Latin Analysis: The New and Improved Crypto-Caribbean

Travis Wolfe / EyeEm

In late 2017, Hurricane Maria greatly devastated the Caribbean island of Puerto Rico’s infrastructure. In the aftermath, a group of blockchain enthusiasts and entrepreneurs flocked to Puerto Rico to avoid the amount of taxes being taken out of their growing fortunes. Together, they envisioned a plan to transform Puerto Rico into a blockchain haven, where cryptocurrencies are mined, traded, and widely used among locals. These men had been looking for a place to do this for a while, and Hurricane Maria provided them with the best opportunity in their eyes to set base and really make a change. 

In March 2018, only a few months after Maria, the crypto community set up their very own Coinagenda Caribbean conference to connect cryptocurrency investors with local businesses, banks, and startups. In the years that have followed, this imagination of Crypto Rico has experienced both drawbacks and successes. At times it seemed as though Crypto Rico wouldn’t prevail. Yet despite this, the vision has plowed forward, going beyond Puerto Rico to encompass the whole Caribbean as the principal region leading the world in blockchain technology.

Beginnings 

Hurricane Maria was just the tip of the iceberg of the problems Puerto Rico was facing at the time. For over ten years prior to 2017, the island was experiencing an intense debt crisis that had its roots in its tax laws. In the 1950s the U.S. government designed a plan to transform the island’s agricultural economy into a manufacturing one. The government applied many tax breaks for companies who locate their factories there. In 1976, the government passed a law that allowed manufacturing companies to avoid corporate income tax. These provisions created many factory jobs for Puerto Ricans. However, as criticism grew about the many companies who took advantage of these tax breaks, the government under Bill Clinton decided to pursue reform and let the tax breaks for manufacturers expire. As factories closed and jobs were lost, the debt crisis began, getting worse and worse through the global financial recession. As the rest of the U.S. recovered, Puerto Rico didn’t, and with Maria destroying much of the island’s infrastructure, the island was scrambling for any kind of investment. 

What is Crypto Rico?

At first, there were a lot of competing visions of what Crypto Rico was going to be. At first, investors were thinking of building an entirely new city that only used cryptocurrencies, or possibly occupying old San Juan. In the beginning, the government at the time was headed by Governor Ricardo Rosselló, who welcomed the idea of Crypto Rico. In a similar fashion to what was done to incentivize manufacturers to the island, Rosselló introduced low tax rates and the ability to easily establish financial institutions for cryptocurrency investors. The following year brought many projects launched by cryptocurrency investors, and two crypto-friendly banks: the San Juan Mercantile Bank & Trust International and the Medici Bank. Coinagenda Caribbean 2019 was held again in Puerto Rico as well.

Yet despite the enthusiastic start, Crypto Rico experienced many drawbacks within the first year. First, Ricardo Rosselló resigned in 2018 amid allegations of widespread corruption of his government. Some investors thought Crypto Rico was over without his generous support. The November 2018 Bitcoin crash was also a big wake-up call for many cryptocurrency investors and enthusiasts, and it convinced many that cryptocurrencies were too volatile and illegitimate. Furthermore, big problems persisted for Puerto Rico such as debt, unemployment, and rebuilding after Maria. Regular Puerto Ricans criticized that the tax incentives served to only help the crypto elite. Crypto Rico’s greatest pushback came from Rosselló’s successor Wanda Vazquez in April 2020, when she increased the yearly fee for cryptocurrency investors to qualify for the island’s tax incentives from $300 a year to $5,000 a year. This new law was meant to dissuade cryptocurrency investment due to the high volatility of the market.

The Blockchain Bandwagon

Despite the pushback and criticism, the idea of Crypto Rico has diffused to the rest of the subregion. Now, the Caribbean at large has been jumping on the blockchain bandwagon, with other countries surpassing Puerto Rico as a better place for cryptocurrency innovation. Multiple Caribbean governments are in on creating new blockchain-friendly financial institutions and infrastructure in hopes of it helping their economies grow. Forget Crypto Rico. Meet the new and improved Crypto-Caribbean.

Some of the most impressive developments in the Crypto-Caribbean have been the creation of central bank digital currencies (CBDC’s). A CBDC is different from cryptocurrencies such as Bitcoin in that a CBDC is created by an already existing monetary institution of a country, and that it represents an existing currency in digital form. The first country in the world to create its very own CBDC was the Bahamas. In October 2020, the central bank of the Bahamas introduced  the Sand Dollar, a digital version of the Bahamian dollar that is pegged to it. Other countries in the Caribbean are close to launching their own CBDC’s as well. Barbados-based company Bitt Inc. teamed up with the Eastern Caribbean Central Bank in 2019 to create a digital East Caribbean Dollar that would be available in Anguilla, Antigua, Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, Saint Lucia, and St. Vincent and the Grenadines. Jamaica and the British Virgin Islands are also in development for a digital version of their currency. 

Other than innovations with CBDC’s, cryptocurrencies such as Bitcoin are becoming more popularly used among locals in countries such as Cuba, Antigua, and Barbuda. In Cuba, Bitcoin has been used as a way to go around the U.S. embargo and access goods and services that Cubans normally can’t. Antigua allows for official payment in Bitcoin cash for locals and businesses. Cryptocurrencies have even tapped into the Caribbean’s largest industry: tourism. Bitt Inc. has been involved in a project with the Caribbean Tourism Organization since 2018 that allows for Bitcoin and other cryptocurrencies to be used as payment within the tourism industry.

Digital currencies have the potential to benefit the local populations of these countries. No bank account is required. Payments happen instantaneously and are stored safely in comparison to cash or card. They’ll be more inclusive and easier to manage for people, and although many see cryptocurrencies as a volatile free-for-all, countries are pursuing regulation. While it is too early to call whether or not digital currencies will help Caribbean economies to grow, this is the path that this subregion of Latin America is moving towards at full speed, along with the rest of the world.