As in the days of the American Old West, a new gold rush is going from person to person in the digital world: the cryptocurrency market.
Although there are no official figures on the followers of this trend, some experts venture to estimate hundreds of thousands of users of “crypto” currency in Cuba, especially in the variant of Bitcoin.
Meanwhile, and despite the fact that the use of cryptocurrencies in Cuba is closely associated with investment in the controversial company Trust Investing—to which we will dedicate another installment of this program—, they are also increasingly being used as a means of payment for online services, remittances or purchases of products online, which Cubans could not access otherwise.
About what cryptocurrencies are and what potentialities they have in Cuba, we spoke with Juan Alejandro Triana, Professor at the Center for Cuban Economic Studies at the University of Havana.
What are cryptocurrencies?
Cryptocurrencies, as the word says, are a currency, money as such, a commodity. They can be considered this way insofar as they are produced by the human being; that is to say, they are the product of human labor, of abstract labor.
It is definitely about money, since they fulfill the three basic functions of this resource: they serve as a means of payment in the world in transactions between people. They also serve as a means of value, because they express the value of certain goods through their price. And in addition to this they also serve as a means of hoarding. There are several people—even companies—who denominate their values in cryptocurrency.
In this case I am talking specifically about the one that is most used internationally, which is Bitcoin, although it is not the only one, there are many cryptocurrencies, some more successful than others. There is Freecoin, Litecoin, Namecoin…that is, there are several types of cryptocurrencies, hundreds of them. However, Bitcoin, created in 2009, 2010, has been the most widely used and most famous cryptocurrency. Even recently, important companies such as Tesla, related to Elon Musk, have invested significant sums of money in Bitcoin and is already allowing its users, and the general public, to pay with it for their products. It is, as I said, a commodity and also a commodity-money.
But how is it created, where does the cryptocurrency come from?
Access to cryptocurrency and the creation of cryptocurrencies, for example, in the case of Bitcoin, is an extremely complex process, not in Cuba, but in the world. Creating Bitcoins, or the Bitcoin mining process, as it is commonly known, is a very complex process that requires technical skills, a fairly high level of education in encryption and the art of cryptography; therefore, creating the cryptocurrency is not a simple process.
In Cuba, people who have funds denominated in hard currencies, legal tender, in different countries, access the purchase of Bitcoin to carry out different transactions. But they can do it with the money in the bank. If the person, inside or outside of Cuba, has an account in an internationally recognized bank, and in so-called hard currencies, he can use the funds he has in those accounts to buy the cryptocurrencies he wants. In the case of Cuba, with freely convertible currency cards denominated in dollars or other freely convertible currencies, it must be remembered that these are accounts domiciled in Cuban banks. These financial institutions suffer the stigma of U.S. economic sanctions and are not recognized or frowned upon in many financial systems in various countries.
Personally, I do not know Cubans who have bought cryptocurrencies using the accounts they have in national banks. However, I keep abreast of the trade that exists within the island for access to cryptocurrencies with freely convertible currency cards between individuals.
Is the use of cryptocurrencies legal?
That is one of the questions and also one of the most important barriers that people face when deciding whether or not to use Bitcoin. What happens? As I was saying, we can affirm that Bitcoin is money because it fulfills the three fundamental functions of money that I mentioned earlier. As it is not centralized by the Central Banks of the countries, Bitcoin lacks legal tender and representation in these countries. No country in the world today, to my knowledge, uses Bitcoin for its actual business transactions. What happens? That among individuals the use of Bitcoin is allowed.
This resource has important advantages since it reduces transaction costs and time and eliminates the need for financial intermediaries. It is a business relationship, which involves a transaction between two people.
How to explain to people what it is or bring them closer to Bitcoin? Simply guiding them on how it is referenced to the value of this resource in U.S. dollars. That is, today the price on the stock market for one Bitcoin is very high, around 50,000-55,000 dollars for 1 Bitcoin in the stock market. Normally people do not own Bitcoins but, when you ask them if you can pay them in Bitcoin or how much it cost them in Bitcoin, what they answer is: 50, 60, 100, 200 dollars in Bitcoin.
There are different mechanisms for this. There are well established and safe payment gateways. There are also special purses or wallets where you can store this type of cryptocurrency to use them when necessary. As several countries have decided to regulate aspects related to Bitcoin, as various people or companies use it, it is gaining a little more, let’s say, in seriousness, in recognition.
There is also a kind of rejection by people who do not have extensive knowledge on the subject, because it is a currency that lends itself to so-called “financial scams” and is very volatile. Furthermore, it is an extremely young currency. All this also generates a certain insecurity among people.
What would be the disadvantages of this new form of money?
The main disadvantages that I could see in the use of cryptocurrency is that it needs connectivity. You must necessarily be connected to the internet to use it. As I said before, the high volatility of their price on the stock market also makes people reject them.
Bitcoin is very sensitive to speculation. There are some aspects that consider the value or the growth of the value of Bitcoin based on, mainly, speculative processes. This definitely makes people suspicious when it comes to using it. And there is also the fact that the currency does not exist physically; there is no recognized authority that can regulate the movement of this cryptocurrency and this implies a set of disadvantages for its use.
Despite having been in use for 11 years, only in the last five or six years has there been greater speed in the evolution and use of Bitcoin. It will be necessary to see its development in the medium term. Without being a fanatic of cryptocurrencies, I do believe they are a form of money, a commodity-money that is going to be used more and more frequently. When governments decide to regulate its use more widely, it will be given greater credibility with the general public.
And the use of cryptocurrencies in Cuba?
The case of Cuba is definitely extremely particular. Cryptocurrencies were not only used in so-called developed countries, although there is a fairly widespread use in these types of countries. Even the so-called underdeveloped countries have seen them as a mechanism to access certain funds for different purposes, in a safer and faster way.
In the particular case of Cuba, the fact that we are a country blockaded by the United States hinders all kinds of trade between Cuba and the rest of the world. To date, the Cuban government has not yet regulated anything regarding the use of cryptocurrencies.
Others like Venezuela have regulated them and even promoted their use. Countries such as Russia and the United States, or many in the European Union, have begun to regulate not only the use of cryptocurrencies, but also some aspects related to them, such as the generation of profits, wealth and the payment of taxes on that wealth, which comes from using cryptocurrency in trading.
In Cuba that does not yet exist. However, the cryptocurrency has already arrived and it is not something recent. There are no official figures in this regard, but some experts establish that there are more than 50,000 cryptocurrency users in the country, others maintain that there would be more than 80,000 and up to 100,000 cryptocurrency users in Cuba. In reality, there are no official records and I personally do not know an exact way to capture that data. But I do believe there is a fairly widespread use, especially in city centers. Even if the use of cryptocurrency is not regulated in the country—it is not regulated in the United States, for example—individuals do use it for their transactions and for certain commercial relationships. It is not only used for the exchange of goods as such, that is, for the sale of some type of product and its payment in Bitcoin, but it is also used to send remittances from abroad to Cuba and to send money from Cuba to abroad.
This is a double-edged sword, because although it is not regulated by any institution or transparent, it means an advantage over the more than 200 regulations or sanctions imposed by the Donald Trump administration on Cuba in the last four years, which include restrictions on sending of remittances to Cuba. In this context, many Cubans inside and outside of Cuba have agreed to use this tool to receive money, even to buy products within Cuba.
There are people abroad who have access to cryptocurrency and pay with it to buy products for their relatives in Cuba. In this way, it could be considered as an advantage. However, the Cuban financial market as such is not yet sufficiently developed to accommodate them.
Cubans, who in general have a very good level of education, have found in the use of cryptocurrencies a certain way to avoid the effects of sanctions and seek alternatives for trade, to solve daily situations in the country.
What could the Cuban government do to boost the crypto economy and benefit from its use?
In the first place, the development of a market and financial institutions must be promoted, much faster, deeper and more modern than those that exist today. Unfortunately, that does not depend on the will of the Cuban State, although much can be done regarding this.
In addition, international institutions and banks should be allowed access in a more expeditious manner, including some type of private banking or non-banking financial institution, more generally, within the country. But access to the phenomenon of Bitcoin and to investment funds based on cryptocurrencies does not depend only on the country, but on how Cuba is seen in the international financial markets.
In this case we definitely have the very negative impact of the U.S. sanctions, which affect the image of Cuba, not only because of the country’s own problems from a financial point of view, but also because of the unfair treatment that has been given to it as a result of these sanctions, and for the deprivation of access to free trade in the international financial market.
We could also take advantage of the phenomenon of cryptocurrencies to become a revolutionary and entrepreneurial country, and begin to regulate and legislate regarding the use of Bitcoin, not only so as not to be left behind in terms of what the Latin American and Caribbean region is doing, but also as a way of responding to the development and acceptance that Bitcoin has had in Cuba in the last five years.
I believe that we should be more proactive from the legislative point of view, as other countries such as Japan, Russia, or regional bodies such as the European Union have done. In this way, we would be more prepared from the legal point of view when the use of Bitcoin is decided—if it is decided—to carry out official transactions or for a more generalized use within the population. All this depends on the proactivity of the Cuban State and its priorities in the short and medium term development plans.
However, we must be optimistic, because, in short, there is no doubt that the phenomenon of cryptocurrency is going to be part of the future, not only of the financial markets and the international economy, but also of Cuba, to a certain extent.