Americans like to talk about themselves, so when we talk about Bitcoin we usually focus on ways the technology can make life better for American consumers. But an in-depth piece in the New York Times illustrates why the currency could have a brighter future overseas. Nathaniel Popper describes a day he spent hanging out with an Argentine Bitcoin trader:
Lam Yik Fei/Getty Images
That afternoon, a plump 48-year-old musician was one of several customers to drop by the rented room. A German customer had paid the musician in Bitcoin for some freelance compositions, and the musician needed to turn them into dollars. Castiglione joked about the corruption of Argentine politics as he peeled off five $100 bills, which he was trading for a little more than 1.5 Bitcoins, and gave them to his client. The musician did not hand over anything in return; before showing up, he had transferred the Bitcoins — in essence, digital tokens that exist only as entries in a digital ledger — from his Bitcoin address to Castiglione’s. Had the German client instead sent euros to a bank in Argentina, the musician would have been required to fill out a form to receive payment and, as a result of the country’s currency controls, sacrificed roughly 30 percent of his earnings to change his euros into pesos.
The United States has a pretty good financial system; the dollar generally holds its value from one year to the next, people are generally free to exchange their dollars for foreign currencies at market exchange rates, and we don’t worry about governments or banks suddenly confiscating our wealth.
But some other countries have much worse financial systems. Argentina in particular has suffered from a series of financial crises that have made Argentines wary of the country’s banking system. As the Times explains, the government has tried to fight inflation by enforcing an unrealistic exchange rate, which in practice operates as a huge tax on foreign transactions.
As a result, Bitcoin looks a lot more attractive to people in Argentina. The Argentine government can’t impose its arbitrary rules on the Bitcoin network, which operates all over the world. And Bitcoin’s volatility seems less alarming in a country where double-digit inflation is a common occurrence.
As Bitcoin takes root around the world, it will provide an effective floor on how terrible a country’s financial system can get. In the past, when a country suffered from a bout of hyperinflation — as Argentina did in the 1980s — there wasn’t much locals could do about it. Back then, it wasn’t practical to use the American or German financial systems for everyday purchases in Argentina, and there was a limit to the number of dollars or Deutsche marks people could smuggle into the country.
But it’s easy for Argentines to use the Bitcoin network — all you need is an internet connection. So if the Argentine financial system gets more dysfunctional, Bitcoin will become more popular.
And this is one reason Bitcoin is here to stay. Even if it never poses a serious threat to financial networks in rich countries, there will always be some countries around the world with dysfunctional financial systems. People in these countries will want unregulated ways to send money overseas, and they’ll want ways to shelter their wealth from inflation and the kleptocratic tendencies of their governments. These users will generate demand for bitcoins for the foreseeable future.
See More:
