Crypto in the Real World—Argentina

Ever since the 1930s, Argentina has been almost a laboratory experiment in poor governance and misguided economic policy. In 1896, the country’s GDP per capita exceeded that of the United States, and the country was the seventh wealthiest overall in the world in the early 20th century, remaining in the top ten until 1920. Starting in 1930, it embarked on a chaotic series of veers to the left and right, political instability, military coups, and financial crises, inflation, currency devaluations, and bank failures, and is now ranked at number 89 in the world by GDP.

Argentinians have experienced generations of political and financial turmoil, and have developed finely-honed skills in surviving in an environment where government and commerce are often predators. It thus might potentially be a Petri dish in which the hopes and claims that cryptocurrencies and blockchain technologies may offer an alternative for those in times of instability brought on by funny money and corrupt institutions.

Devon Zuegel, who has spent a lot of time in Argentina over the last few years, has posted a long (~4000 word) article at Freethink, “Inside the crypto black markets of Argentina”, which she summarises on Twitter as:

Argentinians have embraced crypto as a way to escape government overreach, but it hasn’t played out quite how longtime proponents expected…

Some insights:

This backdrop makes Argentina a poster child for cryptocurrencies. The argument from crypto proponents is that Argentinians have personally experienced the problems of centralized fiat currency for generations, so they’re especially receptive to the case for decentralized currencies that their government cannot meddle with.

Crypto enthusiasts are correct in many ways. I know an Argentinian grandma who barely uses a computer, yet as soon as she heard about Bitcoin from her grandson in 2016, she instantly said “Money the government can’t touch? Help me buy it right now,” and she’s been holding it ever since. (An understandable reaction when you’ve seen your country go through 5 different currencies in your lifetime.)

However, the specific ways crypto is used in Argentina are quite different from how many people who are building out the crypto ecosystem originally imagined it.

For example, crypto enthusiasts often imagine a world where individuals control their own wallets directly — storing the cryptographic code on their local computers or phones, not using a third party, like MetaMask.

But the reality on the ground is quite different: Argentinian crypto users use intermediaries and centralized apps to access crypto. This is especially striking given the reasons Argentinians use crypto in the first place, which you’d expect to make them especially receptive to the value proposition of decentralization.

When most people think of crypto, they tend to think of bitcoin (BTC) and Ethereum (ETH). However, these are not ideal savings instruments because they are highly volatile and the transaction fees remain expensive.

As a result, BTC and ETH are not so common for daily use in Argentina. Stablecoins such as USD-T, USD-C, and TRON are a more popular solution because they are pegged to a more stable currency (usually, USD).

Notably, the stablecoins popular for savings are also much more centralized. The Tether Foundation (which issues USD-T) has blocked transactions, and so has the Centre consortium (which issues USD-C). While TRON is technically not centralized, its cofounder has said that its architecture is not as decentralized as other blockchains.

They are attractive to Argentinians because they are not under the control of the government, not because they are decentralized and truly permissionless.

From talking to several cuevas [black market (but operating in the open) money changers—JW] and to my Argentinian friends, it sounds like it’s still uncommon for a typical person to use crypto to move money around directly. More likely, they go to a cueva and the cueva does the transaction for them, and the person doesn’t realize that the cueva was using crypto behind the scenes to do it.

I find this fascinating because one of the big assumptions of crypto proponents was that when crypto is adopted widely, everyone will control their own wallets and addresses. But in Argentina right now, it’s more common for consumers to interact with a centralized business that itself depends on the decentralization of crypto to exist, rather than for the consumers to interact with the blockchain directly.

Of all the cuevas I spoke with, only one actually manages their own keys. Every other cueva I know uses Binance as their primary wallet for crypto, both for day-to-day transfers and for holding their reserves. Many of them are holding hundreds of thousands or even millions of dollars in these reserves, which could easily get shut down at any time since what they’re doing is explicitly illegal.

This is striking because it doesn’t match up with the story that many crypto maximalists push about decentralization. Enthusiasts talk all about how important decentralization is, and given their unfortunate financial history, Argentinians more than most should appreciate those benefits.
And yet, there they are, holding their reserves in a centralized app that could get shut down tomorrow, theoretically just as easily as the banks were during the 2001 corralito.

The way I explain this to myself, it seems that the key characteristic that draws Argentinians to these relatively centralized cryptocurrencies is that the government doesn’t control them, rather than being completely decentralized in a way that no one controls them.

Crypto has quietly transformed the way many Argentinians move money and access the global economy. The volume of transactions going through crypto is growing rapidly, and it’s increasingly out of the government’s control.

However, the way that has played out is quite different from what many crypto enthusiasts have imagined.

Decentralization is a worthy goal, but in practice it seems that most Argentinians don’t care that much about it, at least not in the way purists talk about it. They’re more worried about whether the government can get their hands on their money; as long as the answer is “no,” they don’t seem to care much about who else has control over it.

Read the whole thing.

This has a parallel with my experience with Speak Freely, the Internet telephony program I developed and initially released in 1995. I considered its main advantage to be support for military-grade peer-to-peer encryption of calls, bypassing the attempts of the U.S. in the first crypto war to snoop on everybody’s communications. Being outside the U.S. and its jurisdiction, I could make this software available, including to people in countries which restricted cryptography, with what they did with it between them and their sovereign slavemasters.

Well, was I ever wrong. There was essentially zero interest in the cryptographic capabilities, and over almost a decade of answering questions about installing and using the software, I can only recall one or two about encryption. What people wanted to do was make free phone calls or use the Internet as a ham radio band, and they couldn’t have cared less about security or people listening in.

In Argentina, it seems like the main reason people (or, more accurately, black market currency exchanges) are adopting crypto is not to escape from the fiat money system, scrutiny of the legacy financial system, or the risk of cancellation or loss of privacy, but almost entirely to get around the Argentine government’s attempts to imprison its citizens in its funny money system through capital controls and restrictions on use of alternative foreign currencies.

Many are the products that succeeded for reasons other than those envisioned by their developers.

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Also the case for many U.S. users of Big Tech.

But tide may be turning with mature secure alternatives Brave.com protonmail.com and odysee.com to name a few.

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My apologies, I have not yet had time to read the article – but news from the laboratory of Real World experience is always worthwhile.

From the JW extracts, it seems that Argentinian cryptocurrency holders are mostly using it as a way of moving their savings from a very unreliable local fiat to a less (???) unreliable remote fiat – rather as some other people might choose to move their savings from US Dollars to Swiss Francs or even gold certificates. These are people who are concerned about Return OF Capital, not Return ON Capital, in apparent contrast to so many of those who speculate in cryptocurrencies.

This points to the underlying issue of how to preserve savings? Financial assets have had a good run, but it would be foolish to look to them (even cryptocurrencies) for future stability. Real assets which produce a real usable yield are better – if the owner can defend them. How much does Bill Gates really think that all of those title deeds to US farmland will be worth to him after the Collapse eliminates respect for pieces of ancient paper?

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