing for all businesses starting in January 2019. Colombian startups like Portal Finance are using blockchain to create tools that help businesses understand and leverage the data produced by electronic invoicing and make more informed business decisions.
Colombia has frequently struggled to become integrated with international currency exchange platforms, like PayPal, so blockchain technology and cryptocurrencies may help streamline cross-border payments in Colombia as well.
Mexico
Mexico became one of the first countries in Latin America to regulate financial technology. The Mexican Congress has officially recognized cryptocurrencies as digital assets – but not as currency – and has set up rules to control exchanges to prevent corruption and money laundering. The law puts the Mexican Central Bank in charge of monitoring startups working with cryptocurrencies.
Blockchain could be a massive opportunity for Mexico, where more than 80 million people do not have access to formal banking services. Companies like Bankcoin.global, a project by the Universidad Autónoma de Baja California Sur, are piloting smart contracts and cryptocurrency e-commerce in Mexico. Mexico also has two cryptocurrency exchange startups, Bitso and Volabit, which are helping coordinate remittances through simple-to-use apps that lower the cryptocurrency learning curve.
Other industries have caught on to the potential usefulness of blockchain technology, including the Mexican car insurance industry, which is notoriously poorly-regulated. The Mexican Association of Insurers is exploring blockchain solutions to transparently validate insurance policies, save the government time, and improve compliance.
In the banking sector, Santander has reportedly invested around $800 million in Mexico to develop blockchain technologies that will strengthen security and integrate cryptocurrency exchange into the financial system.
The bottom line
In a region where more people have smartphones than bank accounts, blockchain technology and cryptocurrencies represent an opportunity to improve regional financial inclusion. However, not all governments are thrilled about the arrival of a technology that allows for decentralized currency circulation. Bolivia, Ecuador, and Mexico have all banned or restricted cryptocurrency transfers because of concerns about illegal activity and money laundering.
Nonetheless, startups across the region are exploring blockchain technology to improve transactions across almost any industry, from car insurance to land sales. The region’s wealthy are even seeing cryptocurrencies as an alternative to unstable fiat currencies, and some family offices are buying up Bitcoin and other cryptocurrencies rapidly.
Latin America has proved itself as an early adopter of blockchain technologies, with both the private and public sectors seeing the potential to use the network for economic development, financial inclusion, and transparency. Still, as we’ve seen in Chile, Ecuador, Bolivia, and other regions, entrenched interests, including banks, government agencies, big businesses, and financial institutions are beginning to push back. Latin America is certainly filled with potential for blockchain technology and remains a region to watch as the technology matures.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
