This edition of the Timechain newsletter brings insights from a month of travels witnessing how a corrupted monetary system brought Argentina to its knees and how an incorruptible one may yet offer salvation to the townships of South Africa.

100 years ago, Argentina was the wealthiest country per capita on the planet. And walking around Buenos Aires, one can tell. Opulent, intricate, towering stone buildings span blocks and put Paris to shame. Yet it’s all too clear that these buildings are nothing more than the ruins of a once-prosperous civilisation. Commercial activity is limited to mass-manufactured plastic goods, fast food and knock-off textiles. In short, the proprietors who now inhabit the grand buildings of old, cater exclusively to clientele just trying to make ends meet.

Where did the middle class in Argentina go? And why does it matter? It matters because it’s the middle class that creates a dynamic and innovative economy. It may manifest in a vibrant startup sector, a robust healthcare system, an adversarial democracy or simply in an exciting food scene. It’s these sorts of sectors that make a society tick, that generate wealth and a sense of progress and opportunity. But in Argentina, there is no middle class. The middle class was destroyed by inflation.

In an inflationary environment, hard assets are protected. Their value increases in line with the rate of inflation as investors flee to assets they perceive will protect that value or owners raise prices in order to protect against debasement. In such an environment of high monetary debasement it is impossible for the working or middle class to build capital. Money just devalues too fast. Cash in the bank quickly becomes worthless and consumers rush to spend their money before its purchasing power declines. Sophisticated capital structures, like intricate supply chains providing specialised goods and services, cannot develop and the result is a simple and one-dimensional economy.

And then to South Africa. A local chap called Hermann runs a not-for-profit, a surf school that teaches around 40 kids from a township called Ekasi near Mossel Bay. He also employs 9 people from the township as surf instructors. For over 10 years he’s been trying to make a difference but it’s hard work and demanding in time, energy and money. Frustrated with the relatively limited impact in a country where tens of millions are in the same dire circumstances, he decided to pay his staff in bitcoin rather than the rapidly debasing South African Rand. For us at Timechain, this was an opportunity to validate some of the claims we make about bitcoin. And so late last year I made the trip to Ekasi, or as it’s now known, Bitcoin Ekasi, 4 hours outside of Cape Town.

‘For when you are approaching poverty, you make one discovery which outweighs all of the others … the fact that it annihilates the future’.
George Orwell on Poverty

South African townships are amongst the most brutal places on the planet. Rife with violence, they often have no running water or electricity and sanitary facilities are communal. Financial services are non-existent, employment is close to 0 and the people survive off the largesse of the state with a few informal merchants providing basic goods. It is in this environment, where literally no sophisticated infrastructure including even the rule of law exists, that bitcoin has been introduced.

On the left is one of Hermann’s young surf instructors. He lives in a small shack with 7 other people. How is he to keep the cash he earns safe in such an environment? Without access to a bank account or any digital financial services, it was previously impossible. Now that he’s paid in bitcoin, his money is protected by his smartphone and cannot be accessed by those who would wish to steal it. In addition, each of the school’s instructors have seen the bitcoin price fluctuate from 200k South African Rand to 1 million and back down to 300k. Whilst the price is volatile, it is at least volatile in both directions. For the first time in their lives, they have been prompted to think about their own future as they recognise that if they save some bitcoin and the price appreciates, they have a path to change their circumstances. For them, bitcoin is hope.

Ekasi now also has merchants springing up to service those with bitcoin to spend. Those informal merchants use simple tools like Wallet of Satoshi to take bitcoin payments over the lightning network – the first time their cash based economy has been able to receive digital payments. No bank accounts needed, no KYC, no account fees; just two parties engaging in voluntary trade with no intermediaries needed or permissions sought. Hermann has also set up a school, the Bitcoin Ekasi Education centre, rewarding the kids for good behaviour with bitcoin and teaching them about money as well as basic numeracy and literacy.

Bitcoin is perfected money, but it is also perfected property. As such it represents a mechanism through which we can all store our economic energy with confidence it will never be debased, thanks to the 21m cap. For the financially oppressed, it is the first accessible form of property. Inflation and lack of access to financial instruments means they can’t save up the cash to get on the property ladder, whilst stocks and shares have high barriers to entry and gold is rather hard for them to acquire, store and verify. Neither corrupt governments nor unscrupulous family members can confiscate savings held as bitcoin. And bitcoin is digital; as long as individuals have their phone or are able to memorise 12 simple words, they can flee across borders with it and access it from anywhere.

Contrary to the opinions of the mainstream media, Bitcoin is more than magic internet money, more than a tool criminals allegedly use to launder proceeds and certainly not a pointless fad consuming energy and boiling the oceans. It is a fair and inclusive monetary system that is finally going to bank the unbanked and provide equal opportunity to every individual, a cause pursued by every ESG and Impact fund under the sun, but now possible to finally accomplish.

It is these topics up for discussion at an event hosted by the Human Rights Foundation in Costa Rica next month. Timechain will be present, seeking to understand and share the experiences we have with bitcoin making a difference to those seeking to live a life of dignity.

If you wish to donate to support the wonderful work of Hermann in Bitcoin Ekasi, please join us in doing so here.

Until next time…