Crypto Won’t Fix Venezuela’s Problems, but It Can Make a Difference
Astronomical inflation in Venezuela after the 2014 oil crisis caused millions of Venezuelans to lose their savings and livelihoods. Today, a cup of coffee costs the same as a month’s rent in years past. Hyperinflation is devastating, whether it’s in Venezuela today or whether it was in Germany during the Weimar Republic, when people were transporting cash in wheelbarrows to buy bread.
Venezuela’s economy hasn’t recovered, despite President Nicolas Maduro’s minimum monthly salary hike, new fiat currency, or (supposedly) oil-backed and state-run cryptocurrency, the Petro. In fact, the bolivar is still projected to reach 10 million percent inflation this year, and the black market demand for cash increases every day.
While the government continues to print, invent, and exchange different currencies, some people have turned to cryptocurrency because it’s resistant to inflation and censorship. Despite facing challenges around infrastructure, education, and legality, cryptocurrency presents a way for millions of people to take control of their wealth.
Fiat currencies have worked well in the past (and still do today, in most places), but centralized currencies run the risk of being vulnerable to mismanagement and political leanings. Alternatively, decentralized cryptocurrencies like Bitcoin don’t have this potential for failure because they aren’t reliant on a single, central governing or banking body.
In Venezuela, crypto has the potential to help people send money across borders, free from government intervention, and provides a secure store of value against a highly inflated currency that continues to rise.
As the Venezuelan government continues to grapple with this ongoing economic crisis, and the country’s people find new ways to survive, crypto has the potential to live up to Satoshi’s original ideal.
What is needed is an electronic payment system based on cryptographic
proof instead of trust, allowing any two willing parties to transact directly
with each other without the need for a trusted third party. . . . We have
proposed a system for electronic transactions without relying on trust.
— Satoshi Nakamoto, Bitcoin white paper
In this piece, we’ll examine the use case for crypto in Venezuela, where crypto can be useful in the country, and how people are using it on the ground today.
How Crypto Can Help Venezuelans Build Better Futures
For Venezuelans, crypto isn’t just a lofty economic idea from a textbook or the depths of Reddit. It’s a viable alternative that they can use to go about their everyday lives and save toward their futures.
Currently, Venezuelans face a number of complex economic problems, and there doesn’t seem to be a solution in sight:
- Currency has seen astronomical hyperinflation.
- The government heavily restricts what kind of currencies businesses can accept.
- Sanctions limit foreign investment in the country.
- Banks and the government are corrupt.
- Minimum-wage jobs barely allow families to afford a loaf of bread, let alone earn a living wage.
It’s unrealistic to expect crypto to replace the bolivar overnight and solve all of Venezuela’s economic woes. There are underlying structural problems like unreliable internet access, power outages and government restrictions. But digital currencies like Bitcoin still have the potential to make an impact by providing Venezuelans with a functional alternative to hyperinflation.
While many people are still learning the potential of crypto, even small scale adoption could be beneficial. It could provide a stable hedge against inflation and a way to mitigate government censorship and regulation around how Venezuelans can use (or not use) their own money.
CRYPTO AS A STORE OF VALUE IN VENEZUELA
For thousands of years, humans have valued gold as a currency because of the resource’s agreed-upon value and limited supply, ensuring that if it were bought at one point, the owner would likely be able to sell or trade it for a similar value in the future.
The limited supply of gold — combined with its ability to be easily transported, divided into smaller units or remelted into larger stores — and its durability have made it the go-to resource for storing value around the world.
Like gold, cryptos such as Bitcoin have a limited supply, but it’s secured at the code level. That ensures that only a certain number (21 million) of bitcoins will ever be available, making the currency innately deflationary. Bitcoin’s design as a deflationary currency means that even when economic conditions change, it retains its value because of a limited supply. In contrast, the inflated supply of bolivars printed after the 2014 oil crisis hit Venezuela is what began the country’s economic woes as the government pushed to print more and more money in an effort to fuel economic recovery.
Additionally, the currency is immutable (it cannot be duplicated or counterfeited), ensuring that it’s not artificially inflated by excess printing or fake bills.
But as anyone who has invested in Bitcoin or watched its value over the last few years can attest, crypto’s price can be highly volatile (unlike gold). While this might seem like a red flag for applying it in a country where the currency is already increasingly inflated, it offers a more stable money option compared with the bolivar, even with its worst fluctuations.
For context, the bolivar hit 80,000% inflation per year during 2018, dwarfing the historically severe 70% drop in Bitcoin prices during the same period. However, unlike the bolivar, Bitcoin may be staged to make a strong recovery in 2019, despite the hardships of last year.
HOW CRYPTO ACTS AS CENSORSHIP-RESISTANT CURRENCY
It doesn’t take much to provide a better store of value than the bolivar. But what makes Bitcoin and similar cryptos stand out among better stores of value is its resistance to censorship and government control. Nobody can control how you use your money, and they can’t threaten to take your funds away from you.
For instance, using traditional fiat currencies, governments and financial institutions can control how and where you use money through exchange rates, bank deposits, and transaction fees. They’re also able to freeze funds, flag transactions, and suspend suspect purchases based on their own set of standards, effectively taking away true economic power from the people whose money they handle.
Crypto alleviates the restraints of fiat money by
- allowing people to act as their own banks;
- avoiding transaction monitoring and restrictions related to ACH and wire transfers;
- cutting out expensive third-party remittance services;
- securing value through the collective user base.
Crypto empowers people by allowing them to directly manage their money without having to trust a third party, enabling them to save toward better futures for themselves and their families, as well as buy daily goods.
Additionally, a family still in Venezuela can more easily send money via crypto by avoiding interference from governments and financial institutions. This not only allows for the secure storage of funds but also gives those looking to leave the county — as an estimated 3 million people had done by November 2018 — a way of accessing their money outside of Venezuela.
Finally, though special interest groups and government oversight efforts will arise, no one party can control the decentralized P2P currencies, ensuring a transparent system because security and value are maximized by the collective.
How Is Crypto Used on the Ground?
While crypto has a lot of promise in Venezuela, as we’ve discussed, it’s not a silver bullet for the economic hardships Venezuelans face every day.
But some people have found ways to use crypto to alleviate their day-to-day economic struggles. In this section, we’ll take a look at some of the ways crypto is beginning to be adopted on the ground in Venezuela today.
Unfortunately, adoption of crypto has been hampered by restrictions from the government, which is worried about capital flight. In February, the country’s Ministry of Popular Power for Communication and Information (MIPPCI) announced that businesses working with crypto assets would need to register with Sunacrip, the country’s central authority on crypto activity. That is an attempt to steer crypto activity toward the state-run Petro and keep tabs on the booming market.
Even though the government stipulates that businesses can accept only the bolivar (and other iterations of the state-backed currency), the black market for cash and over-the-counter (OTC) trading for crypto are thriving. The success of OTC trading is largely because of the restrictions on openly trading for Bitcoin. This pushes people toward privately exchanging Bitcoin between themselves rather than relying on these third-party exchange services and e-wallets to increase privacy between parties.
For a select few, crypto has also provided a new way to make money through crypto mining, which can be more lucrative than minimum-wage jobs if Venezuelans are able to get their hands on the expensive equipment, despite trade sanctions, necessary to mine new coins. But reports have surfaced of government raids on the homes of those who attempt mining that have resulted in arrests and extortion in some cases.
A number of challenges still face Venezuela and the adoption of crypto, including limited access to stable, open internet, as well as attempts by the government to monitor its citizens’ online activity. Nevertheless, the country will continue to be an interesting testing ground for the application of crypto compared with an overly controlled and inflated fiat currency that continues to balloon out of control.
How GiveCrypto Is Helping Venezuelans Use Crypto
At GiveCrypto, we know that simply sending people crypto isn’t going to fix their economic woes overnight. You can’t just hand people a new tool without any explanation of how they can use it.
To help our recipients more easily adopt crypto, we’ve embraced an ambassador model based on our experiments over the last year. We’ve connected with local experts and workers in our pilot cities to help us distribute crypto to those most in need.
Our ambassadors let us know who should receive crypto, and they work with us to distribute the funds. From there, they find business owners in the area who would be willing to accept crypto, connecting recipients with these businesses. After recipients use the money, the business owners can cash out with us.
This system not only helps recipients make the most of our outreach but ensures that we have a clear understanding of what they actually need (not just what we think they need).
We’re eager to see how crypto and our ambassador model can take root in Venezuela to help its citizens take more control of their financial futures.
Follow along on Twitter to stay up to date on our progress.
