When you traditionally think about Central America, it’s fair to assume you’re not thinking of the region as a hotbed of cryptocurrency. After all, these seven small countries are mostly poor and “developing”, right? At least, that’s the prevailing view. But Central America is a region with high adoption rates of crypto. Most “developing” regions are, in fact.

There are a few reasons why developing regions are so popular for crypto. Cryptocurrencies can offer financial inclusion to people without access to traditional financial services. You don’t need a bank account to make payments or store cryptocurrencies.

They can also be used to send/receive remittances

Moving crypto from one county to another is often cheaper and faster than traditional methods of sending remittances. It’s worth noting that remittances account for over 24% of GDP in El Salvador and Honduras. That’s a lot of money coming into the country from relatives abroad (overwhelmingly in the United States) and you cut out a lot of commission if you’re sending with crypto.

According to the 2022 New Payments Index, approximately 51% of Latin Americans carried out at least one payment in digital tokens. This is the highest adoption rate of any region in the world:

    Latin America: 51%

    Sub-Saharan Africa: 44%

    North America: 36%

    Southeast Asia: 29%

    Western Europe: 23%

    Eastern Europe: 19%

    Middle East: 17%

    Oceania: 14%

According to the World Bank, about 22.5% of the population of Latin America lives in Central America. The New Payments Index doesn’t break down by country exactly who used digital tokens in the past year, but we should assume that Central America would constitute part of their study, especially given the situation in El Salvador.

And digital tokens are not all cryptocurrencies, either

It is possible that some people who used a digital token in the past year did not actually use a cryptocurrency. Digital tokens come in many guises. However, the growth of digital token adoption in recent years suggests that Central America is part of a region where cryptocurrencies have the potential to become increasingly popular in the future.

Carrying on with what the 2022 New Payments Index found, Latin America is one of the regions in the world where the adoption of new payment methods is growing the fastest. The report found that:

• The use of digital wallets is particularly high in Latin America. In 2022, 72% of consumers in Latin America used a digital wallet in the past year, up from 61% in 2021.
• Contactless payments are also becoming more popular in Latin America. In 2022, 67% of consumers in Latin America made a contactless payment in the past year, up from 57% in 2021.
• The adoption of cryptocurrencies is also growing in Latin America. In 2022, 17% of consumers in Latin America had used a cryptocurrency in the past year, up from 11% in 2021.

The report also found that consumers in Latin America are willing to adopt new payment methods. Last year, 77% of consumers in Latin America said they were willing to try a new payment method if it offered them a better experience. In essence, we can expect to see more Latin Americans (and Central Americans) choosing to buy Bitcoin online going forward.

In September 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender

Official Bitcoin adoption in El Salvador was controversial and has been met, so far, with mixed results. Some people have started using Bitcoin to make payments, while others have been reluctant to do so. Some believe it will help to boost the economy and make it easier for people to send remittances. Others say it’s a risky move that could lead to financial instability.

The Salvadoran government launched a number of initiatives to promote the use of Bitcoin. These include the creation of a government-backed Bitcoin wallet called Chivo and the installation of Bitcoin ATMs across the country. El Salvador also established a Bitcoin Trust Fund, which is funded by 10% of the value of all Bitcoin transactions in the country. The funds in the trust fund are used to finance social programs, such as education and healthcare. One of the first beneficiaries of the trust fund was a brand-new animal hospital for pets.

In November 2021, President Nayib Bukele announced the creation of a unique Bitcoin City at the base of Volcán Conchagua, designed with inspiration from ancient metropolises. The city aims to run solely on cryptocurrencies, leveraging the area’s natural resources for electricity generation. However, analysts have doubts about its feasibility due to infrastructure challenges and public concerns about investing in education and healthcare. Money laundering is also a potential concern without proper regulations. To attract foreign investors while preventing illicit activities, strong and continuously updated control measures must be established.

Cryptocurrency adoption in Costa Rica and Panama

Costa Rica has been taking significant steps towards embracing virtual coins and tokens. In 2019, the Costa Rican Securities Commission (SUGEF) said that cryptocurrencies are not securities and not subject to the same regulations. The government also announced plans to explore the use of blockchain technology for government services.

Businesses in Costa Rica can (and many do) accept Bitcoin as payment, and Bitcoin ATMs exist in the country. So far, five trusted exchanges have been licensed in Costa Rica, including Binance. Mining is also popular.

In Panama, you can also use Bitcoin without limitations. Digital currencies can be used as alternative payment for commercial operations. Based on a recent bill aiming to make Panama compatible with the digital economy and welcome a new layer of diversification for the country’s finances, precious metals might also receive tokenization. At the same time, blockchain technology might soon enjoy newfound use cases.

The main drawback to full legalization in Panama is the fear of financial crime and money laundering activities. This is why bills keep getting sent back for revision. But if you’re bullish on crypto, then Panama is a country to watch.

What about the rest of Central America?

Elsewhere in the region, things are slower. Reactions are more mixed. Both Guatemala and Honduras allow crypto use but remain wishy washy on legislation, regulation, and legalization. Nicaragua and Belize are both more negative on the subject, issuing more warnings about potential risks rather than discussing any benefits. That said, consumers and businesses in both countries can use/accept cryptocurrency if they wish.

It is still difficult to establish whether more countries will follow in El Salvador’s footsteps and decide to adopt cryptocurrencies in the same way. So far, the country hasn’t recorded any considerable benefits that could persuade others to take any steps in that direction.

It is important to remember that digital currencies haven’t been at their strongest over the past year, and this is enough reason to deter lawmakers from adopting further legislation. As long as governments see cryptocurrencies as risky and volatile, they fear that the potential for losses will outweigh any potential benefits.

However, many are warming to the idea of crypto and investors can expect to see many developments in the future from this sector in Central America and the wider LatAm region. (https://www.centralamerica.com/investing/business/cryptocurrency-adoption-in-central-america/)