There’s a reason Venezuela’s oil-backed cryptocurrency, the Petro, hasn’t been heralded by most experts as the solution to the country’s rampant inflation and political crisis. The Petro, by most accounts, isn’t backed by oil reserves – in actuality it’s backed only by a discredited government’s promise, launched in a region that has an unfortunate history of political corruption and currency manipulation.
But there’s also a reason why news about the Petro was met with a certain degree of intrigue, and even an amount of (extremely) cautious optimism. What if, some experts dared to imagine, such a cryptocurrency were introduced and implemented honestly and transparently? For a government facing hyperinflation and a total loss of public trust, what potential might a currency guaranteed by blockchain – with its unalterable, decentralized public ledger – have to restore consumers’ purchasing power, their ability to protect their savings, and their faith in the honesty of government institutions?
Beyond President Nicolas Maduro’s suspect plans for the Petro, the launch prompts us to explore a bigger story with implications that extend beyond Venezuela to the entire region. In Latin America’s emerging markets a lack of trust in financial and political institutions has long hampered financial inclusion, political participation, and entrepreneurial ambition. For this region, blockchain’s distributed and immutable ledger could go a long ways towards building faith in banking, the safety of personal savings and property, political processes, and the plausibility of entrepreneurial pursuits.
What’s more, while the media has focused on how blockchain and fintech will take hold within the wealthier economies, many Latin American populations, businesses, and government agencies from Argentina to Colombia are embracing blockchain, leading the way as early adopters. Here’s a look at the promise blockchain may hold for the region and those taking the lead in implementing these new technologies.
Blockchain’s far-reaching potential for the region
The eagerness of many early adopters across Latin America may be attributable to the fact that the region could stand to gain so much from blockchain. Blockchain tech is, by nature, especially capable of disrupting Latin America’s private and public sector.
To begin with, decades of cyclically unstable local currencies across the region have forced citizens to search out ways to protect their savings from rising consumer prices and currency controls. For the working class and the wealthy, new cryptocurrencies have appeared to offer an alternative to national currencies and a safeguard against inflation. Hence, 2017 saw a 1,000 percent rise in crypto transactions in Venezuela, and a 450 percent increase in Brazil amidst political turmoil. In Argentina, which is facing its own inflation crisis, the capital city of Buenos Aires is ranked among the top 10 cities with the strongest bitcoin presence.
At the same time, around 70 percent of the region’s population remains unbanked or underbanked, meaning they lack access to basic financial services like digital payments, money transfers, consumer lending, and individual investing. Blockchain-based fintech solutions could potentially offer financial alternatives to this unbanked segment.
While banks have traditionally been reluctant to serve the predominantly low-income unbanked due to this population’s lack of clear identifying information and the resulting difficulty of adhering to the “Know Your Customer” regulatory guidelines, blockchain-based fintech solutions can provide these citizens a digital identity for use in banking. Allowing citizens to bypass this bureaucracy, digital wallets could enable users in the region to participate in the ever-growing number of digital services being developed, from consumer loans to secure peer-to-peer payments.
Blockchain-based fintech platforms could thus help increase financial inclusion and empower a consumer market of an estimated 400 million unbanked or underbanked people. SMEs in the region could themselves use such platforms to tap this emerging consumer market and thereby achieve previously unattainable growth. All of this could mean greater financial literacy and even social mobility for citizenry, as well as economic growth for the region.
Finally, technology built on blockchain’s decentralized and unalterable ledger could hold the key to restoring citizens’ trust in public institutions, paving the way to more political participation and a healthier democracy. According to the OECD, three out of four Latin Americans today show little or no confidence in their national governments, and 80 percent believe corruption is widespread.
In areas of persistent corruption or political upheaval, government transactions occurring on a blockchain could ensure transparency, helping prevent the misappropriation of funds. In a region where political upheaval has jeopardized property rights, decentralized ledgers could protect asset ownership by keeping records from being erased or altered. And blockchain-based voting systems, which allow for an instant audit of election results and even enable voting by phone, could help prevent electoral fraud and voter intimidation at voting locations.
Early adopters in the private sector
Perhaps realizing blockain’s potential, both startups and larger companies in a number of Latin America nations are experimenting with implementing blockchain technologies across a variety of industries.
Argentina boasts burgeoning blockchain development ecosystems, with startups using blockchain technologies to transform financial exchanges and contracts. RSK Labs, for example, created a smart-contract platform connected to the Bitcoin blockchain, raising $3.5 million in Series A funding in 2017. They have partnered with the Universidad de Buenos Aires (UBA) to offer a blockchain curriculum.
Mexico and Brazil are hotbeds for crypto and fintech startups. Brazilian crypto brokers Bitcoin to You and Foxbit manage a large portion of exchanges for the country’s approximately 1.4 million crypto exchange users, while the Mexican exchange Bitso counts 500,000 users in a country where 80 million lack access to banking services. Meanwhile, big Mexican industries, from insurance to banking, are exploring ways to tackle inefficiencies with blockchain solutions.
Colombia’s private sector, too, is leading the way with early, innovative adoption. Startups like Portal Finance are designing blockchain-based tools to help businesses leverage data from electronic invoices, while the award-winning project Cycle aims to allow homeowners to earn crypto tokens for sharing surplus energy with communities in need. Bancolombia, Colombia’s second largest bank, has been at work testing open-source blockchain-based platforms and protocols since 2015. Much of its efforts have focused on working with local entrepreneurs from Colombia’s tech ecosystem, fostering blockchain exploration, and investigating the viability of a number of different use cases.
Building up more and more momentum, blockchain adoption in Latin America’s private sector could someday reshape industries and redefine services.
The Latin American governments testing blockchain-based tech
Some Latin American governments have been experimenting with blockchain-based applications too, testing applications within everything from healthcare and national identity management systems to banking services and internal revenue monitoring.
Beyond Venezuela’s controversial cryptocurrency, Mexico’s government has announced plans to conduct the first ever public procurement procedure on a blockchain network, helping guarantee transparency and accountability. In the same spirit, Brazil’s government has sought in blockchain a means of curtailing corruption and overhauling the country’s financial infrastructure. In 2018, the state-run tech company Serpro introduced a blockchain platform designed to regulate land titles, preventing corrupt officials from altering ownership records unnoticed. And last year, Brazil’s Central Bank began testing four crypto platforms: Quorum, HyperLedger Fabric, Ethereum, and Corda.
In Chile, the Ministry of Energy has begun using blockchain technology to authenticate and secure data from the national energy grid, hoping to restore trust with customers. The Santiago Exchange, Chile’s largest stock exchange, is also using blockchain to ensure the accuracy and security of transactions.
Finally, the Colombian government is looking to blockchain technologies in hopes of improving security and preventing fraud. To this end, the Colombian Central Bank met with blockchain software company R3 in 2017, making plans to test the firm’s distributed ledger technology. Meanwhile, Colombia’s newly elected president, Ivan Duque, has expressed interest in using blockchain technologies to promote political transparency. Some have suggested Colombia might use blockchain tech to help authenticate electronic voting.
A number of nations across Latin America, then, are proving themselves pioneers in the world of blockchain. While many of the wealthiest economies remain somewhat wary of blockchain technologies, the eagerness of these emerging Latin economies likely stems from the remarkable possibilities that blockchain opens up for their governments, entrepreneurs, and public. And promising everything from a hedge against inflation and political transparency to broader financial inclusion and efficient, secure remittances, blockchain and fintech may hold the key to unlocking the region’s true potential.
Dave Mejia is a senior blockchain strategist and engineer at Talos Digital.