What's Happening with Bitcoin in Venezuela

The socialist state has created an opportunity for bitcoin to thrive

Chavez's Fiscal Policies Create an Opportunity for Bitcoin Miners.

When an American thinks of Venezuela, the first things that typically come to mind are socialism , Hugo Chavez and Sean Penn.

Although the country has been known to crack down on protestors and court celebrities such as Mr. Penn, it’s also home to an oil industry that had created much wealth within the country. 

The oil industry may have been a success story in the country when a barrel of oil was over $100.

But that focus on oil doesn't look so well will recent barrel prices hovering around $30 a barrel.  Where oil exports were bringing in over $75 billion two years ago, at the current price, it brings in less than $30 billion.

Government policies have created runaway inflation and whatever wealth was created has not "trickled down" to the population. It’s been reported that the average salary in Venezuela is $20 a month and those who bank are only allowed daily withdrawals of the equivalent of $22 a day. On the bright side, the average electricity bill for a Venezuela family is only $20 a month.

When you put these things together, you begin to understand why bitcoin is actually playing a role in Venezuela, at least for those willing to get involved in it.

Let me explain.

First of all, the socialist government in Venezuela has implemented many fiscal policies, such as price controls, which have led to the low electricity prices, but it’s yet to take an “official” stance on bitcoin.

  Although the government views it as property and not money (and wants people to report capital gains from any sales), this has not stopped many in the country from trading goods and services for bitcoin, including the use of the virtual currency to bring funds from the US into the country.

Because bitcoin is not controlled by any government or entity, those in the country who see beyond the country’s currency, which has dropped extensively due to rampant inflation in the country caused by failed policies and poor fiscal management by the government, recognize it as an alternative to the Venezuelan Bolivar.

Couple this with low electricity prices and what you have is a country full of bitcoin miners!

Rodrigo Souza, a core developer at Blinktrade, which has exchanges in both Brazil and Venezuela, believes, “that 10 percent  of our 10,000 users are de-facto bitcoin miners.” Additionally,” he says, “a lot of people buying bitcoins in large quantities on SurBitcoin (the Venezuelan bitcoin exchange) are buying because it is the only way for them to import new miners.” 

SurBitcoin is an exchange that was set up by Venezuelan brothers in New York City and has over 10,000 users.  Even in a country where governmental policies have not always been open to public scrutiny, the owners of SurBitcoin believe that their success within the country will be due to its transparency and ability to thwart drug traffickers and other criminals from utilizing the network.

The use of bitcoin in Venezuela may prove to be a great example of how individual citizens and entrepreneurs can turn the incompetence of their government into an opportunity to help its citizens to take control of their own fiscal situation.

Of course, the Venezuelan government is an unpredictable one and the authorities may take action against bitcoin endeavors within the country.

  However, the government has so many problems including the crash of the oil market, runaway inflation and the potential to default on over $5 billion of governmental debt by the end of 2016. 

With these types of problems, perhaps the government won’t have the ability to focus on the concern of bitcoin in the country.  This could be good news for those mining the virtual currency in Venezuela and for bitcoin businesses such as SurBitcoin.

Who knows, maybe their success will lead to a visit from an American celebrity.  I wouldn’t count on it being Sean Penn, but you never know.