By now, you’ve without a doubt heard about some form of cryptocurrency. From Bitcoin’s unprecedented run, to Ethereum, and even meme coins like Dogecoin, the rise in cryptocurrency’s popularity has taken the globe by storm.
If you have been following the historic rise of crypto, you may have heard about some of the potential benefits and risks that the adoption of the currency may pose in Central America. Just last June, President Nayib Bukele of El Salvador made history announcing via Twitter that El Salvador had become the first nation in the world to approve a law classifying Bitcoin as legal tender within the country. This decision was approved almost unanimously, with Bukele citing the ease of remittance payments for many El Salvadorians living abroad in the United States and elsewhere as a major factor in the approval decision.
With cryptocurrency on the rise, what could this all mean for Costa Rica and the rest of Central America? What even is cryptocurrency and how does it work? What are some of the benefits and risks involved in adopting cryptocurrency as a legal form of tender in the future?
In just a few short segments, we will delve into the interesting world of crypto to help get the answer these questions and more.
What is Cryptocurrency?
Cryptocurrency, or “crypto” as it is commonly referred to, is a digital form of currency that is protected using cryptography and allows the owner to buys goods and services in exchange. There are over 10,000 crypto currencies being publicly traded via the stock market currently, the most popular of them being the now household name “Bitcoin”. Bitcoin made its meteoric rise from just over $100 in 2013, to well over $60,000 at its peak.
Cryptocurrency uses a technology called blockchain to record and track transaction information between parties in a way that ensures security and protection from hackers. Once an individual has obtained a cryptocurrency by purchasing it via another form of legitimate currency, trading for it, or by “mining” it.
Their transaction is recorded and they are free to trade or spend (where it is accepted) the currency just as you would with any other form of tender. In a much less complicated sense, you can think of crytpocurrencies as online tokens. These tokens can vary in value from mere fractions of a cent, to tens of thousands of dollars depending on the particular crypto you have acquired.
What are some of the Benefits and Risks of CryptoCurrency?
Now that you have a good general sense of the nature of cryptocurrency, let’s examine the practical application of these currencies as legal tender and what that may entail.
Governments and individuals alike see many benefits in allowing digital currency to be accepted as a legal form of tender. Some of these benefits are speculative, as cryptocurrency is relatively new and may need some time in circulation to make meaningful effects in these areas. Here are some of the most popular benefits cited:
- Cryptocurrencies transactions are conducted on a peer to peer basis. Taking the money handling aspect of finance away from the banks allows the owner of the crypto to be almost entirely autonomous when it comes to their funds. As a result, several other attractive benefits begin to present themselves. This includes avoiding pesky overdraft, minimum account balance, and returned deposit fees.
- Cryptocurrencies are decentralized. This aspect of crypto is extremely attractive due to the fact that the respective money will no longer be tied to any central bank or government agency. By taking the money supply away from central banks or financial institutions, the owner of the crypto can theoretically avoid the tumultuous rise and crash of traditional currencies due to inflation.
- Cryptocurrency transactions are secure. With each transaction, information of the transaction is tracked and recorded via a network of thousands of computers, where the transaction is then added to the blockchain. Unlike traditional physical cash, this allows the currency to have a digital track record of sorts. This feature of digital currency ensures security of transactions in a way that requires no third party, and guarantees that payment will be completed due to the fact that transactions are irreversible.
- Crytpocurrencies are multinational. Being that digital currency is not tied to any particular government institution or single country, cryptocurrencies are essentially borderless. This is a major benefit to owners of the currency attempting to conduct transactions with individuals in another country. The digital nature of cryptocurrency eliminates the need for exchange of different forms of physical currency, and also helps to avoid the high cost of country to country wire transfer fees.
While these added benefits have major upside, no system of exchanging currency is without its flaws. Here are some of the main concerns associated with the substitution of crypto for physical cash.
- Cryptocurrency transactions are semi-anonymous in nature. Due to the anonymity associated with crypto, there is a concern that crypto is ripe for conducting illegal online activity such as tax evasion and money laundering. Some cryptos are more anonymous than others, and some cryptos like Bitcoin have actually helped track down online criminal activity. Still, the anonymous nature of some cryptos may invite the notion that they are safe to conduct such business.
- Cryptocurrencies, like any other online commodity, are subject to risks of sub-par cybe-rsecurity. While blockchain technology is considered one of the most secure forms of cyber-security measures to appear in recent history, this does not mean that crypto exchange is immune to any and all online threats. With so many new cryptos appearing, the security will only be as good as the crypto-custodians providing it. The usual risks like data hacking and extortion are still present.
Cryptocurrency and Costa Rica: What Does the Future Look Like?
With the growing interest in cryptocurrency in Central America and surrounding countries, what can the future of crypto hold for Costa Rica and their residents?
Cryptocurrencies, while not officially recognized by the Central Bank, are already acknowledged as a legitimate form of payment throughout the country. In addition, according to the country’s work code, workers are entitled to have a portion of their wages paid to them via crytpocurrency.
What else makes Costa Rica a promising new haven for cryptocurrency?
While the world class views and beaches certainly do not hurt their case, Costa Rica is ripe for crytpocurrency pioneers in more ways than that.
Costa Rica is one of the most crypto-friendly countries in the world, with a laundry list of businesses already accepting various crypto currencies as a viable form of payment. They even have 3 ATM’s located in the country that accept crypto as a form of payment.
EOS Costa Rica, which has earned the nickname “The Ethereum Killer”, is an already booming blockchain producer located within the country; an encouraging sign for new crypto start-ups looking for a place to reside. This ranks 33rd in the world in the crypto category at the time of this article. Combine that with the fact that they are among the world leaders in renewable energy needed for Bitcoin mining, and an excellent infrastructure, and you’ve got yourself a prime candidate for crypto-techs looking for a place to set up shop.
Costa Rica’s well renowned economic and political stability, especially compared to other Latin American countries (see Venezuela), also make a favorable case for crypto and blockchain startups.
With the resources, infrastructure, and regulation for cryptocurrency being some of the most favorable in the world for crypto currency and blockchain-based projects, Costa Rica’s future in crypto has only just begun.