Can Bitcoin Save Venezuela?

A surprising twist in the evolving story of blockchain applications has taken shape in the midst of humanitarian crises' across the globe, as refugees and victims of political and economic turmoil have begun turning to Bitcoin and other cryptocurrencies when traditional banking becomes unfeasible or fiat currencies become unstable. One example of this phenomena has unfolded in Venezuela, a country that has wrestled with economic instability for decades. A recent drop in global oil prices has caused catastrophic issues including shortages of food and basic goods, and a massive devaluation of their currency.

What's Happening In Venequela?
Venezuela's economy has long relied on a combination of social programs paid for with profits from the largest reserves of oil in the world. If oil prices plummet then the money to pay for Venezuela's social programs dries up as well. Declining oil profits prevented the government from importing enough goods under Hugo Chavez and led to food rationing, price setting, and the emergence of a black market for basic goods. As you can see from the chart below, oil prices have seen a number of dramatic dips that have had a devastating effect on the lives of many Venezuelans.

Crude Oil Prices 1940-2017

The government has also attempted to impose different exchange rates for its national currency, the bolivar, with rates for “essential goods,” “non-essential goods,” and the people. This policy, combined with Venezuela's heavy restrictions on private enterprise has resulted in a fiasco in which government rates overvalue the bolivar while the black market considers it worthless. Rumors that the government has printed more money to help with the shortage of cash on the streets has sparked fears of hyperinflation and with the currency already inflated over 300% since 2013, Venezuelans can't possibly afford for their money to lose more value. 

As of August 30, 2017, $1 is worth 10.06 bolivars according to the official exchange rate but the Venezuelan financial news outlet dolartoday quotes the black market rate at 17,662 bolivars per dollar. Regulations also limit the amount that Venezuelans may withdraw from ATM's to 30,000 bolivars at private banks and 10,000 at government-run banks, so those who can still afford basic goods often have a difficult time just getting a hold of their money to do so.

Why Bitcoin?
Bitcoin is mostly known in the U.S. as a tool for buying illicit things on the internet and Chinese traders love to mine and trade it as a speculative instrument. Japan might be the closest to retail adoption as over a quarter of a million stores began accepting the digital currency this year, but for Venezuelans the adoption of cryptocurrency represents an opportunity to establish an income by mining cryptocurrencies and to hold and transact with money that isn't being devalued by politics and poor economic planning.

A rise in the popularity of Bitcoin mining has been one of the more surprising effects of Venezuela's economic catastrophe. Mining is a process that allows users to help secure the network by dedicating computer hardware and in exchange they can earn cryptocurrency in the process. The cost of electricity makes mining unprofitable for a lot of individuals but the same heavy-handed regulations that led the cost of basic goods to spiral out of control have also meant that electricity remains heavily subsidized for citizens, making cryptocurrency mining operations a profitable source of potential income. 

Not only can mining allow citizens to profit from rigging computers together to help secure the networks these cryptocurrencies operate on, collecting cryptocurrencies instead of bolivars allows Venezuelans to obtain a currency that has far less of a chance of becoming worthless by the time it can be spent. Unfortunately, President Nicolas Maduro has expressed his disapproval of mining operations by arresting a number of individuals with mining operations. In spite of support for cryptocurrency trading and a lack of laws regarding cryptocurrencies, trumped-up charges have been used to punish operators and scare Venezuelans away from mining.

Venezuela and Beyond
The Venezuelan government may be able to go after those who mine openly and mid to large-scale mining operations due to their power consumption but to authorities who may remain unfamiliar with cryptocurrency a small mining operation may look like little more than a computer set up with some unusual software running so it's difficult to imagine Venezuelans giving up mining for as long as their energy remains subsidized. For those attempting to escape a catastrophe, whether in Venezuela or anywhere else in the world, traveling with cryptocurrency can be safer than cash because it may not be as easily stolen and it will not be subject to the same scrutiny as fiat currencies when crossing borders.

President Maduro has demonstrated no intention of changing the course of Venezuela's economy, cracking down on dissidents and irresponsibly juggling the country's finances with debt swaps. As more and more people discover the potential of blockchain technology there will be certain features or applications embraced by users that may not be as readily embraced by governments or regulatory agencies, especially those features and applications that allow people to act anonymously. 

Blockchain technology has demonstrated itself to be a potent force toward the decentralization of power and money across the world. As long as politicians and the wealthy continue to act in greedy ways or make decisions that cause suffering in their communities, individuals will be happy to support the development of tools to empower themselves. Venezuelans may not be able to rely on their government right now, but we make take a small bit of solace in knowing that a powerfully effective international community has already been mobilized to help.



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