Venezuela embodies the best and worst potential of blockchain technology. While the Maduro regime uses the Petro coin to fund authoritarian oppression and combat hyperinflation, crypto solutions give people a potential path to economic freedom.

    Daily life in Venezuela begins and ends with one question: What is my money worth today?

    Venezuela has the world’s worst inflation rate at more than 40,000 percent annually and rising, according to John’s Hopkins University. The country’s almost worthless bolivar currency is breaking deli scales and credit card readers as the more than 30 million people of Venezuela struggle to buy basic necessities in a starving economy. Citizens are trapped in an ever-worsening cycle of stagnant income and empty store shelves, their money worth less each day. All the while, the authoritarian government of President Nicolás Maduro maintains a tight grip on power through propaganda, strongman tactics, and increasingly desperate economic ploys.

    Venezuela’s economic crisis has triggered mass immigration to neighboring Colombia and other nearby countries. For those still living under the Maduro regime, often the only way to get by is to find creative means to skirt the government’s strict economic policies, which selectively control the country’s food supply for political ends.

    Many Venezuelans make ends with money sent by family and friends from abroad and by trading for goods and US dollars on the country’s widespread black market. But they—and the Maduro government—are also turning to cryptocurrency as a potential solution.

    A host of practical challenges hinder widespread use of Bitcoin and other cryptocurrencies in Venezuela in lieu of paper currency. But over the past few years, many Venezuelans have embraced the decentralized, censorship-resistant technology as a means of transferring and storing money without being slapped with hefty international transaction fees. The distributed nature of blockchain makes it nearly impossible for governments to alter transaction data or control the network, as long as that network remains decentralized.

    Beyond the many cryptocurrency exchanges active in the country, there are also startups like Send. The Send team, including 60 Send ambassadors on the ground in Venezuela, is on a grassroots mission to create a blockchain-based digital money network where users send, store, pay, and exchange bolivars and dollars without volatility risk using Send’s SDT tokens.

    “If you see money as a human right, you need to remove the control. You need to remove the high costs. You need to allow people to move their money to pay for goods and medicines,” said Send CEO Camilo Jimenez. “That’s the way that [Send] sees money in Venezuela.”

    The Maduro regime has pinned its economic hopes on the Petro coin, a nationalized cryptocurrency ostensibly tied to the price of an oil barrel. The technology behind the Petro is ambiguous at best, and an outright scam at worst: a cash grab to evade international sanctions and raise much needed capital. The Petro offers no material benefit to the Venezuelan people, who have no way to buy tokens.

    The government has also begun a broad crackdown on Venezuela’s cryptocurrency market, detaining users and shutting down exchanges, while users bypass website blocks using virtual private networks (VPNs). Cryptocurrencies pose a direct threat to the government’s control over the hyperinflated economy. At the same time, they serve as a means of crowdfunding its continued oppression of the Venezuelan people.

    We spoke to blockchain and crypto companies, tech and economic experts, and citizens both inside and outside the country about the stark reality of daily life in Venezuela. As hyperinflation worsens and the economy continues to crumble, Venezuela is a microcosm of the best and worst potential of cryptocurrency technology: as a tool for enabling authoritarian oppression, and a beacon of hope for the Venezuelan people to escape it.

    • Hyperinflation and State Control

      (Woman pays with 18 100-bolivar bills to buy a chocolate bar in San Cristobal, Venezuela, July 2016/ Credit: iStock)

      Inflation in Venezuela is nothing new, but in 2018, hyperinflation (when prices rise by 50 percent or more per month and currency begins to become worthless) has escalated to staggering proportions.

      Bloomberg’s Cafe Con Leche Index tracks the fluctuating price of a cup of coffee at a bakery in the capital of Caracas. In August 2016, a coffee cost 450 bolivars. By October 2017, the price was 4,500 bolivars. This year alone, the price rose from 20,000 bolivars in January to 1.4 million bolivars in July. Inflation could reach one million percent by year’s end, according to the International Monetary Fund (IMF), which compares hyperinflation in Venezuela to that of the Weimar Republic in Germany following WWI.

      The Maduro government is combating hyperinflation and poverty with measures such as stricter price controls, which have led to mass food shortages: Businesses can’t afford to sell goods at the artificially low prices set by the state, so store shelves remain bare. The state also tried to sell off much of its debt following Maduro’s disputed re-election earlier this year, resulting in fresh sanctions imposed by the Trump administration and European Union.

      As Venezuela’s economic woes have worsened, Maduro has proclaimed that the US and other countries are waging an “economic war” against Venezuela. He has cracked down on the military and given a bonus to police amid rising violence and rumors of a coup. (The US State and Treasury Departments declined to comment for this story.)

      This month, Maduro survived an alleged assassination attempt by two explosive-laden drones during a speech in Caracas. Since then, he has blamed “ultra right” Venezuelans and the US, but now claims he has proof that the Colombian government is behind the attack.

      “These people invented themselves an economic war, and they’re losing the war they invented,” said Oswaldo Gomez.

      Gomez is an expat and former civil servant from Maracaibo, the capital of Venezuela’s Zulia state near the Colombian border. He fled Venezuela in 2015 and is now working as a web developer in Buenos Aires, Argentina. He stays in regular contact with family and friends still living in Venezuela, where he says people now deal with increasing power outages, escalating crime, and regular inspections of small businesses to ensure no one is selling goods at speculative prices.

      In May, the government took over Banesco, Venezuela’s largest bank. Top bank execs were arrested and withdrawals were halted over claims that the bank speculated on the exchange rate and smuggled paper money out of the country.

      Maduro’s latest stopgap measure against hyperinflation is simply to lop off three zeros and issue new bank notes, changing the currency’s name from the Bolivar Fuerte (Strong Bolivar) to the Bolivar Soberano (Sovereign Bolivar). The change, originally set to take effect on June 4, was delayed 60 days to Aug. 4 after Venezuela’s national banking association said it simply couldn’t print and distribute the new currency in time. It has since been pushed to Aug. 20 and Maduro upped the cut to five zeros.

      The leader also said the Bolivar Soberano will be “anchored” to the Petro. But as with most technical details surrounding the Petro, specifics are vague on how the cryptocurrency and paper currency will coexist.

      “This is a cosmetic change. They’re just changing the name and cutting zeros,” said Gomez. “There’s already a shortage of cash, and now because the monetary scheme wasn’t ready, it’s 60 more days without cash in the streets. It’s havoc.”

      In a country where the government wields absolute control over the economy, hyperinflation has made the people of Venezuela ever more dependent upon the state. “The government delaying putting out the new currency adds one more complication on top of an economic situation where hyperinflation has made people’s lives absolutely miserable,” Darrell West, VP and director of governance studies at Brookings, told PCMag.

      The roots of Venezuela’s economic woes go back decades, from the Bolivarian Socialism reforms of former president Hugo Chávez through Maduro’s increasingly authoritarian reign. Maduro took power in 2013 after Chávez’s death, laying out his plans in a doctrine called the Plan for the Fatherland. In essence, Gomez said, the plan is designed to turn citizens into servants of the state.

      Venezuelan citizens are increasingly dependent on the government’s social benefits, despite the fact that the government doesn’t have a budget to provide them. The Maduro regime continues to increase the money supply and the minimum wage, leaving workers with more currency that affords them steadily less.

      “For many people around the world, money is a way to attain freedom,” said Gomez. “In Venezuela, money has become a means of slavery. You are controlled by your own money. The government tries to keep you in an eternal state of desperation.”

    • El Bachaqueo

      In the lead-up to Venezuela’s presidential election this past May, the Maduro government began issuing new electronic ID cards using technology from Chinese telecom company ZTE called “Carnet de la Patria,” or Fatherland Cards.

      Venezuelans now must scan their Fatherland Cards to receive government benefits including subsidized food, medicine, and cash bonuses. The cards were also scanned for voting during Maduro’s re-election, where the government used hunger as a political weapon. Venezuela has used an ID system to manage its food purchasing system for years, a process long plagued by corruption. Fatherland Cards have made the process even more difficult for all but the privileged political elite.

      “You can only buy products at protected prices on a particular day of the week. Years ago, if I went to the supermarket looking to buy chicken on a Thursday but they ran out, I had to wait a week to try to buy chicken again,” said Gomez.

      “Now it’s much worse. You have to show your ID and scan your fingerprint, but the food mafia had evolved to the point that they skip the fingerprint verification with the tellers and cashiers. They go into the supermarket, take the protected price products, go into the line where the cashier knows them, skip the fingerprint verification, and show a false ID.”

      Julian, another Venezuelan who chose to remain anonymous and spoke to us through a translator, said that lately the privileged have also begun to feel the effects of food scarcity and hyperinflation. He talked about a friend of his, a university professor earning 2.5 million bolivars per month. Nowadays, that’s enough for about one kilo of meat or a dozen eggs per month. Julian said even the wealthy are now restricted to what their ID cards say they can and cannot buy.

      “I could go to the supermarket with all the money in the world, but I’m still only going to be able to leave with a loaf of bread or a pound of chicken; whatever my card says. Or I end up with nothing because they’ve already run out,” said Julian.

      In an economy where access to currency, food, and basic goods and services has been restricted to the point of a humanitarian crisis, Venezuela’s black market, or “bachaqueo,” is booming. Gomez explained that bachaqueo originally came from the practice of buying food and subsidized goods at controlled prices in a supermarket and reselling them at speculative market prices as contraband, either on the street or exported over the border to Colombia.

      “Bachaqueo is supply and demand in its wildest form” said Gomez.

      Gomez said fellow government employees in Maracaibo would abandon their office jobs to stand in line under the hot sun in supermarket queues, because “adopting the bachaqueo way of life” yields more profit than government work for the average civil servant. He said many people also trade directly, exchanging goods like homemade bread for homemade cheese simply to “stay out of that totalitarian scheme applied by the government.”

    • The Almighty Dollar

      (Venezuelan bolivars and US dollars in Caracas, August 2018/Photo credit: FEDERICO PARRA/AFP/Getty Images)

      Venezuela’s black market doesn’t traffic solely in food and goods. As hyperinflation worsens, Venezuelans look for any way to earn and save livable amounts of money that will retain some semblance of its value from one day to the next.

      US dollars are the most commonly exchanged currency. Dollars trade for hundreds of thousands of bolivars apiece in wildly fluctuating street prices. Several Venezuelans explained that despite government price controls and crackdowns, many stores charge in dollars. It’s the only way to keep their businesses afloat amid widespread cash shortages of a currency that’s increasingly worthless.

      Getting those dollars and other outside currencies into Venezuela is its own fraught effort. Despite a bevy of issues with exchange rates, credit limits, and transaction fees, Venezuelans have turned to everything from PayPal transfers to Amazon gift cards in an effort to get money into the country and preserve its value.

      Elisa used to make her living on the bachaqueo selling PayPal funds. Until recently, she also lived in Venezuela’s Zulia region (her name has been changed to protect her family’s safety).

      Elisa would receive money online, through PayPal and other services, and sell those funds at a markup on the black market. She had to pay 5 percent in transfer fees and another 5 percent to exchange the funds from dollars into bolivars, but she said without that extra income, she doesn’t know whether her family would’ve had food on the table each day.

      A few months ago, Elisa began working as an ambassador for Send. She has been spreading the word to small businesses, families, and people all over the region about how cryptocurrency and Send’s blockchain protocol work. The goal of Send’s ambassadors is to build up both a user base and a network of businesses to support Send’s SDT token, where users can buy and sell “stable digital money” through an app.

      Elisa said Venezuelans are desperate. They don’t know what the Maduro regime wants, or how they’re expected to live on the hyperinflated bolivar and whatever the government provides. Under threat of arrest or worse, Elisa said she’s not scared. Be it bachaqueo or cryptocurrency trading, people are doing what they need to survive.

      “The government wants to control everything. Not only money but food, clothes, everything. They want us to be numb and uncertain,” she said. “I have more fear that my family doesn’t have something to eat, that we don’t have somewhere to sleep, that my kid cannot go to school, than anything the government is going to do to me. I am doing the best I can with what I have for my family. That is what every Venezuelan is doing.”

    • Venezuela’s Crypto Boom

      “For Venezuelans, access to digital currencies is a window to personal freedom, to economic freedom,” said Gomez.

      Blockchain technology gives Venezuelans a way to exchange and store value, free of transaction fees and government exchange-rate manipulation. Tech-savvy citizens began adopting Bitcoin and other cryptocurrencies around 2013 or 2014, and in the past few years, crypto use has evolved to serve a number of different purposes as hyperinflation has soared.

      Venezuelans use cryptocurrencies like Bitcoin as currency, for person-to-person trading, and for remittances (transfers or payments from outside the country) to exchange into bolivars and dollars. Bitcoin mining operations have spread throughout the country as well, thanks to cheap electricity provided by the socialist government’s heavily subsidized power utility.

      Increasingly, cryptocurrencies are also becoming makeshift bank accounts: Venezuelans hold coins in wallets, exchange them into bolivars, and spend them before they lose too much value.

      Venezuelans have turned to Bitcoin and other coins, including Dash, Ether, Stellar, TRON, and controversial stablecoin Tether for this kind of slapdash means of value preservation. Stablecoins are cryptocurrencies with stable price characteristics, sometimes pegged to physical currencies. Tether coins, for example, are backed one-to-one to US dollars.

      As crypto activity ramped up, numerous exchanges opened up shop in Venezuela, including SurBitcoin, Rapid Cambio, and others. One of the biggest exchanges is AirTM, which launched in 2015 and has 300,000 Venezuelan users. AirTM CEO Ruben Galindo said AirTM has 4,000 daily users, around half of whom are Venezuelans.

      “AirTM is a platform where people who have dollars can sell them to people who want them freely, without restrictions. It caught on like wildfire because people were desperate to get dollars,” said Galindo. “[In 2015] it was already considered hyperinflation. The first dollar we allowed people to exchange was worth 490 bolivars. Now it’s worth two million bolivars or well above it.”

      Over the past three years, AirTM’s scope has expanded. The platform can now connect users’ accounts to banks, online wallets including PayPal and Venmo, gift cards, cash networks such as Western Union, and of course, cryptocurrencies; it has a recent partnership with Zcash. AirTM gives users a cloud-based dollar account to deposit and withdraw local currency, send and receive payments, and save money by transferring funds from local bank accounts.

      “Right now in Venezuela, we’re being used for a bunch of reasons, but about 20 percent of our usage is wealth preservation. We’re basically the only place people can buy dollars where we give them the correct price for their bolivars that’s not street prices,” Galindo explained. “People are afraid their money’s going to be worth less tomorrow, so they buy dollars.”

      Alex Torrenegra is a Colombian serial entrepreneur and one of the investor judges on Shark Tank Colombia. He’s also a Send adviser. He thinks both the Venezuelan people and immigrants scattered throughout the Americas are ready to embrace a crypto solution, but he said there are two main challenges to crypto adoption in Latin America.

      One is usability. Torrenegra said getting crypto to the masses needs to be “easier than using a credit card.” The other is simply getting people to believe the solution will work.

      “The challenge with any crypto project, especially any kind of currency or electronic unit of value, is that you need a lot of people to believe in the same idea for it to take off,” said Torrenegra. “The significant amount of immigrants leaving Venezuela for Colombia [and other countries] have to pay exorbitant fees every time they send money back to their relatives. It creates the perfect storm for a solution like this to be not only adopted but for people to want it.”

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