For a long time, the financial sector has largely remained unchanged, but this may no longer be the case. Cryptocurrencies are slowly but surely making headway towards transforming the way transactions are carried out significantly. For instance, companies such as Microsoft are accepting cryptocurrencies as payment for goods and services offered.
The inherent benefits of low transaction costs and faster transaction speeds offer value to cryptocurrency users, compared to the current financial system. Before global acceptance can be achieved, conventional financial institutions need to start integrating the new technologies into their systems. But this might not be happening in Peru as yet after the country's central bank issued a cryptocurrency warning.
The Status Quo
In its Twitter account, the Central Bank of Peru stated that digital currencies are very volatile, are being used for illegal undertakings and are vulnerable to fraud incidences. For these reasons, the bank termed cryptocurrencies as risky and stated that it would not support their use.
"To be fair, currencies that are controlled by central banks in South America certainly fit that description better. One need only look at the hyperinflation in Venezuela to determine how much safer state-run currencies are. The majority of fraud in the world is perpetrated by bad actors utilizing the very fiat currencies touted as the safer alternative. The fraud market cap is much larger than the cryptocurrency market cap so the notion that cryptocurrency is the problem is a bit silly. Having an immutable ledger and cryptographic protections is actually much safer in my opinion," notes Bill Papacharalampous, CEO of BlockCommerce.
Although there are those who agree that cryptocurrencies are highly volatile, particularly after Bitcoin shed about 80% of its value this year, the recently released KPMG report states otherwise. It states that cryptocurrencies are not inherently volatile as their supply is fixed.
That being the case, fluctuations in demand result to price movements that would, in the end, stabilize when the market matures. With regulation, the concerns that Peru’s Central Bank has concerning fraud and illegal undertakings will also be tackled.
Despite the decision by Peru's central bank, the cryptocurrency industry in South America is showing encouraging growth. According to data from coindance, Peru’s volumes of trade has increased on a yearly basis with the current levels significantly surpassing previous years.
As a result of the efforts by the association of Bitcoin Cash, over 250 businesses are currently accepting Bitcoin Cash payments in countries such as Venezuela, Mexico and Colombia. Additionally, the Inter-American Bank of development report shows that the number of fintechs in the region has grown from 703 to 1166 this year alone. This paints a picture of a region that is slowly becoming a growth frontier for the cryptocurrency industry.
Sustaining Growth
The stand taken by the Central Bank of Peru may not have a significant impact on the growth of the crypto industry in the South American region. This is because there is a genuine growing and sustainable interest in digital currencies across the region.
The current economic situation in the region is likely to propagate the uptake of cryptocurrencies. Countries such as Venezuela and Argentina have experienced hyperinflation levels that have devalued their currencies. The use of cryptocurrencies as a store of value is likely to create demand with Venezuela using Petro, a cryptocurrency backed by oil barrels, as its second official currency.
As central banks continue to come to terms with cryptocurrencies, there will be need to impartially explore the cryptocurrency space because the industry is already transforming the industry in front of our eyes.
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.
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