Cryptocurrency in Argentina: What is it?, How does it work? And how is it regulated?
May 4th, 2021
Cryptocurrency is growing strong in Argentina. We’ve heard about it more than once on the media, we know someone who has invested in that virtual currency; yet we still don’t know for sure how it works, how much it’s worth, how to acquire it and we mistrust it a bit.
Here at XOOR, we created this article to shed some light over this controversial topic which rises so many doubts. Since we are not experts on the matter, we had a talk with specialized authorities, asked a lot questions, considered their answers and brought them to you.
We interviewed Fernando Mosca, a software engineer with a postgraduate degree on finance and an expert on blockchain and Cryptocurrency. We spoked with Irina Sternik, journalist specialized in technology; and Maximiliano Duthey, systems engineer and tech leader at XOOR.
Cryptocurrency is a digital coin or a virtual currency. It’s digital money which can be used to make any sort of financial transaction. You can make payments, shop or wire it immediately over the Internet no matter the geopolitical barriers.
They are decentralized coins, that is to say “there are no main governments, financial institutions, companies or banks that operate over them”, stated Sternik. Some of these currencies, as store of value, share an element with precious metals.
Investing in Cryptocurrency is as safe as operating in the stock market. You can’t know beforehand exactly whether you’ll make money or not, because its value changes constantly in relation to multiple regional and global variables. What we can say for sure is that since its creation in 2009, Cryptocurrency has been on the rise. Someone that bought a 100 dollars in Bitcoins in January 2011 would have 1,929,882$ today.
According to Sternik, Cryptocurrency is made up of decentralized blocks called “Blockchain” that are used as a database for public financial transactions.
To understand how Cryptocurrency is created, Mosca invited us to imagine it as millions of spreadsheets distributed all over the world where accounts and amounts of coins in each account are registered. These records are repeated millions of times so it becomes impossible to alter all of them. Its content is agreed upon between the different records of the same information.
So, unless someone takes over more than 51% of those spreadsheets -something virtually impossible given such a large amount- the security of this information will lay precisely on the fact that no one can control or manipulate it.
For those millions of virtual spreadsheets or “Virtual Financial Records” to exist, there must be millions of computers connected, agreeing and controlling that the information is confirmed. This task has an added value for those providing working hours of their equipment to contribute so that this virtual financial record functions. They receive a small fraction of a Cryptocurrency in one of the available accounts as a commission.
For the system to work several computers must be active and participating in this consensus system. The only way to motivate their owners to leave the computers active for long periods of time is to reward them.
Since you cannot easily validate that a computer is actually on, they are tested continuously: they are assigned complex mathematical operations that take a long time to solve. The algorithm awards them a small fraction of Cryptocurrency once the problem is solved.
To sum up, “to participate in these transaction validations, computers need to dedicate a long time to solve complex operations that guarantee that they are turned on for long periods of time and that they are participating in the system,” states Mosca. Therefore, the amount of virtual currency received is mainly proportional to the amount of time that a computer has been doing its job, “and that is precisely what is known as mining.”
Financial business can be a sensitive topic. People are afraid to commit their money in operations that are not 100% accurate and to end up losing money: Setting up a fixed term deposit account?, buying dollars?, investing in real state? Now, the realm of possibilities also includes: Buying Cryptocurrency? In addition to these doubts, there are also some fears associated to virtual areas, the fear of being hacked, lacking support or, that fintech disappears.
To the question is Cryptocurrency safe?, first we need to consider that it does not have fiat money issued by banks as a support, so its value cannot drop arbitrarily due political decisions made by leaders.
Second, to consider whether cryptocurrency is reliable, we need to keep in mind as a general economic rule that the value of something is the result of “supply and demand”: if the supply of a certain good goes up, its price goes down. Cryptocurrency has a very slow controlled (almost imperceptible) growth, and it is impossible to manipulate it; therefore “there cannot be an indiscriminate supply increase, which could occur with currency issued by central banks,” explained Mosca. Although this factor does not guarantee value stability by itself, at least we know it cannot be controlled arbitrarily by a person or group of persons.
There are two ways to operate with Cryptocurrency. One is easier, speculative and “unprofessional”, in which you only need to download an app and use systems such as homebanking. You buy a certain amount and leave it alone for a number of years so the value of the virtual coin increases.
The second option has a certain level of complexity because you need to understand when it's time to buy, sell and multiply. If someone wants to invest in these terms, they should make a thorough investigation or even hire an expert on the matter to do so successfully.
Nowadays, a good source to understand how to invest, learn about the subject and jump in is Bitcoin’s official website.
From Argentina you can buy different types of Cryptocurrency. Currently, Bitcoin, Ethereum, DAI, USDT and USDC are the best-known ones.
The first thing we should clarify is that there are a lot of variables when investing in Cryptocurrency from Argentina: what type of Cryptocurrency to get, what’s the purpose of the purchase, for how long, etc.
The easiest version for those with extra cash they had been saving in dollars but would now like to invest in Cryptocurrency would be the one provided by engineer Duthey:
- Create a user for any virtual wallet that operates with virtual currency (For example: Ripio, Bitso, SatoshiTango, BuenBit, Cryptomkt)
- Wire money to that account - it can take a couple of business days for it to show up on the website-
- Choose which Cryptocurrency to buy (BTC, ETH, USDC, DAI, USDT)
- Indicate the amount you wish to purchase (using the money deposited) and confirm the operation
CLARIFICATION: The virtual wallet account to buy the Cryptocurrency and the associated bank account should be under the same name.
The price changes between different Cryptocurrency. There are several websites where you can check the value of Cryptocurrency in real time and from anywhere in the world. A reliable option is CryptoSaurio. On that website you can check prices and profit percentages generated with the investment in each currency and with prices for Cryptocurrency for Argentina or the national currency being used to check.
It is also very important to be informed on the subject, because there are variables that can shift growth or drop tendencies due to several reasons.
On the one hand, price relies on demand and the latter relies on money available to invest. Then, and in a more unpredictable fashion, the use the general public makes of the currency and the incorporation into every day life, as it happened for example with Uber or Airbnb services.
On the other hand, the value will depend on the acceptance of those currencies by the governments, by means of legal and regulatory instruments.
We should point out that “for the last three years, a strong growth or drop in the price was mainly due to good or bad news related to any of the three subjects mentioned before,” Mosca stated.
Also, we should keep an eye out for Cryptocurrency in the news because, as Elon Musk demonstrated, a simple mention on Twitter by a globally renowned figure can sky-rocket prices within the hour.
Actually, no financial asset is profitable on itself due to its volatility. The same goes for Cryptocurrency. This means that if there are favorable political, economic and social conditions, the price can go up; but if the context is adverse, the asset can depreciate.
When talking about Cryptocurrency, “given that they are new, unknown, innovative coins, they have strong potential for growth, but also a ‘negative’ external element can make their price return to 0”, Mosca indicated.
A lot of people ask themselves which are the Cryptocurrencies that exist? And how much is each one worth? As we mentioned before, you can check their value on several websites. The second one that we’ll recommend is Coin Market Cap. There you can check Cryptocurrency in an increasing order from the least to the most volatile.
The least volatile of all is, for the reasons we have already explained, the most famous one: Bitcoin. The new ones are the most unstable of them all. But we shouldn’t always look at them sideways: with expertise on the matter or the advice of a professional you can operate with them and make a good profit.
Is Cryptocurrency legal? As with anything digital and with everything on the Internet, norms and regulations take some time to be set up. But yes, it is legal to use Cryptocurrency to make transactions and as investments.
Given its decentralized feature, legislating is very difficult, almost as difficult as legislating natural resources. Globally, governments have only been able to limit company authorizations to develop IT projects that make use of Cryptocurrency. In Mosca’s opinion, “these restrictions are dropping slowly and will soon disappear all together.”
Regarding taxation, several States have began to draw up some kind of legislation so people can include their Cryptocurrency holdings in their tax reports. Mosca points out that it is complicated due to the difficulty in “tracking ownership of it and currently the public mainly invests in it for speculative purposes.”
There were several bills created in Argentina during 2020 to establish certain agreements regarding Cryptocurrency, Sternik stated. These documents attempt to unify its definition and to outline criteria to authorize finance companies to operate as vendors of Cryptoassets. In addition, these bills include the introduction of the Federal Administration of Public Revenue (“AFIP” for its acronym in Spanish) as regulating entity over this new category.
However, so far into 2021 Congress has not debated any of these bills so there is no current specific law regulating it. Therefore, what currently regulates Cryptocurrency transactions are the rules issued by the the Financial Information Unit (“FIU”), Argentina’s Central Bank (“BCRA” for its acronym in Spanish) and AFIP.
As with any investment, virtual currency has its pros and cons. Among the “pros” we could highlight that it can be acquired from any place in the world and there is no exchange variation between countries, as is the case with physical currency such as the dollar. In the same way, it can also be used anywhere in the world.
Also, it is safer and more transparent. All transactions have traceability because they are made through blockchain which is public. Blockchain is stored in several computers so it is legible to all users and, therefore, it is harder to alter it.
It tends to be more immediate than any other investment. It facilitates the exchange when transactions are made between countries with different currencies.
As “cons” with Cryptocurrency we can mention that there is still a lot of mistrust surrounding it because it is new, linked to “non-tangible” matters and because it is decentralized.
In addition, we should point out that if you loose the password to your virtual wallet, you won’t be able to access it in any other way. In fact, some people have lost thousands of dollars because of that.
Finally, another con of Cryptocurrency is the Eco damage done due to the energetic dependency to produce it. Environmental activists have reported that mining requires an extremely high electrical use. However, alternatives are already being developed.
For an element to work as an exchange unit, it is necessary for all participants to accept it as such. The only thing required to do so is the trust of individuals, even if it’s just agreeing that an element will be used as an exchange unit.
All throughout history, products found in nature have been used as exchange units in cases where the supply was pretty limited, such as salt, precious metals or, even, common coupons in barter clubs. But trust is not enough in order to use the element across different domestic and foreign economic sectors.
One of those elements is that the currency should have a “technical advantage” over the rest of the alternatives. And with this in mind, Cryptocurrency has a point in its favor, given that it has no controlling entities, its cost of use is lower than the cost of use for other currencies.
Another element is related to the value of each country’s currency in relation to inflation; because the supply is restricted, Cryptocurrency becomes a good alternative.
And the last factor is the willingness of people in each country to incorporate new technologies to their everyday transactions beyond the habits and costumes of particular individuals.
Although we cannot make predictions, its growth and the trust of big companies such as Tesla would seem to indicate that virtual currency is here to stay. Even in Argentina, there are companies that, in order to compete with foreign salaries, pay their suppliers and employees in Cryptocurrency.