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There is a reason why the Venezuelan cryptocurrency supported by oil, the Petro, was not announced by most experts as the solution to the rampant inflation and the political crisis in the country. The Petro, according to most accounts, is not backed by oil reserves – in fact it is only supported by a promise from the discredited government, launched in a region that has an unfortunate history of political corruption and currency manipulation.
But there is also a reason why the Petro news was received with a certain degree of intrigue and also a certain (extremely) cautious optimism. What would happen if some experts dared to imagine that this cryptocurrency was introduced and implemented in an honest and transparent way? For a government that is facing hyperinflation and a total loss of public trust, what potential a currency guaranteed by the blockchain might have – with its unalterable and decentralized public book – must restore consumer purchasing power, the their ability to protect their savings and their trust in the honesty of government institutions?
In addition to the suspected plan of President Nicolas Maduro for Petro, the launch drives us to explore a bigger story with implications going beyond Venezuela in the entire region. In the emerging markets of Latin America, the lack of trust in financial and political institutions has long hindered financial inclusion, political participation and entrepreneurial ambition. For this region, the distributed and immutable ledger of the Blockchain could go a long way towards building faith in banks, securing personal savings and property, political processes and the plausibility of entrepreneurial activities.
Moreover, while the media have focused on how blockchain and fintech will take hold in the wealthiest economies, many Latin American populations, companies and government agencies from Argentina to Colombia are embracing the blockchain, leading the way. Here is a look at the promise that the blockchain can give to the region and to those who take a leading role in implementing these new technologies.
The far-reaching potential of the Blockchain for the region
The excitement of many early adopters of Latin America could be attributed to the fact that the region could gain so much from the blockchain. Blockchain technology is, by its nature, particularly capable of upsetting the public and private sectors of Latin America.
To begin with, decades of cyclically unstable local currencies across the region have forced citizens to look for ways to protect their savings from rising consumer prices and currency controls. For the working class and the rich, the new cryptocurrencies seemed to offer an alternative to national currencies and a safeguard against inflation. Thus, 2017 saw a 1,000 percent increase in encrypted transactions in Venezuela and a 450 percent increase in Brazil amid political turmoil. In Argentina, which is facing its inflationary crisis, the capital of Buenos Aires is ranked among the top 10 cities with the strongest presence of bitcoins.
At the same time, around 70% of the region's population remains without coverage or underbanked, which means they do not have access to basic financial services such as digital payments, money transfers, consumer credit and individual investments. The fintech solutions based on Blockchain could potentially offer financial alternatives to this non-side-by-side segment.
Although banks are traditionally reluctant to serve low-income unbanked due to the lack of clear identifying information of this population and the consequent difficulty in adhering to the "Know Your Customer" regulatory guidelines, fintech-based blockchain solutions can provide these citizens with a digital identity for use in the banking sector. By allowing citizens to circumvent this bureaucracy, digital portfolios could allow users in the region to participate in the growing number of digital services being developed, from consumer loans to secure peer-to-peer payments.
The fintech platforms based on Blockchain could therefore contribute to increasing financial inclusion and enhancing a consumer market of around 400 million unassigned or under-the-counter people. SMEs in the region could use these platforms themselves to exploit this emerging consumer market and thus achieve previously unattainable growth. All this could mean more financial literacy and even social mobility for citizens, as well as economic growth for the region.
Finally, technology based on the decentralized and unalterable register of the blockchain could be the key to restoring citizens' trust in public institutions, paving the way for greater 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% believe that corruption is widespread.
In areas of persistent corruption or political upheaval, government transactions that occur on a blockchain could ensure transparency, helping to prevent the misappropriation of funds. In a region where political upheavals have endangered property rights, decentralized registers could protect property ownership by preventing the cancellation or alteration of records. And blockchain-based voting systems, which allow an instantaneous audit of election results and even allow voting by telephone, could help prevent electoral fraud and intimidation of voters in electoral venues.
First users in the private sector
Perhaps by realizing the potential of blockain, both startups and large companies in a number of Latin American nations are experimenting with the implementation of blockchain technologies in a variety of industries.
Argentina has thriving blockchain development ecosystems, with startups using blockchain technologies to transform trades and financial contracts. RSK Labs, for example, has created a smart-contract platform linked to the Bitcoin blockchain, collecting $ 3.5 million in Series A funding in 2017. They have collaborated with the Universidad de Buenos Aires (UBA) to offer a curriculum blockchain.
Mexico and Brazil are hotbeds for crypto and fintech startups. The Brazilian cryptographic brokers Bitcoin to You and Foxbit handle a large amount of exchanges for approximately 1.4 million encrypted exchange users, while the Bitso Mexican exchange counts 500,000 users in a country where 80 million do not have access to banking services. Meanwhile, the major Mexican industries, from insurance to banks, are exploring ways to tackle inefficiencies with blockchain solutions.
The Colombian private sector is also leading the way with early and innovative adoption. Startups like Portal Finance are designing blockchain-based tools to help companies exploit e-invoice data, while the award-winning Cycle project aims to enable homeowners to earn encrypted tokens to share excess energy with communities in difficulty. Bancolombia, the second Colombian bank, is working to test open-source blockchain-based platforms and protocols since 2015. Much of its efforts have focused on working with local entrepreneurs of the Colombian technological ecosystem, on the promotion of 39; blockchain exploration and investigation into the feasibility of a number of different use cases.
Building more and more momentum, the adoption of blockchain in the private sector of Latin America could one day reshape industries and redefine services.
Latin American governments test blockchain-based technology
Some Latin American governments have also experimented with blockchain-based applications, testing applications in everything from health care and national identity management systems to banking services and internal revenue monitoring.
Beyond Venezuela's controversial cryptocurrency, the Mexican government has announced plans to conduct the first public procurement procedure on a blockchain network, helping to ensure transparency and accountability. In the same spirit, the Brazilian government has sought in blockchain a means to limit corruption and reorganize the country's financial infrastructure. In 2018, the state-owned technology company Serpro introduced a blockchain platform designed to regulate land titles, preventing corrupt officials from altering unobserved property records. And last year, the Central Bank of Brazil started testing four cryptographic platforms: Quorum, HyperLedger Fabric, Ethereum and Corda.
In Chile, the Ministry of Energy has begun to use blockchain technology to authenticate and protect data from the national energy grid, hoping to restore confidence with customers. The Santiago Stock Exchange, the largest stock exchange in Chile, also uses the blockchain to guarantee the accuracy and security of transactions.
Finally, the Colombian government is trying to block technologies in the hope of improving security and preventing fraud. To this end, the Colombian Central Bank met with the R3 blockchain software company in 2017, making plans to test the general accounting technology of the enterprise. Meanwhile, the newly elected president of Colombia, Ivan Duque, expressed interest in using blockchain technologies to promote political transparency. Some have suggested that Colombia could use blockchain technology to help authenticate electronic voting.
Thus, a number of nations throughout Latin America are proving themselves to be pioneers in the blockchain world. While many of the wealthiest economies remain quite wary of blockchain technologies, the enthusiasm of these emerging Latin economies probably stems from the considerable possibilities offered by the blockchain for their governments, entrepreneurs and the public. And promising anything from an inflation hedge and political transparency to wider financial inclusion and efficient, safe, blockchain and fintech remittances could be the key to unlocking the true potential of the region.
Dave Mejia is a senior blockchain strategist and an engineer at Talos Digital.
