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What is Cryptocurrency and Why is it Important for a LATAM Capitalist?

Updated: Jun 4, 2018

If you haven't been living under a rock for the past few years, you've probably heard of Bitcoin, or maybe even some of the other "altcoins" such as Ethereum and Litecoin. All of these are considered cryptocurrencies. However, many people seem to have misconceptions on what these currencies are or their use cases. Many think that cryptocurrencies are only used to purchase drugs on the internet. That is far from the truth, and cryptocurrencies can provide great advantages and utility to someone living in Latin America.

What is Cryptocurrency?

A cryptocurrency is a digital asset that uses a cryptographic algorithm to perform transactions and issue new currency. For simplicity, you can think of the cryptographic algorithm as a extremely complicated puzzle. The complexity of this "puzzle" or algorithm is what protects the currency from hackers. Paper money on the other hand is a physical asset and the issuance of new paper is controlled by the Federal Reserve in the United States.

Why is Decentralization Important?

The Federal Reserve is a centralized entity that controls the issuance of US dollars. Cryptocurrencies are decentralized, meaning no single person or institution controls the issuance of new currency or the processing of transactions. In the case of the US dollar, a company such as Visa processes many transactions. A single centralized entity, be it something like the Federal Reserve or Visa, is a point of weakness. They can be a target for hackers and are also susceptible to corruption from within their respective organizations. Sometimes it doesn't even have to be corruption, but pure incompetence (i.e the US 2008 bailout). There are also concerns of privacy, centralized payment processing companies (Visa, PayPal) could theoretically sell your purchasing habits to advertisers.

Why is Cryptocurrency Worth "Real" Money?

At it's most basic level, cryptocurrency is worth "real" money because people say it is. It is a classic case of supply and demand. There is a limited supply of Bitcoin, that can never be increased, thus the more people that want to buy Bitcoin (increased demand) causes the price to go up.

This is really no different than how government issued currencies function, except that government issued currencies have no maximum supply. The US dollar is worth what it is because that is what society (the market) says it is worth. The US dollar's value has steadily declined over the years due to inflation (more supply as the Federal Reserve prints money). A more extreme example is the Venezuelan Bolivar. Due to a number of factors, the Venezuelan Bolivar began to lose value over the past few years. In an attempt to remedy this, the Venezuelan government printed more currency, increasing supply. After a few years of this continual rapid increase in supply, the currency today is essentially worthless due to hyperinflation.

Why is Cryptocurrency Important for a LATAM Capitalist?

If you are reading this, I'm going to assume that you are interested in living in Latin America, are a capitalist, and thus probably fairly libertarian as well. Based on this, it's probably safe to assume you value control over your own assets and privacy. Crytocurrencies also provide a fast and cheap means of transferring money without the need for a bank or other processor.

Cryptocurrency, if used correctly, gives you complete control of your assets. There is no bank to shutdown your account, no payment processor to deny a transaction. This advantage also comes with great responsibility. There is no customer service line to call if you mess up, your cryptocurrency security plan is all on you.

Cryptocurrencies also provide privacy, however not as much as you may have assumed. Bitcoin for example is not completely anonymous. If done right it could be, however all transactions are tracked on the blockchain forever. Thus, if one transaction is connected to you, your privacy is gone. There are alternative coins that provide better anonymity such as Monero. Remember, just because you value privacy does not mean that you are using that privacy to do illegal activities. There are many advantages to privacy as we've learned the hard way through events like the Equifax breach.

Another advantage for someone living in Latin America is a means of transferring funds from back home. Cryptocurrency can be used to send money to family, friends, or just yourself across borders,and it can be much cheaper and faster than traditional methods such as a bank or Western Union. Read more about how fast and cheap cryptocurrencies transactions here.

Crytocurrency provides many advantages to the LATAM Capitalist, and this is only the tip of the iceberg. If you've enjoyed this article and are ready to jump in, click the banner below and receive $10 free when you purchase your first $100 of cryptocurrency from Coinbase.

Disclaimer: This is not investment advice. This article should be taken for entertainment purposes only.

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