As cryptocurrencies have plunged, attention has focused on a potential point of vulnerability: the market’s reliance on a so-called stablecoin called Tether.
Cryptocurrency exchange company Bitfinex is launching Bitfinex Pay, a cryptocurrency payment gateway. With this new product, online merchants can accept payments in various cryptocurrencies. It should make cross-border transactions easier in particular.
While there are a few crypto payment gateways already, Bitfinex Pay has the advantage of working seamlessly with the company’s exchange. Merchants can create a widget and start accepting payments in Ethereum and bitcoin. Payments are deposited on your exchange wallet.
Bitfinex’s widget works a bit like the “Buy Now with PayPal” button. When you click on the Bitfinex Pay button, you’re redirected to the cryptocurrency company’s website. Once your payment is approved, you’re redirected back to the original merchant website. Payments are capped at the equivalent of $1,000 in cryptocurrencies.
You don’t pay any fee with Bitfinex Pay transactions. Of course, there are some network fees involved with sending crypto tokens. Merchants will also end up paying fees if they want to convert their cryptocurrency holdings on the exchange and transfer fiat money out of their account.
Bitfinex Pay also lets you accept Tether payments. Tether is a stablecoin, which means that one unit of Tether is supposed to be worth one USD — it doesn’t fluctuate over time.
That statement has been challenged as the attorney general in New York has concluded that Tethers weren’t fully backed by USD sitting in bank accounts at all times. At some point, Bitfinex couldn’t access $850 million held in a Panamanian bank.
As a result, Tether and Bitfinex are currently banned in the state of New York. So you’ll have to determine whether you trust Bitfinex enough to use it as part of your checkout process on your website.
Mastercard said on Wednesday that it is planning to support cryptocurrencies natively on its network. If this actually happens, it will be a big deal, helping to further legitimize virtual currencies and dramatically expand the market for their use.
However, Mastercard says that it’s only going to support cryptocurrencies that meet a number of requirements—including stability, privacy, and compliance with money laundering laws. The problem is that few cryptocurrencies meet Mastercard’s criteria. Indeed, it’s not clear if any of them do.
It’s hard to be both decentralized and regulated
Bitcoin, the first cryptocurrency, was designed to disrupt the power of governments and conventional financial institutions. The bitcoin network has a decentralized architecture that puts it beyond the reach of any government. Without government backing, bitcoin’s price is highly volatile. Users have no recourse against funds lost to hacking or fraud. The bitcoin network doesn’t comply with anti-money laundering laws that conventional financial networks must follow—though some bitcoin intermediaries do.
From Brazil to Nigeria, people turn to Bitcoin for different reasons than most of their speculating counterparts in North America. Namely, because it’s the most advantageous way for them to conduct international transactions.
Such is the case with a 28-year-old poker player in Brazil who simply goes by Felipe, for safety. Poker is a legal form of gambling in Brazil, so Felipe can use Brazilian banks and regulated exchanges to earn income from home. He dropped out of law school because playing poker against foreigners with Bitcoin to spend was more profitable than becoming a partner at a local law firm. Felipe said he now outearns his brother, a middle-tier executive at one of Brazil’s top corporations.
“Bitcoin is the best medium of money exchange in the poker community,” Felipe said. “I withdraw earnings as Bitcoin, or as Tether, to a Brazilian crypto exchange and sell it there.”
Felipe said he is wary of his government because he believes the Brazilian economy will experience a catastrophic shock in the next few years. Back in 1992, President Fernando Collor de Mello was impeached after confiscating millions of civilian savings accounts to offset national debts. Felipe doesn’t want his bank account forcibly emptied when the next crisis hits. This inspires him to accumulate Bitcoin, avoiding more traditional options stocks.
“The pension funds system is completely broken,” Felipe added. “The thing with Bitcoin is, you don’t need it until you do.”
Manuel Folgueiras is one of many Cuban users who joined the Bitcoin ecosystem over the past year. This 33-year-old economist, who lost his tourism industry job in 2020, now supports himself using various cryptocurrency projects.
“It’s very difficult to get Bitcoin, because we don’t have access to any exchanges and there are a lot of scams. Cuban banks don’t have relationships with crypto exchanges,” Folgueiras said. “Now I use Bitcoin for both savings and income, through trading arbitrage. We have to use a VPN and it’s very risky. If the exchange detects that you’re from Cuba, your account will get blocked.”
Global demand for Bitcoin has been surging since the pandemic began in 2020, pushing dollar-denominated prices briefly past $34,000 during the first week of January, 2021. For residents in many emerging markets, demand for Bitcoin is driven by concerns about the overall health of their national economies, not pure speculation. Some of these countries where Bitcoin markets are spiking, especially in Latin America and the Middle East, are seeing their domestic economies tailspin and are worried political controls could further threaten economic stability.
For example, since Western Union stopped operating in Cuba, more Cubans are using Bitcoin than ever before. For people in a variety of countries, pandemic policy changes reduced access to the dollar-centric financial system.
Folgueiras estimated he is one of roughly 80,000 people on the island involved in an unofficial brokerage business called Trust Investing, often called a Ponzi scheme by local technologists. In short, the business promises to trade cryptocurrency on behalf of “investors,” to whom they deposit lucrative returns. The project promises 200% returns, which seems impossible, and references questionable “partners” on the Trust Investing website.
Those partner companies are registered to people associated with a variety of court cases across Latin America and, in June 2020, Panama’s National Securities Market Commission (CNMV) published a warning not to trust the Trust Investing company itself. Even Folgueiras acknowledged that many people call this business a scam. But he said returns from the Trust Investing program are helping him survive the abysmal job market. It’s a gamble whether the company will give him returns or run away with his money, a risk he’s willing to take.
Plus, Folgueiras added, any form of Bitcoin business in Cuba is already “very risky.” There aren’t many regulated, trustworthy exchanges openly serving Cubans today, due to U.S. sanctions. Aside from the remittance startup, BitRemesas, the last compliance-oriented startup that tried serving this market shut down in 2019. As such, many Cubans turn to questionable schemes, or WhatsApp, instead.
“Cubans get Bitcoin via WhatsApp groups, peer-to-peer trading. The most popular mobile wallets are Coinomi, Enjin Wallet and Trust Wallet, because most people in Cuba only use a cell phone. It’s a mobile-only market,” Folgueiras said. “Bitcoin changed my life in a positive way and became an important source of income. Cryptocurrencies are also an interesting way for Cubans to shop online and send international payments or remittances.”
This grassroots, mobile-only environment is common across many small countries with underdeveloped economics. Likewise, Fodé Diop, founder of the Dakar Bitcoin Developers meetup in Senegal, told CoinDesk last year that Senegal was not just a mobile-first market; it’s a mobile-only Bitcoin scene. Unlike North America and Europe, many emerging-market crypto communities only use cell phones for everything from research and trading to storage.
On the other hand, it would be a mistake to assume most emerging-market Bitcoin users are marginalized by the global banking system. To the contrary, in countries like Nigeria and Brazil, many upper-middle-class entrepreneurs and gamers use Bitcoin to conduct perfectly legal business. According to data from the global peer-to-peer (P2P) markets LocalBitcoins and Paxful, there were more than $25.3 million worth of P2P Bitcoin trades last year in Brazil alone.
Meanwhile, in Africa, Nigerian P2P Bitcoin volumes dwarf those numbers with a cool $357 million. Likewise, BuyCoins co-founder Tomiwa Lasebikan said his Nigerian cryptocurrency exchange ballooned from an average of $5 million in monthly volume in December 2019 to $21 million by December 2020.
He said several factors spurred local growth, including anti-police brutality activists like the Nigerian Feminist Coalition, which collected bitcoin donations after being denied banking access, and stricter banking limitations on Nigerians paying for international services.
“A lot of people in Nigeria are running into a problem that they couldn’t renew subscriptions, like Spotify or Amazon, with their Nigerian accounts,” Lasebikan said. “Then, in October, there was a whole lot of interest in cryptocurrency, not just Bitcoin, for aggregating donations for people protesting police brutality. A lot of activists had their bank accounts shut down. Continued fundraising like this, both inside and outside the country, would not have been possible two decades ago.”
He added his exchange startup now serves roughly 12,000 active users a month. Nearby, Binance communications lead in Nigeria, Damilola Odufuwa, said her global exchange company facilitated hundreds of virtual events for 17,000 Nigerian crypto beginners in 2020. These educational programs covered basic terminology, trading strategies and guides to opening exchange accounts.
“During the pandemic, it was hard to get things into the country, including remittances,” Odufuwa said. “Now there’s also this need to use cryptocurrency to donate [to activists]…we plan to at least quadruple educational programming this year.”
Depending on the user’s socioeconomic background, people use Bitcoin to earn income from online games like poker, trading cryptocurrencies or offering freelance services to international clients. Odufuwa said thousands of the new users she’s seen during the pandemic want to profit from their developer skills, not just trades. So her company will offer more developer training related to the open-source Binance Smart Chain project. Although it’s impossible to accurately quantify, it seems as though at least hundreds of freelancers around the globe now depend on Bitcoin for income.
One such LocalBitcoins user in Latin American, Venezuelan journalist José Rafael Peña, has been earning the majority of his income in Bitcoin since late 2016. He estimated that cryptocurrency writing gigs account for 90% of his income.
“Bitcoin, in some circumstances, is a very helpful tool, especially when you live in a country with a chaotic economy and limited financial tools,” Peña said. “I began using Bitcoin because it let me protect against the bolivar’s devaluation, even without a dollar bank account.”
All things considered, Odufuwa said emerging markets saw “tremendous” growth since the pandemic began. But Peña warned not to confuse that growth with a mainstream “solution” to local government woes.
“Most people try to survive the crisis in any way,” he said. “Even here, crypto is a niche.”