How a Decentralized Internet Can Power Latin America’s Economy
It’s no secret Latin America’s economy is not in great shape compared to other regions.
There isn’t any single reason for this. You could point to a dependence on commodity exports and its booms and bust cycles, government corruption, income inequality or a combination of them all.
Diego Gutiérrez Zaldívar is the CEO and co-founder of IOVLabs, the blockchain development company responsible for Bitcoin’s smart contract network RSK and its infrastructure layer RIF. In 2019, he oversaw the acquisition of Taringa!, Latin America’s largest Spanish-speaking social network. This post is part of CoinDesk’s “Internet 2030” series.
The events of 2020 are likely to take a particular toll on the people of Latin America (LatAm). The OECD has previously warned the region has less “fiscal space” to navigate the economic impacts of the pandemic than it did before the last crisis in 2008.
However, I believe the tide is shifting. With the current trends linking connectivity, digital payments, fintech investment and decentralized finance (DeFi), it seems realistic that in the next 10 years bitcoin and DeFi dapps can provide Latin America with the means to leapfrog into a highly interconnected and efficient regional economy.
A decade of adoption
Unlike the European model that was built from the top down, this financial ecosystem is emerging from the grassroots. This trend is manifesting already in the case of Mexico that at moments had 5% of its U.S. remittances settled over cryptocurrencies and by the Venezuelan families abroad sending money home with bitcoin. Much like mobile phones disrupted the African economy, this new financial infrastructure has the potential to open up new markets, giving birth to a new, decentralized, peer-to-peer economy.
Within a decade I envision Latin America having a regional economy built from the ground up. An economy that can stand apart from oppressive government-driven fiscal policies – a true peer-to-peer system, driven by the people – and based on blockchain technology.
The relevance of technology adoption for the region is already manifesting. Currently, LatAm is leading the world in smartphone app usage, and network infrastructure is expanding rapidly to match. It’s only a matter of time before examples from the digital gig economy like “virtual babysitters” begin to affect local business models for individuals and businesses.
In addition, online education is becoming more widely available, as recent initiatives such as Google’s online degree program demonstrate. I believe these advancements play a key role in LatAm catching up with more developed economies without going through intermediate stages of development.
Many of the world’s most vulnerable populations and half of Latin America’s are denied access to basic financial services. Now, permissionless payment solutions and reputation-based digital identities are being developed, and they will serve as the pillars for economic transformation.
The coming years could be a newborn era of Latin America driven by a peer-to-peer digital economy.
The combination of the two will allow the unbanked to begin transacting regionally or even globally in a peer-to-peer manner, enabling the creation of new innovative business models with the added benefits of geographical arbitrage.
For example, online local food cooking classes will be transmitted over the internet to anywhere in the world, with payments conducted with bitcoin or highly adopted stablecoins.
People will no longer carry a physical ID, they will prove their identity and credentials by scanning a QR code or via online digital signatures. User interfaces will be based on apps and browsers, but powered by open blockchain networks, without users having to know or care about the infrastructure layers underneath.
No need to bank the unbanked
Along with digital identity, another enabler of the transition to a peer-to-peer economy is what is hyped today as DeFi. Latin America will unite economically through crypto-assets and economies that will become the region’s medium of exchange and store of value, becoming what could be thought of as a decentralized banking system.
Lending, borrowing, hedging and speculating will all be available for local residents in a simple and secure manner. And, perhaps most importantly, I believe LatAm residents will be able to obtain capital and revenue from a global audience of investors.
For example, take my home city of Buenos Aires, where I’ve been working with local meetup groups to increase awareness of the digital and bitcoin economy since 2013. If one of these local communities develops an initiative that needs funds in order to evolve and grow future profits, they’ll be able to tokenize the community’s future income and therefore create financial incentives for global investors to assist them in their growth. Future revenues generated by the community will be shared with the investors, and incentives will stay aligned across all groups – making everybody happy.
Latin Americans stablecoin adoption will continue to thrive because it offers a means of doing business with others in the region across borders, without having to exchange national currencies or handle their volatility risks.
A decentralized internet – no longer a buzzword
By 2030, the social fabric of Latin America will also be transformed. On top of the distrust towards governmental institutions and politicians, we are also seeing a trend where people no longer trust today’s social media platforms driven by data harvesting and ad revenue. Enabled by the pillars of self-sovereign identity and a digital economy, I can imagine a future where, ultimately, a fully decentralized internet would give people control of their identity and data.
Taringa!, the largest Spanish-speaking social media platform in the world, is already experimenting with a new paradigm in decentralized social sharing economy – and might be the beginning of a broader transformation where other communities embrace new privacy-protecting and open business models.
Imagine a fundamental departure from today, where a few tech giants are taking huge profits at the expense of both advertisers and end users. I can see a future where social media platforms consist of users who receive fair incentives directly aligned to the size and engagement of their followers. Where businesses can market their goods and services directly to consumers who want to buy them. One where the internet is powered by a shared, distributed “supercomputer” with no single points of failure.
Once individuals are given control of their data, they will also be able to profit from it. The new internet will be censorship-resistant, and an individual’s privacy will be fully protected. The users will be in control of the internet, as opposed to a few economic groups as it is today.
My home region is in a prime position right now. “Unprecedented” is a word that’s been overused in 2020, but it’s the only appropriate term to describe an opportunity to eliminate economic dependence on commodities for an entire region. After decades of suffering generalized corruption, financial volatility, high poverty levels and income inequality, the coming years could be a newborn era of Latin America driven by a peer-to-peer digital economy.