Leveraging Bitcoin to Solve Venezuela’s Hyperinflation

a.k.a. “Liberating With Bitcoin — Operation: Venezuela”

Synopsis

Venezuela is experiencing rapid hyperinflation. I want to raise at least $300 million worth of hard-earned Bitcoin capital and electronically airdrop it onto Venezuelans.

The intention is to teach Venezuelans “how to fish,” and for this to serve as a “skipping land-lines for cell phones” moment for the world to observe. How? Why? Is this even feasible? I’ll address these questions in this post.

Hat tip to Brian Armstrong, Co-founder and CEO at Coinbase, who recently suggested a very similar idea, which expanded my vision to include an evergreen fund as part of our non-profit mission.

Preface

This is an unusual post, for several reasons:

  1. I’m leaving my position at Goldman Sachs today; Thursday, February 15, 2018. In a farewell email I’m sending to over one hundred people at Goldman, I’ve included a link to this post. Therefore, I’m simultaneously addressing two audiences: both them and the public.
  2. I’ll explain my new mission, and why I think Bitcoin is the answer.
  3. I’ve never written a Medium post before. I’m not a journalist. I’m not even a writer. English was never my forte in school, and I’ve never published anything until now. I hope to improve with feedback and mentorship. I welcome your thoughts and suggestions!
  4. This post will initially be private. I intend to publish this post to the public once I’ve had the opportunity to refine it, gather feedback, and organize a public effort.

With that said, let’s do this.

Personal Introduction

I’m a professional software developer and Bitcoin enthusiast. I’ve been following Bitcoin since 2011. I joined Goldman Sachs in 2014. At the beginning of 2018, I began spearheading blockchain research efforts within Goldman’s Investment Management Division. However, I’m leaving my job, so that I can focus all of my efforts on driving the mission of leveraging Bitcoin to solve Venezuela’s hyperinflation.


Primer #1: Venezuela’s Hyperinflation

Venezuela’s fiat currency, the bolívar, is currently inflating at a rate of 6,000% per annum, and most estimates are for it to reach 30,000–300,000% by the end of the year.

Venezuela has become the 57th documented case of runaway hyperinflation.

Venezuela’s bolívar has the highest rate of inflation in the world, orders of magnitude above any other fiat currency. It appears unlikely that the Venezuelan government will turn off its printing presses.

World’s Highest and Lowest Inflation Countries in 2017. (The chart on the left is actually out of date; at the time this article was published on February 15, 2018, Venezuela’s inflation rate had already blown past ~6,000%.)

The lives of 31 million Venezuelans are being destroyed in a very serious way. Not just with hyperinflation, but also with mass censorship, surveillance, and extortion, just to name a few. Innocent people are starving, and bread shortages are common. This is actually happening in the 21st Century.

Empty shelves, like these at a supermarket in Caracas, are a common sight in Venezuela. People can shop only on designated days at government-run stores. They’re limited in what they can buy and must undergo fingerprint scanning to prove their identity. Kyodo/Landov. Photo and caption credit: NPR

The value of banknotes has deteriorated so much that it has become a nuisance. Many Venezuelan businesses have resorted to weighing bolívar in bulk.

A manager weighs banknotes on a scale at a bakery in Caracas, Venezuela, on October 13, 2016. (Manaure Quintero — Bloomberg)

One of the few things Venezuelans have going for them is highly subsidized electricity (it’s virtually free), which helps with this mission.

Venezuela is otherwise on its way to total economic collapse, while many in its government continue to enjoy a comfortable life. Wasn’t Bitcoin supposed to solve this? Yes, and now it can.


Primer #2: Using Bitcoin to “Pay for Coffee”

The canonical use case of “Paying for one’s coffee with Bitcoin” has been solved. Last year, some would quip “I can’t pay for my coffee with Bitcoin, because it incurs a $30 transaction fee, and I have to wait 10 minutes for the transaction to confirm!” This was true, but not anymore. Why? Because Lightning Network, a layer-2 protocol built on top of Bitcoin (the “layer 1”), went live on Bitcoin’s mainnet in December 2017. (RC1, for the technically inclined.) Lightning Network enables Bitcoin transactions with unlimited throughput, instant confirmations, and micro-cent fees. Bitcoin’s on-chain fees quickly plummeted 1,000x during the month that followed. (!) This fact is rarely mentioned in the media.

Bitcoin transaction fees have cratered 1,000 fold. Fees in December were even worse. (Not shown.)
The Lightning Network (LN) a few weeks ago, and today. Watching LN’s explosive growth has been like witnessing the birth of the second internet.

Bitcoin’s Mainstream Moment

For this and many other reasons, I’m convinced that Bitcoin will explode into the mainstream over the next five years, faster than the vast majority of people are expecting. For example, you often can’t use your credit card at a bodega in New York City without spending at minimum of US$10 due to high transaction fees. As previously mentioned, this is no longer an issue with Bitcoin. Lightning Network also enables interesting new use cases, like paying a fraction of a penny for each web page viewed, rather than the ad-supported model that most of the web currently employs. Bitcoin’s future appears very, very bright. I strongly believe that Bitcoin will soon support an entire economy running on top of it and Lightning Network.


Consider Venezuela and Bitcoin Together

The above two primers, taken together, represent an unprecedented opportunity for entrepreneurs to address the situation in Venezuela in an extremely impactful way, which has only been possible since now. I’ve devised a plan that’s “so crazy, it just might work.”

What’s the idea?

We intend to raise at least $300 million worth of real hard-earned Bitcoin capital, and electronically airdrop a large portion of it onto Venezuelans. Unfortunately, in order to avoid tipping our hand as we plan and prepare, we wish to keep the exact method(s) a secret. All that I’ll reveal is that our tactical plan is a practical and scalable approach. You just have to think big.

We also intend to establish a non-profit foundation and evergreen fund to enable the execution of similar large-scale future operations.

Over the last couple of weeks, my team and I have spoken to a prominent billionaire, a human rights foundation, an ambassador to the UN, many Venezuelans, journalists, Bitcoin engineers, VCs, and others. All have expressed excitement and an eagerness to help, and we’re connecting with yet more prominent people. It’s very inspiring.

What’s the point?

The purpose isn’t to provide everyone a fish, but rather to teach everyone how to fish en masse in order to jump-start a gigantic fish market operating at the scale of an entire economy.

Paypal once incentivized people to sign up by giving them $5 in order to create network effects. Peter Thiel, co-founder of PayPal, notes that when one receives an email indicating that they’ve received money, one will almost always expend the effort necessary to access the money. (e.g., by creating a PayPal account.) We’re leveraging the same idea to teach people how to accept and use Bitcoin.

We want to take a gigantic defibrillator and reboot Venezuela’s economy. We expect this to be a powerful example for the world to observe.

Will this work?

At the end of the day, nobody can know what will happen for sure. It’s an experiment. I’m fully aware that we may not be successful, but nothing can possibly be worse than what is already happening in Venezuela, so it’s worth a try. Every Bitcoiner I’ve spoken to has indicated that they would be happy to donate 1% of their holdings for the cause, knowing that if the mission is successful, that this will likely increase the value of the remaining 99% of their holdings, due to a massive uptick in real-world utility and attention, and thus demand. Will we be successful? Let’s try it and find out. There’s little to lose, and much to be gained.

How will this be executed at the scale required?

The effort I’m proposing is much larger than a startup. We intend to inspire and collaborate with prominent individuals and institutions to address this very large problem.

What about Bitcoin’s volatility?

If you’re Venezuelan and Bitcoin drops 50% in value, that’s comparatively great money; it’s still holding most of its value. 90% of the bolívar’s value is lost every couple months, and it’s only accelerating. By the way, as Bitcoin appreciates in value, its volatility generally decreases. (In 2011, it swung from $1… to $30… to $2! Ouch!)

Bitcoin’s volatility is decreasing over time.

Why not US Dollars?

Well, I’ll ask you: Would you go door-to-door distributing indivisible 10 dollar bills? The approach doesn’t scale, the Venezuelan government won’t allow it, it’s not teaching anyone how to fish, and centralized online solutions are prone to government censorship. Venezuelans understandably express distrust of both U.S. dollars and bolívars, given that they’ve recently witnessed two separate crises with both.

But still… why Bitcoin?

Imagine that you could flee Nazi Germany, with all of your capital, using little more than a password in your head. That’s pretty world changing, right? That’s what Bitcoin offers. Nobody can forcefully rip your own capital away from you. What’s yours is yours. Not even a “$5 wrench attack” will work; many Bitcoin wallets work by making every password you enter unlock a different “account.” Thus an attacker can never know if everything has been successfully extorted.

What’s a $5 wrench attack? Great question! (This is really what cryptographers call it!)

I believe that when Venezuelans realize that they’re holding on to a fundamentally deflationary asset, that behavior will radically change. Instead of being incentivized to immediately spend money by the day or hour, one is incentivized to save, invest, and plan for the long term.

I’ve skipped a lot of detail, but this post is probably long enough already.


Conclusion

If we successfully pull off this mission, it has the potential to become one of the greatest socioeconomic experiments in the history of the world, and I don’t think that’s hyperbole. It would be like witnessing the first atomic bomb go off: The world would suddenly realize that Bitcoin isn’t theory anymore… it’s practice, and it’s real.

Finally, this isn’t about money, and it isn’t about me; I have no ego in this. It’s about helping others and making the world a better place. I want to liberate others who are suffering from monetary tyranny, by making Bitcoin more accessible to those who need it most.

If you’d like to become involved or contribute any ideas, resources, connections, data, articles, companies, websites, feedback, constructive criticism, know how, or anything else that may be of assistance, now or in the future, please, reach out!

Here goes nothing.

- Jonathan


PS: If you want to know why I think Bitcoin is the best long-term store of value the world has ever seen, just check out the supply curves for Bitcoin, the U.S. Dollar, and Gold in Figures 8, 10, and 12, below. Notice how unique Bitcoin’s supply curve looks. Also notice how even gold itself is inflating at an accelerating rate, partly due to improved mining efficiency. However, when more mining power is added to the Bitcoin network, Bitcoin’s consensus algorithm simply readjusts itself to make Bitcoin proportionally more difficult to mine. Amazing. Beat that.

Outstanding supply of Bitcoin, U.S. Dollars, and Gold. (Credit: ARK Invest / Chris Burniske)