Topic: Can Bitcoin Conquer Argentina? (Read 325 times)
I'm going to give you and F for the spread you just offered. Having enough action here you should know how to present a post yet you didn't even provide a link. This is bunk all the way around and not yet worthy of a response to the material. Did I say garbage?
With its volatile currency and dysfunctional banks, the
country is the perfect place to experiment with a new
digital currency.
By NATHANIEL POPPERAPRIL 29, 2015
Dante Castiglione, a Bitcoin broker, pays a client in U.S.
dollars at a temporary office in Buenos Aires.
MARK PETERSON / REDUX, FOR THE NEW YORK TIMES
D
ante Castiglione stalked through the doors of a glass-
walled office tower on the edge of downtown Buenos
Aires, just a few hundred feet from the old port district.
In the crowded elevator, he shook his head and muttered
under his breath about the stresses of the day and his
profession. “I swear, this job can kill me,” he said, his
eyes cast downward.
On the 20th floor, he hustled into an impersonal,
windowless office and quickly removed the tools of his
trade from his backpack and set them on the desk:
locked blue cash box, cellphone and clunky Dell laptop
with the same yellow smiley-face sticker that he puts on
all his electronics. Then he unbuckled the fanny pack
from around his waist, which contained the most
important part of his business: bricks of $100 bills and
100-peso notes.
This room, rented for the day, was not one of
Castiglione’s regular haunts. He mostly drifts among the
old cafes in Buenos Aires, where the bow-tie-wearing
waiters serve small glasses of seltzer water with each
coffee. In his line of business as a money-changer,
temporary meeting places are preferred; they make
things harder for would-be thieves, whom he has so far
avoided. On this Friday in late February, Castiglione had
run around the city in his camouflage-patterned sandals,
trying to distribute cash to some clients and pick it up
from others. Once back in his temporary office, his
outdated LG phone alternately chirped, buzzed and sang
with incoming text messages and emails.
Ordinarily, Castiglione would have help. His 18-year-old
daughter, Fiona, often deals with customers, but she
was about to give birth to her first child. Her twin
brother, Marco, who used to make cash runs, was now
focusing on school. So Castiglione was alone, his stress
evident in the sweat on his forehead and the agitation
on his face. When his business partner, who lives in
Rosario, Argentina’s third-largest city, called to ask why
he hadn’t taken care of one particularly insistent client,
Castiglione erupted in frustration.
Dante Castiglione, left, at the Rock Hostel, with its
owner, Soledad Rodriguez Pons, who accepts Bitcoin.
MARK PETERSON / REDUX, FOR THE NEW YORK TIMES
“If you want it done faster, you pick up the phone and
call her yourself,” he growled in Spanish, before
switching to another call.
After hanging up, he told me in English: “Everybody
wants everything now, and I am just trying to do it. I’m
not magical, as people think.”
Magical, no, yet something new all the same. His
occupation is one of the world’s oldest, but it remains a
conspicuous part of modern life in Argentina: Calle
Florida, one of the main streets in downtown Buenos
Aires, is crowded day and night with men and women
singing out “ cambio, cambio, cambio, casa de cambio,” to
serve local residents who want to trade volatile pesos
for more stable and transportable currencies like the
dollar. For Castiglione, however, money-changing means
converting pesos and dollars into Bitcoin, a virtual
currency, and vice versa.
That afternoon, a plump 48-year-old musician was one
of several customers to drop by the rented room. A
German customer had paid the musician in Bitcoin for
some freelance compositions, and the musician needed
to turn them into dollars. Castiglione joked about the
corruption of Argentine politics as he peeled off five $
100 bills, which he was trading for a little more than 1.5
Bitcoins, and gave them to his client. The musician did
not hand over anything in return; before showing up, he
had transferred the Bitcoins — in essence, digital tokens
that exist only as entries in a digital ledger — from his
Bitcoin address to Castiglione’s. Had the German client
instead sent euros to a bank in Argentina, the musician
would have been required to fill out a form to receive
payment and, as a result of the country’s currency
controls, sacrificed roughly 30 percent of his earnings to
change his euros into pesos. Bitcoin makes it easier to
move money the other way too. The day before, the
owner of a small manufacturing company bought $20,000
worth of Bitcoin from Castiglione in order to get his
money to the United States, where he needed to pay a
vendor, a transaction far easier and less expensive than
moving funds through Argentine banks.
Federico Murrone, left, and Wences Casares at Xapo,
their company that handles Bitcoins, in Palo Alto, Calif.
MARK PETERSON / REDUX, FOR THE NEW YORK TIMES
The last client to visit the office that Friday was Alberto
Vega, a stout 37-year-old in a neatly cut suit who heads
the Argentine offices of the American Bitcoin company
BitPay, whose technology enables merchants to accept
Bitcoin payments. Like other BitPay employees — there
is a staff of six in Buenos Aires — Vega receives his
entire salary in Bitcoin and lives outside the traditional
financial system. He orders what he can from websites
that accept Bitcoin and goes to Castiglione when he
needs cash. On this occasion, he needed 10,000 pesos
to pay a roofer who was working on his house.
Commerce of this sort has proved useful enough to
Argentines that Castiglione has made a living buying
and selling Bitcoin for the last year and a half. “We are
trying to give a service,” he said.
That mundane service — harnessing Bitcoin’s workaday
utility — is what so excites some investors and
entrepreneurs about Argentina. Banks everywhere hold
money and move it around; they help make it possible
for money to function as both a store of value and a
medium of exchange. But thanks in large part to their
country’s history of financial instability, a small yet
growing number of Argentines are now using Bitcoin
instead to fill those roles. They keep the currency in
their Bitcoin “wallets,” digital accounts they access with
a password, and use its network when they need to
send or spend money, because even with Castiglione or
one of his competitors serving as middlemen between
the traditional economy and the Bitcoin marketplace,
Bitcoin can be cheaper and more convenient than
Argentina’s financial establishment. In effect, Argentines
are conducting an ambitious experiment, one that
threatens ultimately to spread to the United States and
disrupt some of the most basic services its banks have
to offer.
Bitcoin first appeared in early 2009, introduced by a
shadowy figure known as Satoshi Nakamoto. The
software underlying its creation established that Bitcoins
would be released slowly and steadily until there are 21
million of them; at that point, more than 12 decades from
now, no more Bitcoins will be generated. These rules
produced two somewhat predictable results, especially
coming in the immediate wake of the financial crisis and
the government bailouts of the big banks. The limited
and regular release of Bitcoins appealed to libertarians,
who have been skeptical of currencies that governments
can print in unlimited quantities. (When Rand Paul
announced his candidacy for president last month, his
campaign’s website began accepting donations in
Bitcoin.) The built-in sense of scarcity also led people
to regard Bitcoin as a kind of digital gold, its value
likely to increase over time — in other words, something
to buy and sell as a speculative investment. The millions
of traders, many of them in China, who have bet on the
price of the virtual currency have kept the cumulative
value of all outstanding Bitcoins well above $2 billion
since late 2013. At the same time, that speculative
activity has left much of the general public wondering
why these virtual coins should be worth anything at all.
The Bitcoin broker Brenda Fernandez scans the QR code
of her client's virtual wallet to make a trade.
MARK PETERSON / REDUX, FOR THE NEW YORK TIMES
But the wild fluctuations in price — the value of a
Bitcoin has bounced between $70 and $1,200 over the
last two years — have obscured a significant aspect of
the currency’s broader potential. Bitcoin digital tokens
are part of a new kind of online financial network, which
runs on the computers of those who use the virtual
currency. People who join and support the network —
hosting its open-source software, serving as record-
keepers of sorts — receive new Bitcoins as they are
released in a kind of recurring lottery, thus encouraging
user participation. The details of how the network
operates can be mind-numbingly complicated, involving
lots of advanced math and cryptography, but at the most
basic level, the network makes it possible for the first
time to send valuable digital money around the world
almost instantly, without moving through an
intermediary like a bank or credit-card company or a
service like PayPal. In a sense, the Bitcoin network was
designed to be a financial version of email, which
enables messages to be delivered without passing
through a national postal service, or like the broader
Internet itself, which allows people to publish news and
essays without going through a media company. Instead
of just delivering words, though, the Bitcoin network
makes it possible to deliver money from New York to
Shanghai in a matter of minutes without paying any
financial institution.
The number of Bitcoin users in Argentina is relatively
small; it barely registers on most charts of global Bitcoin
usage. But Argentina has been quietly gaining renown in
technology circles as the first, and almost only, place
where Bitcoins are being regularly used by ordinary
people for real commercial transactions. A number of
large American companies have started accepting
Bitcoin payments, but so far there has been little
economic incentive for their customers to pay with
Bitcoins.
In contrast, the best-known Bitcoin start-up in
Argentina, BitPagos, is helping more than 200 hotels,
both cheap and boutique, take credit-card payments
from foreign tourists. The money brought to Argentina
using Bitcoin circumvents the onerous government
restrictions on receiving money from abroad. Castiglione
has some hotel clients, but he says that many of his 800
or so registered customers are freelancers who use
Bitcoin to get paid by overseas clients, or companies
that want to move money in and out of Argentina. A
popular new online retailer, Avalancha, began accepting
Bitcoin last summer and has seen the volume of Bitcoin
transactions grow steadily since then. Avalancha offers
customers a 10 percent discount when they use the
virtual currency, because accepting credit cards
generally ends up costing Avalancha more than 10
percent as a result of the vagaries of the Argentine
financial system. The Bitcoin community in Buenos Aires
has been vibrant enough to produce what’s known as
the Bitcoin Embassy in the center of the city, a four-
story building that serves as the home to eight start-ups
whose businesses depends on the Bitcoin network.
Bitcoin proponents like to say that the currency first
became popular in the places that needed it least, like
Europe and the United States, given how smoothly the
currencies and financial services work there. It makes
sense that a place like Argentina would be fertile ground
for a virtual currency. Inflation is constant: At the end of
2014, for example, the peso was worth 25 percent less
than it was at the beginning of the year. And that
adversity pales in comparison with past bouts of
hyperinflation, defaults on national debts and currency
revaluations. Less than half of the population use
Argentine banks and credit cards. Even wealthy
Argentines fear keeping their money in the country’s
banks.
Wences Casares grew up on a remote sheep ranch in
Patagonia and now lives on an estate looking out over
Silicon Valley. He is, as much as anyone, responsible for
making Bitcoin known in both Argentina and the United
States. In 2001, he sold his first major start-up, a sort of
ETrade for South Americans, to the Spanish bank
Santander for $750 million. He sold his next big
company, an online bank, to Banco Brasil. By the time
he first heard about Bitcoin, in late 2011, he was in his
first year of his latest start-up, Lemon, a mobile wallet
for smartphones, not unlike Apple Pay, which came out
three years later. His fascination with Bitcoin had less to
do with professional experience, however, than a
childhood spent in a country whose financial system
seems to be terminally broken.
There was rarely a time during Casares’s youth when
Argentina was not enduring some sort of financial crisis.
In 1983, after years of inflation, the government created
the new peso: each new one was worth 10,000 old
pesos. In 1985, the new peso, its value eroded by
inflation, was in turn supplanted by the austral, worth
1,000 new pesos. Eventually the government went back
to the peso, this time pegged to the dollar, an effort that
also failed.
“I think I understand economics better than most people
because I grew up in Argentina,” Casares, now 41, told
me. “I’ve seen every single monetary experiment you can
imagine. This is the street-smart economics. Not the
complex Ph.D. economics.”
One particular episode is seared in Casares’s memory. In
1984, during the first significant episode of Argentine
hyperinflation following the military junta’s loss of
power, Casares’s mother came to get him and his two
sisters from school one day. His mother carried two
grocery bags filled with cash — the salary she had just
been paid. She rushed with Casares and his sisters to
the grocery store and made them run through the aisles,
grabbing as much food as they could before the prices
changed. (An employee walked through the store all day
doing nothing but re-pricing the goods on the shelves
to keep up with the rapidly changing value of the peso.)
After paying at the register, Casares and his sisters ran
back for more food to spend the leftover money on. In
this hyperinflationary environment, holding on to pesos
was the same thing as losing money.
Casares is descended from one of Argentina’s old
landholding families — a town called Carlos Casares,
near Buenos Aires, is named after one of his ancestors —
but his branch of the family went through hard times
and ended up ranching sheep. When his father sold
wool and the buyer’s check took a month to clear, that
income could be halved by inflation, forcing yet more
household cutbacks. Whatever savings accumulated
were quickly exchanged for dollars, which held their
value better than pesos.
In 2003, Casares and five friends bought a school bus
and drove it on a three-week road trip from Buenos
Aires, the capital, to Tierra del Fuego, at the southern
end of South America. After the vehicle was stolen upon
their return, the friends vowed to buy a second bus for
another trip. In December 2011, one of them, Jorge
Restelli, finally found a bus for 60,000 pesos, or $14,000,
in the classified ads. The friends who lived in Argentina
quickly paid their shares to purchase and fix it up, but
Casares stalled, knowing how much it cost in time and
fees to move money from the United States to Argentina.
Then Restelli told him that Bitcoin might be just the
answer.
At the time, the virtual currency had a small cult
following in the United States and was essentially
unheard-of in Argentina, but Restelli had read about it
on an American tech blog. The same day Casares heard
about Bitcoin, he found someone online who agreed to
meet him at a cafe in Palo Alto and sell him 2,700 or so
Bitcoins for about $8,000 in cash. Casares sent Restelli
the Bitcoins that evening.
Casares was fascinated by the transaction. Here was
money that anyone could buy online and that promised
to hold its value better than the peso. (That promise
would later be tested by extreme price swings.) It also
seemed to offer access to the financial system for those
who couldn’t open bank accounts or secure credit cards.
Even Casares, who created his first start-up in the
country, had never held an Argentine bank account.
He sent articles about Bitcoin to his bus-trip friends
and explained how easy it was to move thousands of
dollars in and out of Argentina. One friend went on to
found the central Bitcoin advocacy group in Argentina
and opened the Bitcoin Embassy in Buenos Aires.
Casares began stockpiling Bitcoins, and when he visited
Argentina during 2012, he posted offers to sell them on
an Internet message board that was becoming a small,
impromptu national marketplace for the virtual currency.
He organized the first Bitcoin Meetup in Argentina in
December 2012, though only a handful of people besides
Restelli showed up at the whiskey bar where it was
held.
By then, Casares was proclaiming Bitcoin’s promise to
any Silicon Valley friend who would listen. He had come
to believe that the advantages of its network would push
the value of each Bitcoin to astronomical values, just as
slivers of the airwave spectrum increased in worth as
more communication companies sought to use it. In the
meantime, each Bitcoin could serve as an easy, secure
place to store money, comparable to gold.
Many of Casares’s friends in the United States were
initially skeptical: What could Bitcoin do that their credit
cards couldn’t? But Casares explained how places like
Argentina were different. His first big convert among his
friends, and the one whose opinion in this area mattered
the most, was David Marcus, who had recently become
the president of PayPal. Marcus’s light-bulb moment
came in the fall of 2012, when the Argentine government
ordered PayPal to bar direct payments between
Argentines, part of the government’s effort to slow the
exchange of pesos into other currencies. As the policy
went into effect, and Marcus watched the price of
Bitcoin rise against the peso, he figured that Argentines
were using Bitcoin to circumvent the government’s
restrictions. Marcus began buying Bitcoins himself and
also pushed PayPal to start investigating the currency’s
use.
In March 2013 Casares attended an exclusive technology
conference near Tucson hosted by the investment bank
Allen & Company. At dinner the first night, Casares won
the attention of a table full of investors by describing his
childhood experiences in Argentina and how Bitcoin
equipped people to avoid similar situations. He
demonstrated the capabilities of the Bitcoin network by
sending $250,000 worth of the virtual currency to the
phone of a table mate, who was then directed to pass
the money along to the man next to him with no more
than a few taps of his iPhone keypad. During the next
two days of the conference, a steady stream of attendees
who had seen or heard about the Sunday-evening
conversation approached Casares, including Reid
Hoffman, the co-founder of LinkedIn. On a hike
Wednesday afternoon, Casares spent the entire time
explaining the concept to Charlie Songhurst, Microsoft’s
head of corporate strategy.
At the time, Casares was still running his mobile-wallet
start-up and had no business stake connected to
Bitcoin beyond his own holdings of the virtual currency,
which had become substantial. He urged his friends to
make their own purchases. On Monday, the first full day
of the conference, the price of a Bitcoin jumped more
than $2, to $36, and on Tuesday it rose more than $4, its
sharpest rise in months, to more than $40. After
everyone flew home from the conference, Songhurst
wrote a paper and distributed it privately to some of the
most powerful investors in Silicon Valley. “We foresee a
real possibility that all currencies go digital, and
competition eliminates all currencies from noneffective
governments,” it said, channeling Casares’s arguments.
“The power of friction-free transactions over the Internet
will unleash the typical forces of consolidation and
globalization, and we will end up with six digital
currencies: US Dollar, euro, Yen, Pound, Renminbi and
Bitcoin.”
The buzz generated by the conference was not the only
factor that pushed up the price of Bitcoin in March 2013.
A financial crisis in Cyprus came to a head in the middle
of the month; the closure of some bank accounts there
led to conjecture that Russians were seeking refuge from
the Cypriot banking system in Bitcoin. But Casares
noticed that every time he helped another one of his
wealthy friends start buying Bitcoins, prices rose,
suggesting to him that they were responsible for much
of the increase. Over the course of March, the price of a
single Bitcoin nearly tripled, to around $100, and that
surge generated the first widespread media coverage in
the United States and Argentina (some of it, not
coincidentally, from journalists cultivated by Casares).
The crowd at the next Bitcoin Meetup in Argentina,
hosted in April by one of Casares’s friends, was about
five times larger than the first one organized by Casares
just a few months earlier.
Dante Castiglione first heard about Bitcoin that same
March. A Canadian who hired him to do some software
consulting asked if he could pay him in Bitcoin.
Castiglione, who grew up in a small apartment in
downtown Buenos Aires, ran his own consulting firm,
the latest in a long line of jobs after he dropped out of
college. He is a successful version of what Argentines
refer to as a buscavida , a person who gets by finding
opportunities on the fringes of society, a more expansive
career option in Argentina than in most countries.
When it came to working for overseas clients, the
biggest issue for Castiglione, like many Argentines, was
the government-set exchange rate between dollars and
pesos. In an attempt to tamp down inflation, the
government has long forced banks to sell dollars at
artificially low rates. In March 2013, the government said
a dollar was worth around 5 pesos. But anyone could go
to one of the money changers on Calle Florida and trade
a dollar bill for about 8 pesos, the black-market rate,
also known as the dólar blue . (Economists and people
outside Argentina often regard the dólar blue as the real
exchange rate, a closer reflection of the peso’s actual
worth.) The official exchange rate was costly for
businessmen like Castiglione. When dollars from foreign
customers came in through traditional means, banks
automatically converted them at the mandated rate, and
Castiglione ended up with three fewer pesos for each
dollar than he would have gotten by exchanging them on
the street. Castiglione had to sacrifice nearly 40 percent
of a foreign payment to turn it into pesos.
When the Canadian customer paid Castiglione in
Bitcoins, Castiglione found someone online willing to
meet him in Buenos Aires and pay him in pesos at
something close to the dólar blue rate. The demand for
his Bitcoins was, in fact, so great that Castiglione,
whose company was limping along, began to think there
might be a business opportunity there. If he bought
Bitcoins for slightly less than he sold them, he could
make a profit on every trade, even if the price of Bitcoin
didn’t go up. By September 2013, he had become a full-
time Bitcoin broker.
In-person Bitcoin trading, as Castiglione does it,
happens in many other cities around the world. But if
this were the only way to procure Bitcoins, the interest
in trading them would not have exploded as it has in the
United States and China, where exchanging money
directly with strangers — without a trusted middleman,
in other words — is not a routine part of business. In
most places where Bitcoin has become popular, there
have been ways to buy the virtual currency online. This,
of course, requires cooperation with banks or other
payment networks, which happened in the United States
and Europe. The American company Coinbase, for
instance, allows customers to transfer money from their
bank to a Coinbase account and buy Bitcoins online.
In Argentina, the banks refuse to work with Bitcoin
companies like Coinbase, which isn’t surprising, given
the government’s tight control over banks. This hasn’t
deterred Argentines, long accustomed to changing
money outside official channels. For Castiglione and his
company, DigiCoins, this means operating at the edge of
the law, but he takes comfort from the fact that, at least
for now, the Argentine government has bigger problems
to deal with.
Instead of bank tellers and branches, Bitcoin users in
Argentina have come to rely on Castiglione and his
competitors, some of whom are even willing to make
house calls. This financial system developed much more
slowly than it has in the United States, where American
companies could take deposits from banks anywhere in
the country. But as a result, Argentina’s Bitcoin
economy is much more resistant to bank policies,
government regulations and full-service companies like
Coinbase that undermine Bitcoin’s decentralizing spirit.
I first met Castiglione when I visited Buenos Aires in
June 2014. At the time, he was working downtown, out
of a stuffy single room in the same building as a Berlitz
language-school office. A joker playing card was lodged
in the corner of the whiteboard on the wall. A friend of
Castiglione’s son was at a desk, working on the
DigiCoins website. His daughter, Fiona, was in touch
with customers by phone and online. His son, Marco,
was in and out, taking cash to clients, which he carried
in his backpack. Sitting behind his own desk next to the
door, Castiglione was describing the life of a money-
changer, especially when it comes to matters of
security. He spoke with tough confidence: “Not many
people will like to mess with us.”
But he acknowledged that he and his children remained
safe largely because they successfully kept their clients
ignorant of their location by switching offices frequently:
“Right now, maybe God is on our side.”
One of Castiglione’s main competitors was another
Bitcoin broker named Brenda Fernández. Originally from
the Buenos Aires suburbs and a college dropout, she
previously smuggled electronics into the country and
sold them on the local equivalent of eBay. She talked in
loud bursts, punctuated with high-pitched laughs, and
proudly made provocative statements about breaking the
law and ignoring standard business practices when I
met her at an event at the Bitcoin Embassy. “I find a way
to market myself as the crazy Bitcoin girl,” she told me.
In a more serious moment, Fernández, who is 24,
attributed both her attitude and her embrace of Bitcoin
in part to the gender transition she made in her early
20s, after years of struggling with traditional gender
categories. “It feels good, doing things that you are not
supposed to, saying to the structures of power that they
don’t have power over you,” she said.
After the event at the embassy, Fernández took a small
black-and-yellow taxi to a hostel near the National
Congress that wanted to exchange about $1,000 worth of
Bitcoins. The Rock Hostel, with band-themed rooms,
caters to a young clientele. A number of people were
drinking beer in the common area when Fernández
showed up. The owner, a tattooed 29-year-old named
Soledad Rodriguez Pons, had already transferred the
Bitcoins to Fernández online, so after a bit of flirting,
Fernández quickly handed over the cash; the transaction
took place at the reception desk, where a sign offered
customers a 10 percent discount if they paid by credit
card. On top of the desk, under glass, were paper
currencies from around the world.
The Rock Hostel is one of hundreds of hotels in the
country using the Argentine start-up BitPagos to collect
credit-card payments from foreign customers. If
Rodriguez Pons accepted credit-card payments from
American customers through the usual financial
channels, customers would be billed in dollars, and
when those dollars came to Rodriguez Pons’s Argentine
bank account, they would be converted at the official
rate, about 30 percent lower than the black-market rate.
It would also take 20 days for Rodriguez Pons to get her
pesos. BitPagos helped counter these drawbacks by
taking the credit-card payment in the United States and
then using the dollars to buy Bitcoins, generally from
Coinbase, before sending them to Rodriguez Pons
immediately. When Rodriguez Pons needed to pay the
rent or laundry bills, she called Fernández or Castiglione
— her two standbys — to sell the Bitcoins for pesos at a
rate close to the dólar blue . Rodriguez Pons saved so
much money this way that she could offer the 10 percent
discount for credit cards and still easily come out
ahead. In June 2014, BitPagos moved about $150,000 for
the Rock Hostel and other tourist establishments, nearly
twice what it handled three months earlier.
Rodriguez Pons, like many BitPagos clients, knew little
about how Bitcoin worked and hadn’t tried hard to figure
it out. She once, somewhat accidentally, held onto her
Bitcoins at a time when the price was rising, and ended
up with a small windfall when she sold. She used the
proceeds to build a rooftop bar and a music-rehearsal
space. Beyond those extras, Rodriguez Pons credited
the savings from using BitPagos with keeping her
business alive in Argentina’s very difficult business
environment. The hardest part was often reaching
Fernández and Castiglione.
“I had to call Brenda four times today,” she said with a
smile.
As anyone who has dealt with Western Union or wired
money abroad already knows, Argentina is not the only
place that could benefit from Bitcoin’s easier and
cheaper way of moving money across international
borders. A Hong Kong firm called Bitspark recently
opened a shop in a mall popular with Filipino domestic
workers, through which they can send money back home
using Bitcoin. Another firm, BitPesa, allows customers
to convert Bitcoins into Kenyan shillings and deliver
them into mobile wallets within Kenya.
Transactions of this sort inevitably stir up fears of
money laundering and terrorist financing. Banks
currently serve as the front line in stopping illicit money
transfers. If these regulated institutions are cut out of
the business of moving money, the banks and
government officials say, who will ensure that terrorists
and organized crime are not using the network to move
millions across borders? The fact that there is no single
authority responsible for supervising the Bitcoin system
has also made it easier for con men and thieves to
defraud companies holding Bitcoins for customers —
something that became clear last year when Mt. Gox,
once the largest Bitcoin exchange in the world, declared
bankruptcy after nearly half a billion dollars of clients’
Bitcoins were fraudulently transferred out of their
accounts. (A hacker generally needs only an owner’s
password to steal his or her Bitcoins.)
Oddly enough, American regulators have actually been
friendlier than banks toward the new technology. Even
before the advent of Bitcoin, the Federal Reserve was
looking into ways to update the relatively antiquated
American payment networks, which often take two or
three days to complete a simple money transfer. Several
different branches of the Federal Reserve have released
research papers over the last few years praising the
improvements that Bitcoin might spur, even if Bitcoin
itself isn’t adopted by the mainstream as a virtual
currency. In 2013, when he was chairman of the Fed, Ben
Bernanke wrote a letter to a Senate committee studying
Bitcoin in which he praised its “long-term promise,
particularly if the innovations promote a faster, more
secure and more efficient payment system.”
Banks are aware that this is an area in which they will
likely have to adapt or lose business, perhaps even be
made irrelevant. While most of the major banks have
criticized Bitcoin and refused to work with virtual-
currency companies, many of them are nonetheless
spending a lot of time and energy behind the scenes
studying the technology. JPMorgan Chase, the nation’s
largest bank, decided in early 2014 not to conduct
business with Bitcoin companies. But it did form its own
Bitcoin Working Group, which consists of about two
dozen executives throughout the bank who have been
meeting fortnightly or monthly to discuss how the
technology could change their business.
Banks are captivated, in particular, by the ledger on
which all Bitcoins and Bitcoin transactions are recorded:
what is known as the blockchain. Unlike traditional
financial ledgers, kept by a central institution, the
Bitcoin ledger is updated and maintained by everyone on
the network, not unlike how Wikipedia is written and
monitored by its users. One virtue of this approach is
that the network has no central point subject to failure,
like Visa and the New York Stock Exchange in their
financial realms. It also means there is no middleman
collecting fees with each transaction. And because the
bookkeeping is publicly accessible, records can’t be
manipulated in secret or after the fact.
JPMorgan belongs to an association of big banks, the
Clearing House, that has been confidentially putting
together a “proof of concept” for a decentralized ledger,
or blockchain, that would run on the computers of all
the participating banks. According to people involved,
this network, which is still in the conceptual phase,
could allow instant transfers between accounts at all the
member banks and eliminate the current risks involved
in having billions of dollars in limbo for days at a time.
For many bankers, the most valuable potential use of the
blockchain is not small payments but very large ones,
which account for the vast majority of the money
moving around the world each day. The banks, though,
are moving slowly, even as several start-ups are trying
to use the Bitcoin blockchain to do the same thing on a
global basis, cutting out the banks altogether.
One of the most recent entrants into this area is a start-
up led by a former top executive from JPMorgan. The
Federal Reserve has had its own people looking at how
to utilize the blockchain technology and potentially even
Bitcoin itself. If someone can find a way to minimize the
volatility of Bitcoin prices — as many are trying to do —
it would be much easier for people to keep their savings
in Bitcoin instead of a bank account.
“In the long run, Bitcoin will be very disruptive to the
developed world,” Dan Morehead, a former Goldman
Sachs executive who now runs a hedge fund focused on
Bitcoin, told me. Things are happening sooner in
Argentina, he said, because its financial system creates
hassles for the people there. But, he added, “Argentina
is just a more extreme example of the situation in every
country.”
When I returned to Argentina in February this year, the
price of Bitcoin had been falling for some time, scaring
off many speculators in the United States. There was no
sign of waning interest in Argentina, however. Several
new companies were trying to provide a more seamless
and reliable version of Castiglione’s service. BitPagos
had recently started a service allowing its users to buy
and sell small quantities of Bitcoin online and was
closing in on a million-dollar fund-raising round with
Silicon Valley venture capitalists, including Dan
Morehead’s firm. A new company, Bitex, which had its
own office down the street from the Bitcoin Embassy,
was focused on using Bitcoin to transfer money among
Latin American countries. All of the Argentine Bitcoin
companies were working on expanding into Venezuela,
where inflation is an even greater problem.
Castiglione was so busy running around the city, trying
to keep up with the competition, that he was hard to pin
down. When we finally met near the Bitcoin Embassy,
late at night, he was with a tough-looking friend who
was joining DigiCoins to help with the physical
deliveries of cash, bringing with him a motorcycle and
experience handling large amounts of money. The men
had just come back from a trip to a town three hours
west of Buenos Aires, where they had sold $20,000
worth of Bitcoins. They had been forced to make the trip
at the last minute because another big sale had fallen
through, and they did not otherwise have enough dollars
to conduct business for the next few days. “If I hadn’t
gotten that cash, I was done,” Castiglione told me,
before heading out for a last trade just before midnight.
Earlier that day, as I sat with Fernández in a Subway
sandwich shop, which was her temporary office, chosen
for its free Wi-Fi, she did not try to hide her difficulty in
adapting to the more competitive environment with her
“crazy Bitcoin girl” routine, which was making it hard to
keep big customers. She did have one business in the
United States that sent her about $5,000 worth of
Bitcoins each month and had her exchange the money
and deposit the pesos into the company’s Argentine
bank account, in order to make payroll. But a lot of her
customers were young people who wanted to buy a few
hundred pesos worth of a Bitcoin so that they could pay
online for a Netflix subscription or a video game. “The
market moved in another direction,” she said, “and I
didn’t move in that direction.”
She had come to have serious doubts about whether
Bitcoin would end up being any better than the old
system if it was dominated by the ruling class, which
would be immune to any popular backlash, thanks to the
lack of a central Bitcoin authority. “The key turning point
is when the rich elite see it as a way to safeguard their
wealth,” she said.
Among the people Fernández and Castiglione were both
contending with was Wences Casares. He decided in late
2013 that he cared too much about Bitcoin to leave its
development to others. He quickly sold his digital-
wallet start-up and started his own Bitcoin-centric
company with one of the friends from the bus trip,
Federico Murrone, an Argentine who was the head
programmer on Casares’s past start-ups. Within two
months of selling their old company, Casares and
Murrone had secured $40 million in funding from
investors like Reid Hoffman, the LinkedIn co-founder.
The office that Casares’s new company, Xapo
(pronounced “zappo”), opened in Buenos Aires has none
of the scrappiness of other virtual-currency players in
the country. It occupies a full floor of a building in a
fashionable part of the city; amenities included table
tennis, glass walls and large, wall-mounted televisions.
Xapo initially concentrated on ultrasecure storage for
customers who own lots of Bitcoins — it holds the
Bitcoins of many of the wealthy tech moguls who
followed Casares’s advice. But Casares has ambitions to
turn the company into a one-stop financial provider for
the virtual-currency industry. The global aspirations
were evident from the Hindi-language site that I saw his
staff creating.
Casares spent months establishing a partnership with
Taringa, the most popular Argentine social network. This
month, millions of Taringa members in Argentina and the
rest of Latin America automatically had a Xapo Bitcoin
wallet opened for them. Users will be able to put
Bitcoins or fractions of Bitcoins in their wallets by
depositing cash at local drugstores, in the same way
they pay utility bills. From those accounts, Argentines
can pay for things online without a credit card or make
online micropayments of 5 or 10 cents for video games
and other digital goods (credit cards usually charge a
minimum of 25 or 30 cents for each purchase).
When I asked Castiglione what he thought about a
global venture like Xapo, he evinced a workingman’s
skepticism. “We might not be as big as Wences, but the
real thing happens here,” Castiglione said, as we sat in
his temporary office between client visits. “People get
the cash to spend.”
Whether his endeavors would help Bitcoin live up to its
grand promise — supplanting Wall Street and central
banks — was something Castiglione would consider only
in the most pragmatic terms.
“If people don’t use it, it will go to trash, like anything
that isn’t used in this world,” he told me. “If people use
it, then it has a future.”
country is the perfect place to experiment with a new
digital currency.
By NATHANIEL POPPERAPRIL 29, 2015
Dante Castiglione, a Bitcoin broker, pays a client in U.S.
dollars at a temporary office in Buenos Aires.
MARK PETERSON / REDUX, FOR THE NEW YORK TIMES
D
ante Castiglione stalked through the doors of a glass-
walled office tower on the edge of downtown Buenos
Aires, just a few hundred feet from the old port district.
In the crowded elevator, he shook his head and muttered
under his breath about the stresses of the day and his
profession. “I swear, this job can kill me,” he said, his
eyes cast downward.
On the 20th floor, he hustled into an impersonal,
windowless office and quickly removed the tools of his
trade from his backpack and set them on the desk:
locked blue cash box, cellphone and clunky Dell laptop
with the same yellow smiley-face sticker that he puts on
all his electronics. Then he unbuckled the fanny pack
from around his waist, which contained the most
important part of his business: bricks of $100 bills and
100-peso notes.
This room, rented for the day, was not one of
Castiglione’s regular haunts. He mostly drifts among the
old cafes in Buenos Aires, where the bow-tie-wearing
waiters serve small glasses of seltzer water with each
coffee. In his line of business as a money-changer,
temporary meeting places are preferred; they make
things harder for would-be thieves, whom he has so far
avoided. On this Friday in late February, Castiglione had
run around the city in his camouflage-patterned sandals,
trying to distribute cash to some clients and pick it up
from others. Once back in his temporary office, his
outdated LG phone alternately chirped, buzzed and sang
with incoming text messages and emails.
Ordinarily, Castiglione would have help. His 18-year-old
daughter, Fiona, often deals with customers, but she
was about to give birth to her first child. Her twin
brother, Marco, who used to make cash runs, was now
focusing on school. So Castiglione was alone, his stress
evident in the sweat on his forehead and the agitation
on his face. When his business partner, who lives in
Rosario, Argentina’s third-largest city, called to ask why
he hadn’t taken care of one particularly insistent client,
Castiglione erupted in frustration.
Dante Castiglione, left, at the Rock Hostel, with its
owner, Soledad Rodriguez Pons, who accepts Bitcoin.
MARK PETERSON / REDUX, FOR THE NEW YORK TIMES
“If you want it done faster, you pick up the phone and
call her yourself,” he growled in Spanish, before
switching to another call.
After hanging up, he told me in English: “Everybody
wants everything now, and I am just trying to do it. I’m
not magical, as people think.”
Magical, no, yet something new all the same. His
occupation is one of the world’s oldest, but it remains a
conspicuous part of modern life in Argentina: Calle
Florida, one of the main streets in downtown Buenos
Aires, is crowded day and night with men and women
singing out “ cambio, cambio, cambio, casa de cambio,” to
serve local residents who want to trade volatile pesos
for more stable and transportable currencies like the
dollar. For Castiglione, however, money-changing means
converting pesos and dollars into Bitcoin, a virtual
currency, and vice versa.
That afternoon, a plump 48-year-old musician was one
of several customers to drop by the rented room. A
German customer had paid the musician in Bitcoin for
some freelance compositions, and the musician needed
to turn them into dollars. Castiglione joked about the
corruption of Argentine politics as he peeled off five $
100 bills, which he was trading for a little more than 1.5
Bitcoins, and gave them to his client. The musician did
not hand over anything in return; before showing up, he
had transferred the Bitcoins — in essence, digital tokens
that exist only as entries in a digital ledger — from his
Bitcoin address to Castiglione’s. Had the German client
instead sent euros to a bank in Argentina, the musician
would have been required to fill out a form to receive
payment and, as a result of the country’s currency
controls, sacrificed roughly 30 percent of his earnings to
change his euros into pesos. Bitcoin makes it easier to
move money the other way too. The day before, the
owner of a small manufacturing company bought $20,000
worth of Bitcoin from Castiglione in order to get his
money to the United States, where he needed to pay a
vendor, a transaction far easier and less expensive than
moving funds through Argentine banks.
Federico Murrone, left, and Wences Casares at Xapo,
their company that handles Bitcoins, in Palo Alto, Calif.
MARK PETERSON / REDUX, FOR THE NEW YORK TIMES
The last client to visit the office that Friday was Alberto
Vega, a stout 37-year-old in a neatly cut suit who heads
the Argentine offices of the American Bitcoin company
BitPay, whose technology enables merchants to accept
Bitcoin payments. Like other BitPay employees — there
is a staff of six in Buenos Aires — Vega receives his
entire salary in Bitcoin and lives outside the traditional
financial system. He orders what he can from websites
that accept Bitcoin and goes to Castiglione when he
needs cash. On this occasion, he needed 10,000 pesos
to pay a roofer who was working on his house.
Commerce of this sort has proved useful enough to
Argentines that Castiglione has made a living buying
and selling Bitcoin for the last year and a half. “We are
trying to give a service,” he said.
That mundane service — harnessing Bitcoin’s workaday
utility — is what so excites some investors and
entrepreneurs about Argentina. Banks everywhere hold
money and move it around; they help make it possible
for money to function as both a store of value and a
medium of exchange. But thanks in large part to their
country’s history of financial instability, a small yet
growing number of Argentines are now using Bitcoin
instead to fill those roles. They keep the currency in
their Bitcoin “wallets,” digital accounts they access with
a password, and use its network when they need to
send or spend money, because even with Castiglione or
one of his competitors serving as middlemen between
the traditional economy and the Bitcoin marketplace,
Bitcoin can be cheaper and more convenient than
Argentina’s financial establishment. In effect, Argentines
are conducting an ambitious experiment, one that
threatens ultimately to spread to the United States and
disrupt some of the most basic services its banks have
to offer.
Bitcoin first appeared in early 2009, introduced by a
shadowy figure known as Satoshi Nakamoto. The
software underlying its creation established that Bitcoins
would be released slowly and steadily until there are 21
million of them; at that point, more than 12 decades from
now, no more Bitcoins will be generated. These rules
produced two somewhat predictable results, especially
coming in the immediate wake of the financial crisis and
the government bailouts of the big banks. The limited
and regular release of Bitcoins appealed to libertarians,
who have been skeptical of currencies that governments
can print in unlimited quantities. (When Rand Paul
announced his candidacy for president last month, his
campaign’s website began accepting donations in
Bitcoin.) The built-in sense of scarcity also led people
to regard Bitcoin as a kind of digital gold, its value
likely to increase over time — in other words, something
to buy and sell as a speculative investment. The millions
of traders, many of them in China, who have bet on the
price of the virtual currency have kept the cumulative
value of all outstanding Bitcoins well above $2 billion
since late 2013. At the same time, that speculative
activity has left much of the general public wondering
why these virtual coins should be worth anything at all.
The Bitcoin broker Brenda Fernandez scans the QR code
of her client's virtual wallet to make a trade.
MARK PETERSON / REDUX, FOR THE NEW YORK TIMES
But the wild fluctuations in price — the value of a
Bitcoin has bounced between $70 and $1,200 over the
last two years — have obscured a significant aspect of
the currency’s broader potential. Bitcoin digital tokens
are part of a new kind of online financial network, which
runs on the computers of those who use the virtual
currency. People who join and support the network —
hosting its open-source software, serving as record-
keepers of sorts — receive new Bitcoins as they are
released in a kind of recurring lottery, thus encouraging
user participation. The details of how the network
operates can be mind-numbingly complicated, involving
lots of advanced math and cryptography, but at the most
basic level, the network makes it possible for the first
time to send valuable digital money around the world
almost instantly, without moving through an
intermediary like a bank or credit-card company or a
service like PayPal. In a sense, the Bitcoin network was
designed to be a financial version of email, which
enables messages to be delivered without passing
through a national postal service, or like the broader
Internet itself, which allows people to publish news and
essays without going through a media company. Instead
of just delivering words, though, the Bitcoin network
makes it possible to deliver money from New York to
Shanghai in a matter of minutes without paying any
financial institution.
The number of Bitcoin users in Argentina is relatively
small; it barely registers on most charts of global Bitcoin
usage. But Argentina has been quietly gaining renown in
technology circles as the first, and almost only, place
where Bitcoins are being regularly used by ordinary
people for real commercial transactions. A number of
large American companies have started accepting
Bitcoin payments, but so far there has been little
economic incentive for their customers to pay with
Bitcoins.
In contrast, the best-known Bitcoin start-up in
Argentina, BitPagos, is helping more than 200 hotels,
both cheap and boutique, take credit-card payments
from foreign tourists. The money brought to Argentina
using Bitcoin circumvents the onerous government
restrictions on receiving money from abroad. Castiglione
has some hotel clients, but he says that many of his 800
or so registered customers are freelancers who use
Bitcoin to get paid by overseas clients, or companies
that want to move money in and out of Argentina. A
popular new online retailer, Avalancha, began accepting
Bitcoin last summer and has seen the volume of Bitcoin
transactions grow steadily since then. Avalancha offers
customers a 10 percent discount when they use the
virtual currency, because accepting credit cards
generally ends up costing Avalancha more than 10
percent as a result of the vagaries of the Argentine
financial system. The Bitcoin community in Buenos Aires
has been vibrant enough to produce what’s known as
the Bitcoin Embassy in the center of the city, a four-
story building that serves as the home to eight start-ups
whose businesses depends on the Bitcoin network.
Bitcoin proponents like to say that the currency first
became popular in the places that needed it least, like
Europe and the United States, given how smoothly the
currencies and financial services work there. It makes
sense that a place like Argentina would be fertile ground
for a virtual currency. Inflation is constant: At the end of
2014, for example, the peso was worth 25 percent less
than it was at the beginning of the year. And that
adversity pales in comparison with past bouts of
hyperinflation, defaults on national debts and currency
revaluations. Less than half of the population use
Argentine banks and credit cards. Even wealthy
Argentines fear keeping their money in the country’s
banks.
Wences Casares grew up on a remote sheep ranch in
Patagonia and now lives on an estate looking out over
Silicon Valley. He is, as much as anyone, responsible for
making Bitcoin known in both Argentina and the United
States. In 2001, he sold his first major start-up, a sort of
ETrade for South Americans, to the Spanish bank
Santander for $750 million. He sold his next big
company, an online bank, to Banco Brasil. By the time
he first heard about Bitcoin, in late 2011, he was in his
first year of his latest start-up, Lemon, a mobile wallet
for smartphones, not unlike Apple Pay, which came out
three years later. His fascination with Bitcoin had less to
do with professional experience, however, than a
childhood spent in a country whose financial system
seems to be terminally broken.
There was rarely a time during Casares’s youth when
Argentina was not enduring some sort of financial crisis.
In 1983, after years of inflation, the government created
the new peso: each new one was worth 10,000 old
pesos. In 1985, the new peso, its value eroded by
inflation, was in turn supplanted by the austral, worth
1,000 new pesos. Eventually the government went back
to the peso, this time pegged to the dollar, an effort that
also failed.
“I think I understand economics better than most people
because I grew up in Argentina,” Casares, now 41, told
me. “I’ve seen every single monetary experiment you can
imagine. This is the street-smart economics. Not the
complex Ph.D. economics.”
One particular episode is seared in Casares’s memory. In
1984, during the first significant episode of Argentine
hyperinflation following the military junta’s loss of
power, Casares’s mother came to get him and his two
sisters from school one day. His mother carried two
grocery bags filled with cash — the salary she had just
been paid. She rushed with Casares and his sisters to
the grocery store and made them run through the aisles,
grabbing as much food as they could before the prices
changed. (An employee walked through the store all day
doing nothing but re-pricing the goods on the shelves
to keep up with the rapidly changing value of the peso.)
After paying at the register, Casares and his sisters ran
back for more food to spend the leftover money on. In
this hyperinflationary environment, holding on to pesos
was the same thing as losing money.
Casares is descended from one of Argentina’s old
landholding families — a town called Carlos Casares,
near Buenos Aires, is named after one of his ancestors —
but his branch of the family went through hard times
and ended up ranching sheep. When his father sold
wool and the buyer’s check took a month to clear, that
income could be halved by inflation, forcing yet more
household cutbacks. Whatever savings accumulated
were quickly exchanged for dollars, which held their
value better than pesos.
In 2003, Casares and five friends bought a school bus
and drove it on a three-week road trip from Buenos
Aires, the capital, to Tierra del Fuego, at the southern
end of South America. After the vehicle was stolen upon
their return, the friends vowed to buy a second bus for
another trip. In December 2011, one of them, Jorge
Restelli, finally found a bus for 60,000 pesos, or $14,000,
in the classified ads. The friends who lived in Argentina
quickly paid their shares to purchase and fix it up, but
Casares stalled, knowing how much it cost in time and
fees to move money from the United States to Argentina.
Then Restelli told him that Bitcoin might be just the
answer.
At the time, the virtual currency had a small cult
following in the United States and was essentially
unheard-of in Argentina, but Restelli had read about it
on an American tech blog. The same day Casares heard
about Bitcoin, he found someone online who agreed to
meet him at a cafe in Palo Alto and sell him 2,700 or so
Bitcoins for about $8,000 in cash. Casares sent Restelli
the Bitcoins that evening.
Casares was fascinated by the transaction. Here was
money that anyone could buy online and that promised
to hold its value better than the peso. (That promise
would later be tested by extreme price swings.) It also
seemed to offer access to the financial system for those
who couldn’t open bank accounts or secure credit cards.
Even Casares, who created his first start-up in the
country, had never held an Argentine bank account.
He sent articles about Bitcoin to his bus-trip friends
and explained how easy it was to move thousands of
dollars in and out of Argentina. One friend went on to
found the central Bitcoin advocacy group in Argentina
and opened the Bitcoin Embassy in Buenos Aires.
Casares began stockpiling Bitcoins, and when he visited
Argentina during 2012, he posted offers to sell them on
an Internet message board that was becoming a small,
impromptu national marketplace for the virtual currency.
He organized the first Bitcoin Meetup in Argentina in
December 2012, though only a handful of people besides
Restelli showed up at the whiskey bar where it was
held.
By then, Casares was proclaiming Bitcoin’s promise to
any Silicon Valley friend who would listen. He had come
to believe that the advantages of its network would push
the value of each Bitcoin to astronomical values, just as
slivers of the airwave spectrum increased in worth as
more communication companies sought to use it. In the
meantime, each Bitcoin could serve as an easy, secure
place to store money, comparable to gold.
Many of Casares’s friends in the United States were
initially skeptical: What could Bitcoin do that their credit
cards couldn’t? But Casares explained how places like
Argentina were different. His first big convert among his
friends, and the one whose opinion in this area mattered
the most, was David Marcus, who had recently become
the president of PayPal. Marcus’s light-bulb moment
came in the fall of 2012, when the Argentine government
ordered PayPal to bar direct payments between
Argentines, part of the government’s effort to slow the
exchange of pesos into other currencies. As the policy
went into effect, and Marcus watched the price of
Bitcoin rise against the peso, he figured that Argentines
were using Bitcoin to circumvent the government’s
restrictions. Marcus began buying Bitcoins himself and
also pushed PayPal to start investigating the currency’s
use.
In March 2013 Casares attended an exclusive technology
conference near Tucson hosted by the investment bank
Allen & Company. At dinner the first night, Casares won
the attention of a table full of investors by describing his
childhood experiences in Argentina and how Bitcoin
equipped people to avoid similar situations. He
demonstrated the capabilities of the Bitcoin network by
sending $250,000 worth of the virtual currency to the
phone of a table mate, who was then directed to pass
the money along to the man next to him with no more
than a few taps of his iPhone keypad. During the next
two days of the conference, a steady stream of attendees
who had seen or heard about the Sunday-evening
conversation approached Casares, including Reid
Hoffman, the co-founder of LinkedIn. On a hike
Wednesday afternoon, Casares spent the entire time
explaining the concept to Charlie Songhurst, Microsoft’s
head of corporate strategy.
At the time, Casares was still running his mobile-wallet
start-up and had no business stake connected to
Bitcoin beyond his own holdings of the virtual currency,
which had become substantial. He urged his friends to
make their own purchases. On Monday, the first full day
of the conference, the price of a Bitcoin jumped more
than $2, to $36, and on Tuesday it rose more than $4, its
sharpest rise in months, to more than $40. After
everyone flew home from the conference, Songhurst
wrote a paper and distributed it privately to some of the
most powerful investors in Silicon Valley. “We foresee a
real possibility that all currencies go digital, and
competition eliminates all currencies from noneffective
governments,” it said, channeling Casares’s arguments.
“The power of friction-free transactions over the Internet
will unleash the typical forces of consolidation and
globalization, and we will end up with six digital
currencies: US Dollar, euro, Yen, Pound, Renminbi and
Bitcoin.”
The buzz generated by the conference was not the only
factor that pushed up the price of Bitcoin in March 2013.
A financial crisis in Cyprus came to a head in the middle
of the month; the closure of some bank accounts there
led to conjecture that Russians were seeking refuge from
the Cypriot banking system in Bitcoin. But Casares
noticed that every time he helped another one of his
wealthy friends start buying Bitcoins, prices rose,
suggesting to him that they were responsible for much
of the increase. Over the course of March, the price of a
single Bitcoin nearly tripled, to around $100, and that
surge generated the first widespread media coverage in
the United States and Argentina (some of it, not
coincidentally, from journalists cultivated by Casares).
The crowd at the next Bitcoin Meetup in Argentina,
hosted in April by one of Casares’s friends, was about
five times larger than the first one organized by Casares
just a few months earlier.
Dante Castiglione first heard about Bitcoin that same
March. A Canadian who hired him to do some software
consulting asked if he could pay him in Bitcoin.
Castiglione, who grew up in a small apartment in
downtown Buenos Aires, ran his own consulting firm,
the latest in a long line of jobs after he dropped out of
college. He is a successful version of what Argentines
refer to as a buscavida , a person who gets by finding
opportunities on the fringes of society, a more expansive
career option in Argentina than in most countries.
When it came to working for overseas clients, the
biggest issue for Castiglione, like many Argentines, was
the government-set exchange rate between dollars and
pesos. In an attempt to tamp down inflation, the
government has long forced banks to sell dollars at
artificially low rates. In March 2013, the government said
a dollar was worth around 5 pesos. But anyone could go
to one of the money changers on Calle Florida and trade
a dollar bill for about 8 pesos, the black-market rate,
also known as the dólar blue . (Economists and people
outside Argentina often regard the dólar blue as the real
exchange rate, a closer reflection of the peso’s actual
worth.) The official exchange rate was costly for
businessmen like Castiglione. When dollars from foreign
customers came in through traditional means, banks
automatically converted them at the mandated rate, and
Castiglione ended up with three fewer pesos for each
dollar than he would have gotten by exchanging them on
the street. Castiglione had to sacrifice nearly 40 percent
of a foreign payment to turn it into pesos.
When the Canadian customer paid Castiglione in
Bitcoins, Castiglione found someone online willing to
meet him in Buenos Aires and pay him in pesos at
something close to the dólar blue rate. The demand for
his Bitcoins was, in fact, so great that Castiglione,
whose company was limping along, began to think there
might be a business opportunity there. If he bought
Bitcoins for slightly less than he sold them, he could
make a profit on every trade, even if the price of Bitcoin
didn’t go up. By September 2013, he had become a full-
time Bitcoin broker.
In-person Bitcoin trading, as Castiglione does it,
happens in many other cities around the world. But if
this were the only way to procure Bitcoins, the interest
in trading them would not have exploded as it has in the
United States and China, where exchanging money
directly with strangers — without a trusted middleman,
in other words — is not a routine part of business. In
most places where Bitcoin has become popular, there
have been ways to buy the virtual currency online. This,
of course, requires cooperation with banks or other
payment networks, which happened in the United States
and Europe. The American company Coinbase, for
instance, allows customers to transfer money from their
bank to a Coinbase account and buy Bitcoins online.
In Argentina, the banks refuse to work with Bitcoin
companies like Coinbase, which isn’t surprising, given
the government’s tight control over banks. This hasn’t
deterred Argentines, long accustomed to changing
money outside official channels. For Castiglione and his
company, DigiCoins, this means operating at the edge of
the law, but he takes comfort from the fact that, at least
for now, the Argentine government has bigger problems
to deal with.
Instead of bank tellers and branches, Bitcoin users in
Argentina have come to rely on Castiglione and his
competitors, some of whom are even willing to make
house calls. This financial system developed much more
slowly than it has in the United States, where American
companies could take deposits from banks anywhere in
the country. But as a result, Argentina’s Bitcoin
economy is much more resistant to bank policies,
government regulations and full-service companies like
Coinbase that undermine Bitcoin’s decentralizing spirit.
I first met Castiglione when I visited Buenos Aires in
June 2014. At the time, he was working downtown, out
of a stuffy single room in the same building as a Berlitz
language-school office. A joker playing card was lodged
in the corner of the whiteboard on the wall. A friend of
Castiglione’s son was at a desk, working on the
DigiCoins website. His daughter, Fiona, was in touch
with customers by phone and online. His son, Marco,
was in and out, taking cash to clients, which he carried
in his backpack. Sitting behind his own desk next to the
door, Castiglione was describing the life of a money-
changer, especially when it comes to matters of
security. He spoke with tough confidence: “Not many
people will like to mess with us.”
But he acknowledged that he and his children remained
safe largely because they successfully kept their clients
ignorant of their location by switching offices frequently:
“Right now, maybe God is on our side.”
One of Castiglione’s main competitors was another
Bitcoin broker named Brenda Fernández. Originally from
the Buenos Aires suburbs and a college dropout, she
previously smuggled electronics into the country and
sold them on the local equivalent of eBay. She talked in
loud bursts, punctuated with high-pitched laughs, and
proudly made provocative statements about breaking the
law and ignoring standard business practices when I
met her at an event at the Bitcoin Embassy. “I find a way
to market myself as the crazy Bitcoin girl,” she told me.
In a more serious moment, Fernández, who is 24,
attributed both her attitude and her embrace of Bitcoin
in part to the gender transition she made in her early
20s, after years of struggling with traditional gender
categories. “It feels good, doing things that you are not
supposed to, saying to the structures of power that they
don’t have power over you,” she said.
After the event at the embassy, Fernández took a small
black-and-yellow taxi to a hostel near the National
Congress that wanted to exchange about $1,000 worth of
Bitcoins. The Rock Hostel, with band-themed rooms,
caters to a young clientele. A number of people were
drinking beer in the common area when Fernández
showed up. The owner, a tattooed 29-year-old named
Soledad Rodriguez Pons, had already transferred the
Bitcoins to Fernández online, so after a bit of flirting,
Fernández quickly handed over the cash; the transaction
took place at the reception desk, where a sign offered
customers a 10 percent discount if they paid by credit
card. On top of the desk, under glass, were paper
currencies from around the world.
The Rock Hostel is one of hundreds of hotels in the
country using the Argentine start-up BitPagos to collect
credit-card payments from foreign customers. If
Rodriguez Pons accepted credit-card payments from
American customers through the usual financial
channels, customers would be billed in dollars, and
when those dollars came to Rodriguez Pons’s Argentine
bank account, they would be converted at the official
rate, about 30 percent lower than the black-market rate.
It would also take 20 days for Rodriguez Pons to get her
pesos. BitPagos helped counter these drawbacks by
taking the credit-card payment in the United States and
then using the dollars to buy Bitcoins, generally from
Coinbase, before sending them to Rodriguez Pons
immediately. When Rodriguez Pons needed to pay the
rent or laundry bills, she called Fernández or Castiglione
— her two standbys — to sell the Bitcoins for pesos at a
rate close to the dólar blue . Rodriguez Pons saved so
much money this way that she could offer the 10 percent
discount for credit cards and still easily come out
ahead. In June 2014, BitPagos moved about $150,000 for
the Rock Hostel and other tourist establishments, nearly
twice what it handled three months earlier.
Rodriguez Pons, like many BitPagos clients, knew little
about how Bitcoin worked and hadn’t tried hard to figure
it out. She once, somewhat accidentally, held onto her
Bitcoins at a time when the price was rising, and ended
up with a small windfall when she sold. She used the
proceeds to build a rooftop bar and a music-rehearsal
space. Beyond those extras, Rodriguez Pons credited
the savings from using BitPagos with keeping her
business alive in Argentina’s very difficult business
environment. The hardest part was often reaching
Fernández and Castiglione.
“I had to call Brenda four times today,” she said with a
smile.
As anyone who has dealt with Western Union or wired
money abroad already knows, Argentina is not the only
place that could benefit from Bitcoin’s easier and
cheaper way of moving money across international
borders. A Hong Kong firm called Bitspark recently
opened a shop in a mall popular with Filipino domestic
workers, through which they can send money back home
using Bitcoin. Another firm, BitPesa, allows customers
to convert Bitcoins into Kenyan shillings and deliver
them into mobile wallets within Kenya.
Transactions of this sort inevitably stir up fears of
money laundering and terrorist financing. Banks
currently serve as the front line in stopping illicit money
transfers. If these regulated institutions are cut out of
the business of moving money, the banks and
government officials say, who will ensure that terrorists
and organized crime are not using the network to move
millions across borders? The fact that there is no single
authority responsible for supervising the Bitcoin system
has also made it easier for con men and thieves to
defraud companies holding Bitcoins for customers —
something that became clear last year when Mt. Gox,
once the largest Bitcoin exchange in the world, declared
bankruptcy after nearly half a billion dollars of clients’
Bitcoins were fraudulently transferred out of their
accounts. (A hacker generally needs only an owner’s
password to steal his or her Bitcoins.)
Oddly enough, American regulators have actually been
friendlier than banks toward the new technology. Even
before the advent of Bitcoin, the Federal Reserve was
looking into ways to update the relatively antiquated
American payment networks, which often take two or
three days to complete a simple money transfer. Several
different branches of the Federal Reserve have released
research papers over the last few years praising the
improvements that Bitcoin might spur, even if Bitcoin
itself isn’t adopted by the mainstream as a virtual
currency. In 2013, when he was chairman of the Fed, Ben
Bernanke wrote a letter to a Senate committee studying
Bitcoin in which he praised its “long-term promise,
particularly if the innovations promote a faster, more
secure and more efficient payment system.”
Banks are aware that this is an area in which they will
likely have to adapt or lose business, perhaps even be
made irrelevant. While most of the major banks have
criticized Bitcoin and refused to work with virtual-
currency companies, many of them are nonetheless
spending a lot of time and energy behind the scenes
studying the technology. JPMorgan Chase, the nation’s
largest bank, decided in early 2014 not to conduct
business with Bitcoin companies. But it did form its own
Bitcoin Working Group, which consists of about two
dozen executives throughout the bank who have been
meeting fortnightly or monthly to discuss how the
technology could change their business.
Banks are captivated, in particular, by the ledger on
which all Bitcoins and Bitcoin transactions are recorded:
what is known as the blockchain. Unlike traditional
financial ledgers, kept by a central institution, the
Bitcoin ledger is updated and maintained by everyone on
the network, not unlike how Wikipedia is written and
monitored by its users. One virtue of this approach is
that the network has no central point subject to failure,
like Visa and the New York Stock Exchange in their
financial realms. It also means there is no middleman
collecting fees with each transaction. And because the
bookkeeping is publicly accessible, records can’t be
manipulated in secret or after the fact.
JPMorgan belongs to an association of big banks, the
Clearing House, that has been confidentially putting
together a “proof of concept” for a decentralized ledger,
or blockchain, that would run on the computers of all
the participating banks. According to people involved,
this network, which is still in the conceptual phase,
could allow instant transfers between accounts at all the
member banks and eliminate the current risks involved
in having billions of dollars in limbo for days at a time.
For many bankers, the most valuable potential use of the
blockchain is not small payments but very large ones,
which account for the vast majority of the money
moving around the world each day. The banks, though,
are moving slowly, even as several start-ups are trying
to use the Bitcoin blockchain to do the same thing on a
global basis, cutting out the banks altogether.
One of the most recent entrants into this area is a start-
up led by a former top executive from JPMorgan. The
Federal Reserve has had its own people looking at how
to utilize the blockchain technology and potentially even
Bitcoin itself. If someone can find a way to minimize the
volatility of Bitcoin prices — as many are trying to do —
it would be much easier for people to keep their savings
in Bitcoin instead of a bank account.
“In the long run, Bitcoin will be very disruptive to the
developed world,” Dan Morehead, a former Goldman
Sachs executive who now runs a hedge fund focused on
Bitcoin, told me. Things are happening sooner in
Argentina, he said, because its financial system creates
hassles for the people there. But, he added, “Argentina
is just a more extreme example of the situation in every
country.”
When I returned to Argentina in February this year, the
price of Bitcoin had been falling for some time, scaring
off many speculators in the United States. There was no
sign of waning interest in Argentina, however. Several
new companies were trying to provide a more seamless
and reliable version of Castiglione’s service. BitPagos
had recently started a service allowing its users to buy
and sell small quantities of Bitcoin online and was
closing in on a million-dollar fund-raising round with
Silicon Valley venture capitalists, including Dan
Morehead’s firm. A new company, Bitex, which had its
own office down the street from the Bitcoin Embassy,
was focused on using Bitcoin to transfer money among
Latin American countries. All of the Argentine Bitcoin
companies were working on expanding into Venezuela,
where inflation is an even greater problem.
Castiglione was so busy running around the city, trying
to keep up with the competition, that he was hard to pin
down. When we finally met near the Bitcoin Embassy,
late at night, he was with a tough-looking friend who
was joining DigiCoins to help with the physical
deliveries of cash, bringing with him a motorcycle and
experience handling large amounts of money. The men
had just come back from a trip to a town three hours
west of Buenos Aires, where they had sold $20,000
worth of Bitcoins. They had been forced to make the trip
at the last minute because another big sale had fallen
through, and they did not otherwise have enough dollars
to conduct business for the next few days. “If I hadn’t
gotten that cash, I was done,” Castiglione told me,
before heading out for a last trade just before midnight.
Earlier that day, as I sat with Fernández in a Subway
sandwich shop, which was her temporary office, chosen
for its free Wi-Fi, she did not try to hide her difficulty in
adapting to the more competitive environment with her
“crazy Bitcoin girl” routine, which was making it hard to
keep big customers. She did have one business in the
United States that sent her about $5,000 worth of
Bitcoins each month and had her exchange the money
and deposit the pesos into the company’s Argentine
bank account, in order to make payroll. But a lot of her
customers were young people who wanted to buy a few
hundred pesos worth of a Bitcoin so that they could pay
online for a Netflix subscription or a video game. “The
market moved in another direction,” she said, “and I
didn’t move in that direction.”
She had come to have serious doubts about whether
Bitcoin would end up being any better than the old
system if it was dominated by the ruling class, which
would be immune to any popular backlash, thanks to the
lack of a central Bitcoin authority. “The key turning point
is when the rich elite see it as a way to safeguard their
wealth,” she said.
Among the people Fernández and Castiglione were both
contending with was Wences Casares. He decided in late
2013 that he cared too much about Bitcoin to leave its
development to others. He quickly sold his digital-
wallet start-up and started his own Bitcoin-centric
company with one of the friends from the bus trip,
Federico Murrone, an Argentine who was the head
programmer on Casares’s past start-ups. Within two
months of selling their old company, Casares and
Murrone had secured $40 million in funding from
investors like Reid Hoffman, the LinkedIn co-founder.
The office that Casares’s new company, Xapo
(pronounced “zappo”), opened in Buenos Aires has none
of the scrappiness of other virtual-currency players in
the country. It occupies a full floor of a building in a
fashionable part of the city; amenities included table
tennis, glass walls and large, wall-mounted televisions.
Xapo initially concentrated on ultrasecure storage for
customers who own lots of Bitcoins — it holds the
Bitcoins of many of the wealthy tech moguls who
followed Casares’s advice. But Casares has ambitions to
turn the company into a one-stop financial provider for
the virtual-currency industry. The global aspirations
were evident from the Hindi-language site that I saw his
staff creating.
Casares spent months establishing a partnership with
Taringa, the most popular Argentine social network. This
month, millions of Taringa members in Argentina and the
rest of Latin America automatically had a Xapo Bitcoin
wallet opened for them. Users will be able to put
Bitcoins or fractions of Bitcoins in their wallets by
depositing cash at local drugstores, in the same way
they pay utility bills. From those accounts, Argentines
can pay for things online without a credit card or make
online micropayments of 5 or 10 cents for video games
and other digital goods (credit cards usually charge a
minimum of 25 or 30 cents for each purchase).
When I asked Castiglione what he thought about a
global venture like Xapo, he evinced a workingman’s
skepticism. “We might not be as big as Wences, but the
real thing happens here,” Castiglione said, as we sat in
his temporary office between client visits. “People get
the cash to spend.”
Whether his endeavors would help Bitcoin live up to its
grand promise — supplanting Wall Street and central
banks — was something Castiglione would consider only
in the most pragmatic terms.
“If people don’t use it, it will go to trash, like anything
that isn’t used in this world,” he told me. “If people use
it, then it has a future.”
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