Bitcoin cannot save Venezuela: Listen to the perspective of someone who experienced it

Venezuela's use of Bitcoin has seen a significant increase, but it still falls far behind the Bolivar and the US Dollar.

Original Title: "Despite Utility, Bitcoin Cannot Fix Venezuela"
Author: David Hollerith
Translator: Yuanhang Luo
Source: Blockchain Scout

Bitcoin has not yet been widely accepted by Venezuelans, far behind the Bolivar and the US Dollar.

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Despite Venezuela having only 33 cases of coronavirus, President Nicolas Maduro announced on March 16th a national quarantine to prevent the spread of the deadly virus.

Cash shortages, extreme reliance on the US Dollar, and a lack of technological infrastructure have led Venezuelans to abandon traditional banking services. Over the years, Venezuela's informal economy has thrived, with most people sticking to cash (if available), bartering, gold (in the southern region of the country), and cryptocurrencies (a small but growing portion of the population).

Therefore, there is often a misconception that Venezuela has a high frequency of Bitcoin usage and that Bitcoin can solve Venezuela's problems.

Cathy Reisenwitz argued in January 2014 why the people of Venezuela can profit from Bitcoin. Reisenwitz stated that Bitcoin could provide an escape from the escalating economic oppression under President Maduro's regime. She also noted that several factors might hinder Venezuelans from embracing Bitcoin, including limited internet access, price volatility, and a lack of Bitcoin liquidity.

Since 2014, Venezuela has been experiencing a severe economic crisis characterized by hyperinflation, exacerbated hunger, diseases, crime, and a surge in emigration. Meanwhile, numerous reports indicate a significant growth in the country's use of Bitcoin. According to weekly Bitcoin trading volume data from LocalBitcoins, 2019 recorded the highest volume of Bitcoin transactions in bolivars (Venezuelan currency) in the site's history.

However, it would be an exaggeration to conclude that Bitcoin can save Venezuela. This overstates the benefits a sound currency can bring to a country on the brink of social, economic, and political collapse.

To revisit the questions Bitcoin enthusiasts have been contemplating since 2014 and to gain a more accurate understanding of Bitcoin's significance in Venezuela, we interviewed Peter McCormack, the host of the "What Bitcoin Did" podcast, who has reported extensively from Venezuela.

Image source and copyright: Peter McCormack

We see Venezuela as a place where people can improve their economic plight by using Bitcoin. How do you perceive the current adoption of Bitcoin in the country?

Don't get me wrong, there are examples of Bitcoin use in Venezuela. However, what Venezuelans heavily promote is another cryptocurrency - Dash. I am not very optimistic about Dash. The CEO of Dash wrote me an open letter where he presented many reasons why Dash is useful for Venezuelans. His general analysis is correct: Dash has low divisibility and is easy to split, which the Venezuelan bolivar lacks. Moreover, this cryptocurrency is actually geared towards people in the upper social classes.

One thing he got wrong is that the vast majority of the country is poor, and those who have the means to use Bitcoin tools are essentially the rich who do not need the help. Many believe that Bitcoin can help all Venezuelans. But it really can't.

How can the use cases of cryptocurrencies be corrected?

I believe any cryptocurrency would bring more exchange loss and risk to these people compared to the U.S. dollar. The bolivar indeed does not have the exchange loss as a medium of exchange because everyone in the country accepts this currency. When I go to the slums, it's painfully clear that these people are not going to download a Bitcoin wallet and back up their private keys. They just want to know what they'll eat that day, maybe because they earned a few dollars or received food donations through humanitarian projects. This is the reality these impoverished people face.

I admit, I used to be a pseudo-nobleman. I used to believe Bitcoin was useful for Venezuela. It could help some people, but now I think what Venezuelans need is infrastructure, and their biggest problem is the Maduro regime. Bitcoin cannot overthrow a government because the government has guns. The idea that a currency can eliminate a dictator with an army is naive.

Image source and copyright: Peter McCormack

You recently visited Venezuela. Was it difficult to enter the country?

That's why I'm learning how to make documentaries. I chose several places in South and Central America because a lot is happening there. Venezuela is the weirdest place of all. We left most of our equipment in Bogotá, Colombia, because if you travel with a portable recording studio, you're clearly outing yourself as a journalist. The Venezuelan government doesn't like media coverage, so we only brought an iPhone and a DSLR camera. My producer posed as a photographer, and I just said I was a tourist in marketing. We split up during the trip as if we didn't know each other. On the way to Caracas (the capital of Venezuela), we were questioned with, "What are you doing here? Why are you here? What do you want to do?" and so on.

Do people in Caracas accept Bitcoin?

Yes, some places in Venezuela accept Bitcoin. Those who accept Bitcoin know that it's better than accepting bolivars. I wrote a tweet about how Bitcoin can't save Venezuela because even though Bitcoin is being used, it's far from being widespread.

In border areas near Cúcuta, non-governmental organizations accept Bitcoin donations, but it's simply because Bitcoin is also a form of money, and they urgently need money. If someone offers them a bunch of Dentacoins (a type of cryptocurrency) or Potato Coins, whatever it is, as long as they can exchange it for dollars and spend it, they'll accept it. Someone told me that some people use Bitcoin for remittances, but there aren't many who do so.

Just as there are places that accept Bitcoin, there are educated users who use Bitcoin to resist the hyperinflation of the bolivar. However, only the affluent class (i.e., the upper and middle class in Caracas) can be part of this educated Bitcoin-using group. The impoverished masses rely on a few dollars a month to get by. Additionally, in many provinces of Venezuela, there are frequent power outages, blackouts, or no electricity at all.

Can you share more about how economic disparities in the country affect Bitcoin use cases?

Firstly, common sense suggests that Bitcoin isn't very useful for these people because it's an unstable asset. If you earn $5 a month, when you're already very poor, you won't want to convert that money into Bitcoin because its price could drop, meaning a 10% drop translates to a 10% decrease in income. On the contrary, the U.S. dollar, a stable currency, is a good medium of exchange for these people.

Secondly, Bitcoin is technically complex, and there's a lot of criminal activity in the slums. If someone has Bitcoin software on their phone, anyone could point a gun at their head and demand they hand over their Bitcoin. People say the same thing could happen with dollars, but dollars are the currency they use in their daily lives. The means of securing Bitcoin that they need must be simple and far more secure than what Westerners need.

Thirdly, Bitcoin has not been widely accepted by Venezuelans compared to the bolivar and the dollar. Everyone accepts the bolivar, and most people accept the dollar. Whether you're in a fancy restaurant in the affluent eastern part of the city or in the slums in the western part, everyone accepts the bolivar. The issue with using the dollar is that if you buy something that costs less than a dollar (which happens often), you can't get change unless you pay with bolivars.

Image source and copyright: Peter McCormack

Have you encountered Venezuelans who use Bitcoin as a store of value?

The problem with using Bitcoin as a store of value is that these people don't have a savings culture. They have to spend the money they earn to survive. Even in Western countries, few people use Bitcoin as a store of value. People need to be more practical. However, for those who can buy Bitcoin with bolivars and then exchange it back to bolivars when they need to buy something, it can protect them from the weekly 10% inflation of the bolivar. But in reality, I haven't seen many people do this.

How will currency choose between traditional bills and direct electronic payments?

People want dollars. It's the best currency in Venezuela right now because everyone accepts it, it's worth more than the bolivar, and it's a physical medium. If you're at a store or a restaurant, you can pay with Visa and Mastercard. However, if you're in the slums, you can only use cash. Nevertheless, Venezuela does have payment apps like Venmo, and many people are using it now because they realize the cost of printing receipts and small bills is too high. This is the current mode of payment among most Venezuelans.

When people think about Venezuela and Bitcoin, a common misconception is that economic demand and disparities will lead to widespread adoption of Bitcoin in the region. However, the conclusions are often more complex. So, which regions are truly suitable for using Bitcoin?

It depends on how Bitcoin adoption is approached. If it's just speculation, then I think Western countries are generally more suitable for using Bitcoin. If Bitcoin is meant to be a practical medium of exchange in everyday life, it's more suitable in places where there is an inflating or hyperinflating government currency, such as in South America and Africa.

Venezuela has a vast economic gap, but overall, I've observed that South America is very suitable for adopting Bitcoin. Many governments in these countries have shown the classic shift from left to right. Many of these countries have long been under unstable monetary policies, including relatively developed countries like Uruguay, Chile, Colombia, and Brazil. The situation in Central America is similar, although I've only visited Mexico and El Salvador.

This article is authorized for reproduction by ChainNews, article source: ChainNews (ID: chainnewscom)

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