James Downer is a student of International Relations and Computer science, and is interested in the collision between the two. Here, he discusses bitcoin's growing role in Argentina and the nation's thriving black market for dollars.
The US dollar black market doesn’t just thrive in Buenos Aires, it’s published in the paper every morning.
Swinging by one of the city’s newsstands, you’ll find the official peso to dollar rates published next to the ‘dólar blue’ rates at the top of the morning edition of La Nación, and if you walk downtown to Calle Florida, the arbolitos (street traders of black market currency, literally 'little trees') that stand planted on the busy commercial street greet any foreigner they see with barks of “Cambio! Cambio! Cambio!”.
Currency restrictions have become more stringent in Argentina in recent years as the government struggles to prop up confidence in the peso by restricting the dollar. These restrictions have held the official rate down to around 8 to 1, but the blue rate at around 10 to 1 is so favourable that dollars determine tourism prices and denominate everything from technology purchases to property.
A history of inflation
Confidence in the dollar and lack of faith in the domestic peso is deeply woven into the culture of Argentina. While it strikes foreigners strange that a vast portion of the country thinks in dollars, periods of inflation are so frequent in Argentinian history, those who don’t have an escape from the inflationary currency are quickly left behind.
Inflation over the past year reached 100% by private estimates, but that pales in comparison to the economic crisis of 2001, when Argentina declared bankruptcy and ruptured peso parity with the US dollar, freezing bank accounts for many. At the peak of the crisis, when one woman couldn’t get money from her account, she doused herself in gasoline in the middle of the bank floor and set herself on fire.
Before that, back in the late ’80s, Argentina saw one of the worst periods of inflation in modern history, reaching 5,000% over the course of 1989, resulting in massive food shortages and riots around the country. Haunted by decennial crises, Argentinians rationally hoard dollars, with a sum total of around $50bn allegedly hidden in walls and under sofa cushions.
Those who have the means and access look for banks outside the country dealing in dollars or euros, and some choose to invest in domestic property (also denominated in dollars, or pesos at the blue rate), but many turn to cuevas (underground exchange houses, literally 'caves') or arbolitos to guard their savings in physical dollar bills.
This means that the black rate is dependent on the flow of physical dollars into the country. Each physical dollar needs to come from abroad, either withdrawn from an ATM in Uruguay and brought back across Rio de la Plata, or flown in from the US or Europe stored in wallets and stuffed in underwear.
By the 2010 Argentine census, the Greater Buenos Aires area had a population a shade over 12.8 million people. Each marker on the map above (numbers denote a collection of sites) represents a point where bitcoin is accepted in Buenos Aires as reported on Coinmap.
Within the cryptocurrency community, Coinmap is widely used to identify bitcoin-accepting sites around the world. The total number of sites in the Buenos Aires area is 78. To scale the number of sites to the size of the city, we can divide the sites by the number of people, making the index for Buenos Aires 6.1 sites for every million inhabitants.
Argentina leads Latin America by leaps and bounds for bitcoin development. São Paulo with a population of 20.8 million shows 16 sites (0.8 sites per million), Mexico City with 21.2 people shows 14 reported sites (0.7 sites per million), and Santiago with 6.3 million reports 6 (1.0 sites per million).
But how does Buenos Aires compare as an early adopter to an area which brought us Bell Labs and the Manhattan project?
New York currently has 111 sites in the metropolitan area of 23.4 million people. With an index of 4.7 sites per million, Buenos Aires still comes out ahead with a notable adoption advantage.
So bitcoin is certainly seeing accelerated adoption in Argentina. Potential reasons why include everything from high Internet penetration, to the ideological base which drives many bitcoiners: that the central bank and politicians are not to be trusted.
And while not one of the half dozen arbolitos I interviewed had heard of bitcoin, there is a community eagerly buying up bitcoins for pesos, and bitcoin adoption, while the majority of the public is still not aware of it, is growing quickly.
In addition to the stats published by Coinmap, BitPay, a bitcoin payment implementation service, has just opened offices in Argentina.
Without access to an exchange, the best way to get a bitcoin in Argentina is to find someone online interested in selling and meet in a cafe for a quick conversation to switch a pile of pesos for the digital currency.
This naturally means the data is scattered, but the several sites that act as dealers or deal facilitators (such as digicoins.tk, unisend.com, localbitcoins.com and the lively Bitcoin Argentina Facebook group) publish daily buy/sell rates for bitcoin.
These numbers are naturally a bit subjective, but provide a historical metric to compare what people are willing to pay for a bitcoin compared to the dólar blue.
For 54 of 72 days with data since the beginning of the year, the per dollar cost of a bitcoin exceeded the dólar blue rate, meaning people were paying a premium of up to 30% above the 20% extra a dollar cost to buy BTC.
The relation in price makes sense, as those providing currency from abroad frequently have access to both bitcoins and dollars, but the degree is startling.
What’s the connection between the rise of bitcoin in Argentina and encroachment on the black market? While bitcoin still exists as an outsider method of payment, a core group of passionate developers have identified its utility as a protocol and are willing to brave the swinging volatility that has brought the price down 50% since the start of 2014, but up nearly 6,000% since a year ago.
A traditional currency should be widely accepted and a relatively constant store of value, but a significant advantage of bitcoin is its liquidity. Entirely legal and giving more diverse options, bitcoin can be used less as a currency and more as a protocol.
What’s driving this boom? Many in the community here speculate that philosophy and frustration with the government is driving adoption.
Whatever the cause, bitcoin won’t change the world overnight, but it has a distinct adoption advantage in certain sectors. The black market in Argentina may well just be one such area.
Disclaimer: CoinDesk founder Shakil Khan is an investor in BitPay.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.