Most people who have heard about Bitcoin and other cryptocurrencies associate them with anything but humanitarian relief, yet, that is exactly what it may be enabling for one of the world’s worst current basket cases, the formerly richest country in Latin America, Venezuela.
The response by the authoritarian regime of Nicolas Maduro to the fall in crude oil prices mostly brought by the success of American fracking has plunged the country into a crisis that is perhaps unprecedented for at least several decades. The real GDP per capita almost halved since 2012, and the annual inflation rate is 80,000 percent. Even crude oil production that has long been the backbone of the economy has fallen from 2.4 million barrels per day to just 1.34 million barrels at the end of 2018. Almost 10% of the population (around 3 of the 32 million) have already fled the country, and the exodus continues unabated. Witnesses describe horrific realities on the ground, ranging from stunning rates of crime to the inability of many people to access urgently needed goods and services.
Melody Ma, writing for The Tyee, describes the wide range of uses Venezuelans have found for Bitcoin (and a few other cryptocurrencies) in these tragic times:
While Bitcoin’s value is highly volatile, it is more stable than the current bolivar. This and the abundance of cryptocurrency miners in Venezuela has caused a surge in Bitcoin usage there. Some Venezuelans are using Bitcoin to store and hedge their savings, while others are using it to receive remittances from out-of-state relatives without a human intermediary. Venezuelans with web-based businesses serving foreign clients can also receive payment for their services in Bitcoin or other cryptocurrencies.
Recipients then trade their cryptocurrency for bolivars or U.S. dollars with cryptocurrency buyers through online peer-to-peer services, such as LocalBitcoins.com or an e-wallet similar to Venmo, seemingly free from regulation and government scrutiny. They can also use the online e-commerce site Purse.io to buy products with cryptocurrency and ship the items to Venezuela via Miami. An enterprising startup from Panama called Cryptobuyer is rolling out the first Bitcoin ATM in Caracas in February to make it easier for people to buy and sell Bitcoins — that is if the government doesn’t shut them down.
There are, doubtless, many other initiatives, aimed at alleviating the economic plight of people in Venezuela, both for profit and charitable (like Decent), that are facilitated by Bitcoin. Bitcoin also appears to help some Venezuelans flee the country keeping control of some of their savings, as reported by Time:
Then you can, moments later, sell your new bitcoin into fiat through a local Craigslist-style exchange, or load it onto a flash drive (or even memorize a recovery phrase) and escape Venezuela with complete control over your savings.
The reason Bitcoin is used for the purposes mentioned above, despite its relative slowness and high volatility is because the policies of the regime of Nicolas Maduro such as constant money-printing coupled with price controls have rendered both cash and credit cards almost unusable. The authoritarian regime has also created serious obstacles for people in Venezuela to receive remittances via the traditional channels. Using foreign currency like dollars, despite the fact that it may be unofficially accepted for many goods and services is fraught with dangers.
For all the potential benefits Bitcoin may bring to distressed Venezuelans, Ma rightly cautions against overstating its influence, “That strikes me as hyperbole given Venezuelans are being killed and detained for protesting and journalists are being grabbed and kicked out of the country. Millions of Venezuelans have fled their borders in search of real freedom.” It should be added that all the evidence of Bitcoin’s benefits we managed to access has been anecdotal and it is hard to estimate the actual number of Venezuelans who have been helped so far. Also, bizarrely, the vibrant cryptocurrency mining sector in Venezuela is at least partly a result of government electricity subsidies.
Moreover, at least Bitcoin (and other PoW cryptocurrency) mining in Venezuela may have come up with a serious human right downside. Founder of Democracy Earth (a project similar to Bitnation aiming at facilitating borderless governance some participants of which appear to be from the Venezuelan diaspora) Santiago Siri recently claimed on Twitter that it was used by the Venezuelan government to track down dissidents and punish them.
All in all, it appears that Bitcoin and other cryptocurrencies have provided more humanitarian relief than they created risks for Venezuelans both in and outside of their ravaged homeland on net but their potential to dramatically transform the situation in such cases may be overstated.This experience may, thus, teach a broader lesson about the potential of blockchain technologies and cryptocurrencies to deliver profound change. While their advocates often claim that they are unstoppable, they do not need to be physically stopped to preclude them from disrupting the legacy systems. They can just be rendered too costly or impractical to massively use. However, if we adopt a more realistic view of their potential, we may realize that they can still be profoundly beneficial in that they may vividly show people that things can be done differently, and perhaps, allow some of them to see outside the Statrix and make them actively seek and demand change.