Discover the remarkable increase in cryptocurrency adoption in Central America, challenging traditional perceptions of the region. In this article, explore how Central America is becoming a crypto hub with far-reaching implications for its economy and society.
When you traditionally think of Central America, it's fair to assume you're not thinking of the region as a hotbed of cryptocurrency. After all, these seven small countries are mostly poor and โdevelopingโ, right? At least, that's the prevailing opinion. But Central America is a region with high cryptocurrency adoption rates. Most โdevelopingโ regions are, in fact.
There are a few reasons why developing regions are so popular for cryptocurrencies. Cryptocurrencies can offer financial inclusion to people without access to traditional financial services. You do not need a bank account to make payments or store cryptocurrency.
They can also be used to send/receive remittances
Moving cryptocurrency from one county to another is often cheaper and faster than traditional methods of sending remittances. It should be noted that remittances represent more than 24% of GDP in The Savior and Honduras. That's a lot of money coming into the country from relatives abroad (overwhelmingly in the US) and you cut a lot of fees if you send with crypto.
According to the 2022 New Payments Index, approximately 51% of Latin Americans made at least one payment in digital tokens. This is the highest adoption rate of any region in the world:
- Latin America: 51%
- Sub-Saharan Africa: 44%
- North America: 36%
- Southeast Asia: 29%
- Western Europe: 23%
- Eastern Europe: 19%
- Middle East: 17%
- Oceania: 14%
According to the World Bank, around 22.5% of the population of Latin America lives in Central America. The New Payments Index does not break down exactly by country that used digital tokens in the last year, but we have to assume that Central America would form part of its study, especially given the situation in El Salvador.
A look at cryptocurrency in Central America to see how various countries in the region are using it, adapting to it, and legislating for its broader use in the future.https://t.co/ZnHceliEBy
โ Central America Living (@VidaAmerica) November 14, 2022
And digital tokens aren't all cryptocurrencies either.
Some people who used a digital token last year may not have actually used a cryptocurrency. Digital tokens come in many forms. However, the growth in digital token adoption in recent years suggests that Central America is part of a region where cryptocurrencies have the potential to become increasingly popular in the future.
Continuing with what the New Payments Index 2022 found, Latin America is one of the regions in the world where the adoption of new payment methods is growing the fastest. The report found that:
- The use of digital wallets is particularly high in Latin America. In 2022, 72% of consumers in Latin America used a digital wallet in the last year, up from 61% in 2021.
- Contactless payments are also becoming more popular in Latin America. In 2022, 67% of consumers in Latin America made a contactless payment in the past year, up from 57% in 2021.
- Cryptocurrency adoption is also growing in Latin America. In 2022, 17% of consumers in Latin America had used a cryptocurrency in the last year, up from 11% in 2021.
The report also found that consumers in Latin America are willing to adopt new payment methods. Last year, 77% of consumers in Latin America said they were willing to try a new payment method if it offered a better experience. In essence, we can expect to see more Latin Americans (and Central Americans) choosing buy bitcoin online going forward.
๐ The crypto revolution in Latin America is underway! 51% of consumers have already transacted with cryptocurrencies, according to Mastercard's New Payments Index 2022. Latin Americans seek flexibility and support from financial institutions.
โ LivelyVerse (@Lively_verse) June 30, 2023
In September 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender.
The official adoption of Bitcoin in El Salvador was controversial and has been met, so far, with mixed results. Some people have started using Bitcoin to make payments, while others have been reluctant to do so. Some believe it will help boost the economy and make it easier for people to send remittances. Others say it's a risky move that could lead to financial instability.
The Salvadoran government launched a series of initiatives to promote the use of Bitcoin. These include the creation of a government-backed Bitcoin wallet called Chivo and the installation of Bitcoin ATMs across the country. El Salvador has also established a Bitcoin Trust Fund, which is financed by 10% of the value of all Bitcoin transactions in the country. Funds from the trust fund are used to finance social programs, such as education and health care. One of the first beneficiaries of the trust fund was a new animal hospital for pets.
In November 2021, President Nayib Bukele announced the creation of a unique Bitcoin City at the base of the Conchagua Volcano, designed with inspiration from ancient metropolises. The city aims to run solely on cryptocurrencies, taking advantage of the area's natural resources for electricity generation. However, analysts have doubts about its viability due to infrastructure challenges and public concerns about investing in education and healthcare. Money laundering is also a potential concern without proper regulations. To attract foreign investors and prevent illicit activities, robust and continuously updated control measures must be established.
Do you want to see a video about #Bitcoin and pets?@chivopets it is the first one #Bitcoin fully funded animal hospital.
Each treatment will cost only $0.25, paid in #BTCwith any wallet. https://t.co/qODeo1eO3M
โ Nayib Bukele (@nayibbukele) February 25, 2022
Cryptocurrency adoption in Costa Rica and Panama
Costa Rica has been taking significant steps towards the adoption of virtual coins and tokens. In 2019, the Costa Rican Securities and Exchange Commission (SUGEF) said that cryptocurrencies are not securities and are not subject to the same regulations. The government also announced plans to explore the use of blockchain technology for government services.
Businesses in Costa Rica can (and many do) accept Bitcoin as payment, and there are Bitcoin ATMs in the country. So far, five trusted exchanges have been authorized in Costa Rica, including Binance. Mining is also popular.
In Panama, you can also use Bitcoin without limitations. Digital currencies can be used as an alternative payment for business operations. Based on a recent bill that aims to make Panama compatible with the digital economy and welcome a new layer of diversification for the country's finances, precious metals could also receive tokenization. At the same time, blockchain technology could soon enjoy new use cases.
The main drawback of full legalization in Panama is the fear of financial crime and money laundering activities. This is why invoices keep being sent back for review. But if you are bullish on cryptocurrencies, then Panama is a country to watch.
Divide the cost of dinner using #Bitcoin
made through the #Binance application in less than 15 seconds.
Download the app today ๐ https://t.co/WGrprKgXyd pic.twitter.com/QLKY61Jwd8
โBinance (@binance) July 22, 2023
What about the rest of Central America?
In other parts of the region, things are slower. The reactions are more varied. Both Guatemala The US and Honduras allow the use of cryptocurrencies, but remain vague on legislation, regulation and legalization. Nicaragua and belize they are more negative on the subject, issuing more warnings about the potential risks rather than discussing the benefits. That being said, consumers and businesses in both countries can use/accept cryptocurrencies if they wish.
It is still difficult to establish if more countries will follow in El Salvador's footsteps and decide to adopt cryptocurrencies in the same way. So far, the country has not registered any significant benefits that could persuade others to take a step in that direction.
It is important to remember that digital currencies have not been at their strongest for the last year, and this is reason enough to discourage lawmakers from adopting more legislation. As long as governments view cryptocurrencies as risky and volatile, they fear that the potential for loss will outweigh any potential benefit.
However, many are getting excited about the idea of โโcryptocurrencies and investors can expect to see many future developments in this sector in Central America and the broader Latin America region.
