Despite Utility, Bitcoin Cannot Fix Venezuela
There are some misconceptions about how frequently Bitcoin is being used in Venezuela and the problems it can solve there.
In issue number 18 of Bitcoin Magazine, published in January 2014, Cathy Reisenwitz wrote one of, if not the, first accounts arguing why Venezuelans could benefit from Bitcoin — an article titled “Grounded Venezuelans May Want to Escape to Bitcoin.” The original cryptocurrency, Reisenwitz stated, could provide an escape hatch from what was then escalating economic oppression under the regime of President Nicolás Maduro. To that end, she also wrote that several things could hamper a Venezuelan escape to Bitcoin, including limited internet access, price volatility and a lack of liquidity.
Read Cathy Reisenwitz’s “Grounded Venezuelans May Want to Escape to Bitcoin.”
Marked by hyperinflation, escalating starvation, disease, crime and massive emigration, Venezuela’s economic crisis has bulged magnitudes higher since 2014. During the same time, countless reports have indicated that Bitcoin adoption has grown remarkably within the country. According to data on weekly bitcoin volume from LocalBitcoins, 2019 saw the highest bitcoin exchange volume for the bolívar on record.
However, it’s inaccurate to conclude that Bitcoin can save Venezuela. That would exaggerate what sound money can do for a country in socioeconomic and political freefall.
To revisit an issue that has been on the minds of Bitcoiners since at least 2014, and to gain a more accurate picture of what Bitcoin means for Venezuela, we spoke with Peter McCormack, host of the “What Bitcoin Did” podcast, who conducted some firsthand reporting there recently.
The Reality of Bitcoin Adoption in Venezuela
Image Credit: Peter McCormackWe cover Venezuela as a place where Bitcoin adoption can improve the economic troubles of its people. Where do you think Bitcoin adoption stands today in the country?
Don’t get me wrong, there are use cases for Bitcoin in Venezuela. Another cryptocurrency being touted as a use case for Venezuelans is Dash. I was very critical of Dash; the CEO wrote me an open letter and he came up with a number of arguments for why Dash is useful to Venezuelans. His general analysis was correct — it has low friction and divisibility — the Venezuelan bolívar does not. Also, that crypto is really for the middle and upper class.
What he failed to understand is that the vast majority of the country is poor, and the people who have access to the tools to use Bitcoin are the ones that need the least help. The perception is that Bitcoin can help all of Venezuela; it really can’t.
How does that change the use case for cryptocurrency?
I think any cryptocurrency comes with added friction and risk for these people, which the dollar does not. The bolívar doesn’t really have friction as a medium of exchange because everyone in the country accepts it. When I went to the slums, it became painfully clear that these people aren’t going to download a bitcoin wallet and back up their private keys, right? They only want to find out how they’re going to eat that day, and it might be because they’ve earned a couple of dollars or [are] getting food donated through a humanitarian project. This is the reality of the actual lives that people are living.
I admit, I have been a hypocrite. I used to believe Bitcoin was great for Venezuela. It can help some people, but right now Venezuelans need infrastructure, and the biggest problem they have is the Maduro regime. Bitcoin is not going to get rid of the government. They’ve got guns. It’s naive to think a currency can remove a dictator backed by an army.
A Firsthand Look
Image Credit: Peter McCormackYou recently traveled to Venezuela. Was it difficult getting in?
So I am learning how to make a documentary film. I chose a few places in South and Central America because there’s so much happening there. Venezuela was the weirdest spot. We left most of our equipment in Bogotá, Colombia, because if you turn up with a portable recording studio, then it’s pretty obvious you are a journalist. The Venezuelan government isn’t a fan of media coverage, so we just took an iPhone and a DSLR camera each. My producer said he was a photographer. I just said I was a tourist and worked in marketing. We went through separately like we didn’t know each other. We got grilled pretty brutally on the way through immigration in Caracas. It was, you know, “What are you doing here? Why are you here? What do you want? Blah, blah, blah.”
Were people accepting bitcoin in Caracas?
Yeah, so, they are. When you get into Venezuela there are a few places that accept bitcoin. Those who can accept bitcoin know it’s better than accepting the bolívar. I posted a punchy title on Twitter saying Bitcoin can’t save Venezuela, because it can’t. It is being used, but a lot less than people think.
On the border in Cúcuta, the NGOs accept bitcoin as donation, but that’s just because it’s a form of money and they desperately need money. For example, if someone offered them a bunch of Dentacoins, they would take Dentacoins or potato coins or whatever because they can just convert it to dollars and then use that money. I was told inside that there are some people who use bitcoin for remittance. That is limited, but there are some people doing it.
Like the places that accept bitcoin, there are also educated users who use bitcoin as a way to avoid the bolívar’s hyperinflation. But again, they’re educated Bitcoiners all on the wealthier side — that is to say, the upper and middle class in Caracas. All the poor people are lucky to live on a few dollars a month. Also, in the other Venezuelan provinces, there are regular blackouts where there is no power.
Can you share more about how the country’s economic disparity affects Bitcoin use cases?
First off, common sense indicates it’s useless for them because it’s a volatile asset. If you’re earning $5 a month, you don’t want to buy bitcoin and then the price drops and you’ve lost 10 percent of your living income when you’re already in a pretty poor spot. Controversially, the dollar or even perhaps a stablecoin is a much better medium of exchange for these people right now.
Second, Bitcoin is also technically complicated and there’s a lot of crime in the slums. If anyone has bitcoin on their phone, anyone can just put a gun to their head and demand they hand over their bitcoin. People say the same thing can happen with dollars, but that’s their day-to-day living money. The level of OPSEC they need for money has to be both more simple and way above what people in the West need.
Third, bitcoin is not universally accepted in Venezuela while the bolívar and the dollar are. Everybody accepts bolívars and most people will take the dollar. It doesn’t matter whether you’re in the east part of the city, which is quite wealthy, at a restaurant or in the west part of the city, where everyone is very poor. Everyone will take bolívars. The problem with the dollar is that if you buy something under a dollar, which happens a lot, there’s no way to get change unless you get it in bolívars.
How Venezuelans Are Thinking About Money
Image Credit: Peter McCormackDid you meet any Venezuelans using bitcoin as a store of value?
The problem with the store of value use case is that these people have no culture of financial savings. Everything they earn, they have to spend just to survive. We haven’t even gotten mass adoption in the West. I think people need to be more realistic. But for those who can buy bitcoin with the bolívar and then convert it back to the bolívar when they need to buy something, it can save them from the bolívar’s 10 percent weekly inflation. My impression of how many people are actually doing that was very low.
How does money break out in terms of physical notes versus digital payments?
People want U.S. dollars. It’s the best currency in Venezuela right now because everyone will accept it and it holds its value over the bolívar. And it’s physical. If you’re in a store or a restaurant, Visa and Mastercard are accepted. In the slums, it’s going to be all cash. However, they do have payment apps like Venmo, which the majority of the population uses now because it’s just realized it’s too costly to keep printing notes. That’s how most people are paying each other person-to-person.
When thinking about Bitcoin and a place like Venezuela, a common misconception seems to be that general economic need and disparity warrant a need for Bitcoin adoption in that place. It turns out to be more complicated. What qualifies a place to be good for Bitcoin adoption?
It depends on what kind of adoption you are talking about. If it’s for speculation, then I think it’s typically Western countries. If it’s an actual medium of exchange use case, a place where Bitcoin adoption can take off necessitates a government currency that is inflating or hyperinflating, so South America and probably Africa.
Venezuela’s economic disparity is too great, but in general, South America is a great region for Bitcoin adoption and I’ve seen it. Many of these countries show that classic swing from left to right governments. A lot of those countries have been living under an unstable monetary policy, yet many are fairly developed: Uruguay, Chile, Colombia and Brazil. It’s a similar situation in Central America, though I’ve only traveled through Mexico and El Salvador.