With the recent shift in El Salvador to legal tender for bitcoin, people are starting to take the cryptocurrency more seriously. One of the important considerations about President Nebbukkel’s incorporation of bitcoin into the country is the ability to resolve many of the issues unique to Latin American economies and markets, namely the issue of trust. While the usefulness of Bitcoin as a technology and investment tool is clear to market participants in the United States and other English-speaking economies, Bitcoin is of particular interest to the people of Latin America. This is due to many social, cultural and historical precedents, which are not necessarily shared or fully understood by those outside the area.
Understanding these topics and their implications for investment strategies is crucial for anyone looking for an uneven advantage among English-speaking investors. This is simply because these elements are not fully understood or written about outside of Latin America (or even in languages other than Spanish, period). In fact, many of these concepts are taken for granted by those who live there, and thus do not make them worth spreading. This is inside information that the average American lacks, information that makes Bitcoin a smart decision for anyone betting on the future of Latin America.
Without a doubt, Latin America is one of the final frontiers of serious economic development remaining in the world, and it is rapidly attracting money. Atlantico reported “an investment of $18.6 billion in the region through the end of 2021, a staggering 250% increase in investments compared to the $5.3 billion published in 2020.” Those looking for massive investment opportunities have flocked to developing economies and stock markets for decades, but the stage is set for advanced growth in this part of the world now more than ever.
Bitcoin offers unique advantages over foreign stock wallets for several reasons. One advantage is that bitcoin is a healthy, non-deductible money that acts as an asset to the holder rather than a market fund or stock portfolio. In fact, Bitcoin currently transcends the term “cryptocurrency” with its ever-growing functionality, incorporating stock-like benefits, currency and bearer assets like gold at the same time. It quickly became its own unique asset class. There is no single central authority that can control, stop, forfeit or inflate bitcoins. Instead, the system is distributed to millions of participants across the Earth, making it “unreliable”.
The ‘untrusted’ system is the perfect solution for low-trust communities
An excellent resource on societal differences in trust is Erin Meyer’s “Culture Map” (a must read for anyone doing multicultural work). As an international business consultant, Mayer points out important differences between companies based in Latin America and the United States that go beyond corporate culture; They go straight to the core of personal relationships.
Mayer describes how trust between business partners varies greatly from culture to culture. Explains the difference between “cognitive confidence” and “emotional confidence”:
Cognitive confidence is based on the confidence you feel in someone else’s accomplishments, skills, and reliability. This is confidence that comes from the head. It is often built through business interactions: we work together, you do your job well and you prove through business that you are reliable, fun, consistent, intelligent and transparent. The result: I trust you.
“Emotional trust, on the other hand, arises from feelings of emotional closeness, sympathy or friendship. This type of trust comes from the heart. We laugh together and relax together and see each other on a personal level, until I feel affection or sympathy for you and I feel that you feel the same for me. The result: I trust you.”
Countries in Latin America are working more on the “emotional trust” model. Mayer explains that because of a lack of trust in institutions and the legal system, residents of these communities need to have a sense of personal trust in their partners before working together. Compared to the happy United States, many Latin Americans have good reason to believe that if they were abandoned in a deal, there would be no legal recourse to get their money back. As such, personal references and associations are important in a way that the average American doesn’t really understand. In fact, this is the opposite of the United States, where “business is business.” In the words of Meyer, in low-trust societies, “work is personal.”
As a result, this obviously creates a slowdown in many processes. Add this to Latin America’s astonishing record of central bank hyperinflation and widespread political corruption, and you’ll be much slower to trust it, too. Bitcoin is important in Latin America because it takes large institutions, governments, powerful companies, and central banks out of the picture and allows direct and instant transactions between individuals and businesses alike.
Bitcoin completely removes the trust factor
The implications of this are huge. There is a reason why Bukele – the president of a country so hyperinflationary that they gave up owning their own money – established bitcoin as the national currency. It solves the trust factor Latin Americans know so well, with all their savings becoming worthless within months. Yes, there is volatility in bitcoin, but none as highly volatility as the Venezuelan bolivar, Argentine peso, Mexican peso or Salvadoran colon actually over the past few decades. In a volatile environment, people are looking for solutions that lower trust priorities in external institutions and increase trust in trusted personal transactions. With Bitcoin, there is no intermediary, government or otherwise, to block said transaction.
Just imagine when smart contracts are in earnest on the Liquid network, and for the first time you’ll see a contract implementation that’s only enabled in the US by trusted court and police systems. This will encourage economic development and opportunities that have been stifled for many years in Latin America. These are guaranteed contracts based on the hardest money ever created. This is a cultural difference that gives value to Bitcoin that few in the United States can even understand. They do not take this into account in their Bitcoin price predictions. That’s not to mention the benefit of being able to move money across borders safely and easily, which is another common requirement for Latin American businesses that most Americans don’t reckon with.
An unreliable transaction system built on sound money that cannot be reversed, confiscated, or far-fetched fixes fundamental obstacles to the economic development of Latin America on a large scale. Latin America is an industry powerhouse with over half a billion consumers and rich natural resources; However, due to complex economic obstacles, it has not yet been able to realize its potential on a global scale. It is very likely that we are on the cusp of seeing this potential realized and experiencing a type of growth that we have not seen in our lifetime.
If bitcoin becomes the new gold standard for the economic development of this entire region, would you want to be late to the party?
This is another guest from before Nico Antona Cooper. The opinions expressed are their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.