Why are cryptocurrencies gaining traction in Argentina?

Written By Eleman

In Argentina, which has an insecure economy, especially young people see cryptocurrencies as a strong alternative. Reports have been released on why cryptocurrencies are gaining traction in Argentina.

There are traces of insecurity and even trauma in every aspect of the economy in Argentina.

Memories of the economic crisis of the late 1990s are still vivid for Jerónimo Ferrer. Back then, people’s bank accounts were frozen, and everyone’s savings evaporated almost overnight.

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Ferrer is not alone. An engineering student I spoke with keeps all of his savings at home in US dollars. This is because he fears that all his assets in the bank will lose value again overnight.

While many Argentines are experts in economics due to the country’s conditions, from high inflation to exchange rates, Ferrer went a little further.

Ferrer, who has been on the walking tour “Our crazy economy and Bitcoin tour in Buenos Aires” since 2019, explains to tourists the level of restrictions Argentines face, such as restrictions on foreign exchange transactions and bans on paying installments on international flights.

On the other hand, it offers a head start on why cryptocurrencies, specifically Bitcoin, are a valuable alternative to the floating Argentine peso.

“When you have limitations, you need tools for freedom,” says Ferrer.

For crypto enthusiasts around the world, this system is primarily about ideology or profit. But for many Argentines, it meets more basic needs.

Stating that he feels against mathematics and software more than he trusts politicians, Ferrer says, “I believe that for Argentines, Bitcoin should be something that does not need to be thought about for a long time.”

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Interest in Cryptocurrencies is Increasing in Argentina

Apart from the strong government interventions in the economy, there are other reasons cryptocurrencies gain status in the country. One of them is keeping electricity costs relatively low. For this reason, Bitcoin mining is also partly cheap.

Bitcoin mining is the name given to the process of creating new Bitcoin. It happens when computers solve complex math problems. When machines solve problems, they create Bitcoin. It may sound simple, but it takes a lot of electricity to run and cool these computers.

Cambridge University’s Center for Alternative Finance estimates that the electricity used in Bitcoin mining globally is approximately 137 terawatt hours per year. This is roughly the same as the annual electricity use of some countries, such as Norway or Poland.

Generating this electricity will also cause global carbon dioxide emissions. However, it is difficult to predict how much this is.

In Argentina, however, such environmental problems are often overshadowed by financial concerns.

For some, even relatively new and unpredictable cryptocurrencies are preferable to the extremely volatile peso.

Bitcoin vs. Inflation

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Bitcoin, the most famous cryptocurrency, can also help buffer against high inflation due to the limited number of coins that can be created.

The concept of inflation, which measures how the cost of living has changed over time, is an ever-present concern for Argentine people. The annual inflation rate is astonishingly over 50 percent.

María Mercedes Etchegoyen says that during the pandemic, people realized this and turned to looking for a limited asset to protect their money.

Etchegoyen, a lawyer specializing in intellectual property, is also a board member of the non-governmental organization Bitcoin Argentina. She was involved in the founding of a community called “Cryptogirls” (a community of women dealing with cryptocurrency) to capitalize on the growing interest in cryptocurrency during the pandemic.

The government has so far taken a relaxed stance on the cryptocurrency rise. Etchegoyen also states that there is no special regulation regarding cryptocurrency in Argentina.

However, Argentina’s Central Bank is warning about crypto-based scams.

In these warnings, the bank emphasized that the level of crypto usage is not high yet, but it is growing rapidly and therefore deserves concern.

Etchegoyen expressed concern

Etchegoyen, on the other hand, expresses concern about unequal access to cryptocurrencies.

So far, cryptocurrencies have been patronized by a minority—largely a young, male, tech-savvy and relatively wealthy population. As a matter of fact, tech workers, not farmers, make payments with Bitcoin.

Blockchain consultant Lucia Lizardo also says of cryptocurrencies, “Today, this is not a technology accessible to everyone.”

Still, efforts continue for the spread of cryptocurrencies. Financial products established between traditional currency and cryptocurrencies also have a share in this.

Three Argentine tech startups offer debit cards for crypto-based transactions. One of these companies, Lemon, was founded in a Patagonian town where 40 percent of shops accept Bitcoin.

Some Argentines are also turning to “stablecoins” (stable coins) pegged to the US dollar.

Cryptocurrencies, of course, will not offer a one-stop solution to Argentina’s economic woes. However, it also brings problems such as speculation, fraud and its impact on environmental issues.

Lizardo argues that this is like a revolution for young people.

For Ferrer, the need is clear:

“This is our money. It’s the only money politicians can’t destroy.”

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