Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.
The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.
When people ask me what got me into Bitcoin, I often answer with one word: “Argentina. “
Amid the sad news that the South American country is again gripped by a currency crisis, I’m getting a strong reminder of that connection.
Below, I explain it and explore one crypto team’s proposal for the Argentine government to overcome this latest meltdown with a stability-seeking strategy that partly includes Bitcoin.
Over the past 30 years, Argentina has tried a diverse toolkit of mainstream economic solutions to its persistent drift into chaos, and each has failed. Perhaps a new, outside-the-box, crypto-friendly approach is needed. And with other emerging-market countries now suffering “contagion” from Argentina’s, Turkey’s and other developing countries’ woes, maybe there’s a lesson for the wider world too.
My Argentina-Bitcoin connection stems from six years spent in Buenos Aires during the previous decade. While my family and I adored living there, we had a tortured, love-hate relationship with the country.
On the plus side, in addition to its great food, wine and culture, we made some of the best, most loving, loyal friends we’ve ever made in our adult lives in Argentina.
On the negative side: broken civil institutions and a history of corrupt governments ensured that a dysfunctional economy would repeatedly, almost inevitably, drift toward monetary crises. This stoked inflation and bred uncertainty, making it increasingly difficult to make economic plans.
Eventually, the latter problem forced us to leave. We wanted our kids to grow up in a society that offered greater long-term opportunities. Even after we’d made the decision to go, Argentina’s dysfunction almost destroyed us financially, when we struggled to get our life savings out of the country — as readers of Paul Vigna’s and my first book, The Age of Cryptocurrency, will know.
What does all this have to do with Bitcoin? Well, it starts with the core social problem of trust, which, in essence, cryptocurrencies and blockchains strive to resolve with their unique, decentralized approach to recordkeeping and value exchange.
Both the positives and the negatives of our Argentine experience stem from this trust challenge. In Argentina, as with other societies with notoriously corrupt or failed institutions, strong personal bonds of trust are forged among family and friends because they provide a social safety net to help you secure your property and well-being against a wider system that can’t be trusted to protect them.
What’s lacking is a lasting social covenant between citizens and institutions of government, the kind that, in more functional economies, breeds the former’s trust in the latter. (Be warned, Americans, that covenant is not guaranteed forever. It can be destroyed.) It becomes entirely expected that government officials will rob the public purse. As a result, tax avoidance and graft are normalized and entrenched.
The crisis cycle
The ultimate measure of whether a society enjoys such a covenant is the stability of its fiat currency, whose value will evaporate if users don’t trust the government not to debase it in pursuit of its own interests. This is the core story of Argentina, whose habit of succumbing to a crisis every ten or so years has over time taken this resource-rich country from being one of the world’s wealthiest at the start of the 20th century to a byword for economic dysfunction.
Note: this is not per se a commentary on the government of President Mauricio Macri, which has, in my mind, pursued some of the more sensible policies of any in recent decades and has avoided turning the peso’s printing presses into a funding vehicle. The problem is that even the most well-intended, honest shooter of a president will struggle against this ingrained structure of mistrust and corruption.
So, with all of that as a relatively fresh experience, Bitcoin came as a revelation when I finally grasped its central promise in 2013.
What if Argentines could outsource the record-keeping system underpinning their payments and value exchanges to a decentralized network that’s controlled not by mistrusted human institutions but by a common, censorship-resistant, math-driven protocol?
What if the teeming poor who fill the ever-growing shantytowns on the outskirts of Buenos Aires had a more trustworthy system for recording and monetizing their assets and identities?
What if a digital currency that’s easily available for electronic, cross-border transactions became these people’s go-to means of storing wealth, rather than greenbacks stored in hidden safety deposit boxes that can’t be easily moved offshore?
It turned out I wasn’t alone in thinking this way….