BUENOS AIRES – Argentina is leaping into the digital age. The South American nation has become a fertile ground for virtual currencies like bitcoin – thereby illustrating how bitcoin might provide a reliable alternative to unstable economies.
In the capital’s uptight neighborhood Recoleta, Matias Caputi opened in August 2014 Bitcoffee, the first coffee place where customers can pay with bitcoins. It is the world’s “first decentralized digital currency.”
In the in-vogue café, two large television screens showcase abstract art and landscapes of New York and Rio de Janeiro. The dim red lights make it the perfect spot for next-door students and coffee aficionados to relax on the cozy couches.
To make it 100% digital, customers can charge their phone with different devices plugged into the walls.
“This is the coffee place of the future,” says Matias, with a dash of pride. A bit, he explains in reference to the coffee shop’s name, is the smallest unit of information in a computer system.
On the beat of The Beatles’ “eight days a week” song, the 30-year old software engineer says that Bitcoffee is the only entirely digital coffee place in Latin America – from ordering to paying.
He developed a digital card software that enables customers to place orders on touch screens in their own language to boost efficiency and reduce staff.
Although there are only up to two clients a day – out of 200 – who pay with bitcoins, Matias is confident that the digital currency will gain traction in Argentina.
Once, he remembers, he generated a QR code on his computer to allow a lost American tourist to pay for coffee and food with bitcoins. The traveler then sent a picture of the QR code with his phone to a friend in the United States who paid instantly for his expenses.
“For many people who do not have a bank account, like teenagers, bitcoin allows them to pay with their cell phone and without cash or a credit card,” says Matias.
Bitcoin explained
Bitcoin is an alternative to traditional currencies because it does not depend on any central monetary authority.
You first need to download a bitcoin wallet from the Internet onto a computer or a mobile phone. This will then generate a bitcoin address that can be shared with people with whom you will make transactions.
It also enables to make payments without exposing customers’ personal information.
You can then transfer bitcoins immediately from one account to another, anywhere in the world, without going through a bank or a payment service like PayPal.
In addition, bitcoins can be traded for traditional currency, like U.S. dollars or euros, on several exchange rates.
A growing market
Although it is hard to track the growth of Argentina’s bitcoin scene due to limited data available, bitcoin transactions have significantly increased in the South American country.
A May 2013 report by TradeBlock, an online platform for bitcoin traders, found that Argentina’s bitcoin meet ups are the best attended in the world, after those in the United States, Canada and Israel.
Most importantly, these gatherings have prompted the creation of bitcoin startups.
TradeBlock monitored downloads of bitcoin software, interest in the digital currency, exchange volumes, companies’ investment in bitcoin as well as physical interactions around bitcoin.
Argentina’s bitcoin landscape has grown from a few dozen companies in 2012 to hundreds of them in 2015. Retail outlets are increasingly accepting bitcoins.
In August 2014, there were 8,000 convenience stores selling bitcoins in the country.
Emblematic of bitcoin’s penetration in the South American market, Taringa!, an Argentine social network with 75 million users a month, announced in April 2015 that its members would receive payments in bitcoins based on advertising revenues.
Taringa! inked a US$750,000 deal with Xapo, a California-based business founded by the Argentine Wences Casares. It offers a digital bitcoin wallet to store and secure the virtual currency. Customers can use a debit card linked to their wallet to spend their bitcoins.
Taringa! users can deposit pesos in shops in Argentina to put bitcoins in their wallets.
Another example of bitcoin’s growth in Argentina is BitPagos, a payment processor launched in 2013 to allow over 200 hotels in Latin America to accept bitcoin payments.
Bitcoin evangelists
Still, bitcoin use in Argentina remains marginal. It is limited mainly to groups geared toward computer science.
Matias Bari, CEO of SatoshiTango, a startup allowing to buy and sell bitcoins with pesos with a 2% fee, explains that the wide majority of his customers are 20 to 35 year old men living in Buenos Aires and at the outskirts of the capital.
Many of them work in information technology. Some are freelance designers.
“Today the majority of users are ‘early adopters’, people who are evangelists of bitcoin’s operations,” says Matias Bari.
SatoshiTango customers can pay in cash or with coupons on payment platforms, such as PagoFacil and RapiPago.
The tourism industry, in particular, is a key market as foreigners try to eschew Argentina’s official currency rate.
Solution to crippled economies?
Bitcoin could offer a financial alternative to unstable markets like Argentina, which are plagued by a long history of macroeconomic policy mismanagement, a highly fluctuating currency, depleting foreign reserves and skyrocketing inflation – estimated at up to 40% (official inflation figures are dodgy in Argentina).
Since January 2014, the Argentine government devaluated the peso to preserve its hemorrhaging international reserves, which had then fallen to a seven-year low.
This has spurred the creation of a burgeoning black market. At the time of writing, the “blue dollar” stands at 12.8 pesos to the U.S. dollar. In comparison, the official rate trades 8.9 pesos per dollar.
On the bustling Florida street in downtown Buenos Aires, men and women are screaming the words “cambio, cambio, cambio” (meaning “change” in Spanish) to invite people to trade pesos at the unofficial rate.
In such a tumultuous economic context, bitcoin could mesh with Argentines’ needs to circumvent the government’s heavy restrictions to get foreign currency. Since 2011, it is illegal to withdraw U.S. dollars or euros in Argentina to prevent capital flight.
“The most interesting aspect that will allow bitcoin to spread massively is that people do not have to worry about its quotation,” explains Diego Da Col, Payment Solution specialist in Buenos Aires.
“Remittances are sent in the local currency and received in the currency of the destination country,” he says.
Equally important, customers do not pay any fee – or a small one based on the platform. This is a relief in Argentina, where retail shop owners are trying to avoid the 6% to 10% charges for credit card payments.
The Argentine government has also levied a 35% tax on foreign credit card transactions since 2013.
“This exceptional [economic] situation enables to dedicate efforts to find alternatives for new startups to develop solutions using bitcoins,” says Diego.
Indicative of the urgent need to reform President Cristina Fernandez de Kirchner’s economic policies, Argentina introduced in 2013 the Certificate of Deposit for Investment (CEDIN) to allow Argentines to trade their U.S. dollars into pesos, while receiving tax amnesty.
These certificates, called cedines, are a means to tap into Argentines’ undeclared money abroad, estimated at US$160 billion.
Taking up the challenge
If bitcoin could mitigate the economic problems of emerging markets, it remains a six-year old experimentation only.
For instance, there is not any legal framework to manage bitcoin transactions in Argentina.
Resolution No. 300/2014 of the Financial Information Unit (UIF is its acronym in Spanish), a governmental body that investigates money laundering and prevents terrorism financing, is the only legal norm in Argentina that governs virtual currencies.
Bitcoin deals – or any transfer of digital currencies – are deem as legal as any private transaction.
Yet, Argentina’s Central Bank indicated in a 2013 press release that virtual currencies lie outside its sphere of competence. Its head also made it clear that the Bank does not issue any virtual currency, which is not legal tender.
Finally, it might be difficult to consider bitcoin as a reliable alternative to traditional currencies due to its fluctuation – just like any crypto currency. A bitcoin’s price can indeed increase or decrease over time.
Since 2013, its value fluctuated between US$70 and US$1,200. At the time of writing, its value stands at US$237 – roughly twice its 2013 value.
“For the time being, bitcoin’s volatility does not enable it to be a good reserve of value, therefore it is difficult to go from pesos to bitcoins while avoiding to lose money due to inflation and the devaluation of our currency,” says Matias Bari.
In 2013, Argentina’s bitcoin value dropped due to harsh regulations on capital controls. Bitcoins in Buenos Aires were worth 30% to 40% of the value of its more liberal neighbor Uruguay.
Notwithstanding these hurdles, experts consider that the bitcoin outlook is positive, as it is a young currency with potential.
“I think that we will see flourish bitcoin banks globally in which customers will be able to freeze the price of bitcoins with respect to other less volatile commodities like gold, the dollar or the euro,” explains Matias Bari.
This article was published in the July-September print edition of International Finance Magazine on July 16, 2015. Link here.
