In Venezuela's capital city of Caracas, a hungry mob recently broke into a zoo to eat a horse. One cause of the food crisis is government currency controls that make it very expensive to buy goods from other countries. But Venezuelans are bypassing these restrictions using the internet-based currency bitcoin.
And there are similar phenomena in neighboring countries. Bitcoin is catching on especially fast in Latin America because it gives individuals a way around protectionism and other destructive government policies that are common in the region. Here are three ways that bitcoin is promoting economic freedom in Latin America.
1. Bypassing Monetary Controls
Rodrigo Souza is a U.S.-based entrepreneur and the founder of BlinkTrade, which operates the exchange for SurBitcoin, an online marketplace where Venezuelans buy and sell government-issued bolivars for bitcoins. SurBitcoin's monthly trade volume has tripled in the last year alone as more and more Venezuelans have started using bitcoin.
An advantage of bitcoin is that while the government regulates and restricts the flow of money in and out of the country through the banking system, bitcoin circumvents the banks because it's an internet based currency.
And now a growing community of Venezuelans are using their bitcoins to buy food from e-commerce sites like Amazon and Walmart.com. The packages are routed to one of a handful of Miami-based courier services and then shipped to Venezuela, where they're delivered to the homes of people trapped in this starving nation.
2. Bypassing Tariffs
When the iPhone 6 went on sale in Brazil last year, the price was so absurdly high that it became became a punchline on late night talk shows.
The explanation for the high price is that the country charges an import tariff on foreign goods that runs as high as 60 percent. But again the government enforces this policy through the banking system. Today, a growing number of Brazilians are getting around import tax by going around the banking system to purchase products like iPhones. This way the government simply has no way of tracking how much Brazilians are spending when buying goods from abroad. Bitcoin is also an effective tool for avoiding taxes when moving investment capital into Brazil.
Thiago Cesar is the founder and CEO of BitOne. The company helps clients get around a 27.5 percent foreign exchange tax when bringing money into the country by using bitcoin.
And circumventing protectionist tariffs isn't just for investors. Average Brazilians traveling abroad will find that they're atomically hit with a 6.38 percent levy everytime they swipe a debit or credit card. Many have realized that if they use a bitcoin credit card from Xapo or Advcash, they can escape the tax altogether.
3. Cutting Red Tape
Brazilian entrepreneur Edilson Osório believes that bitcoin can help solve this problem—not the currency itself, but rather the database file where transactions are recorded in the bitcoin network. That database is known as the blockchain, and it's a computer file with a unique architecture that means that it can never be altered or tampered with. Writing information to the blockchain is like inscribing a message in wet cement.
This incorruptible file, enthusiasts believe, has the potential to fill the void left by Latin America's weak government institutions. For example, in Honduras, one company has explored moving land titles from ancient paper volumes to the bitcoin blockchain where citizens of the country can verify that they haven't been secretly altered. (The project later stalled.)
Osório has a similar vision for how the blockchain can provide the trust that's sometimes missing from Brazil's government institutions.
Specifically, his idea is to use the blockchain to disrupt Brazil's notorious notary industry, which is a major source of red tape. The government requires that Brazilians go through a notary office to verify the authenticity of documents like birth certificates, contracts, and car titles, with every business transaction.
Osório company, OriginalMy, offers a different method for verifying documents that eliminates the hassle. The website he built allows customers to upload encrypted representations of their important documents to the blockchain. Then at any point in the future it's possible to prove a document's authenticity by checking it against the original.
The hope is that this new system for establishing trust will improve the country's business climate.
Written and produced by Jim Epstein. Graphics by Joshua Swain. Additional production help from Ian Keyser.
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