Venezuela has long been one of the richest countries in Latin America, until a storm of political frenzy swept up the country in the past few decades, causing some of the largest hyperinflation the world has seen. However, the current state of the country is paving the way for, as Daniel Osario called it on CNBC, the first bitcoinization of a sovereign state.

There are many events and conditions in the country that are causing this massive cultural, political, and economic shift to occur. In this article, we'll cover each of these conditions and see why or how they are affecting the financial climate in Venezuela, and why this might be some of the largest news for Bitcoin since its inception.

Cash/Fiat is Worthless in Venezuela

The first condition causing this is the chaos surrounding Venezuela's own fiat currency: the bolivar. The bolivar was once a stable and useful currency, with a somewhat-respectable inflation rate, but now, the bolivar is facing some of the most insane inflation ever seen, reaching an all-time high of about 800% in December 2016 (source). This is mostly due to the financial manipulation done by Venezuelan leader Nicolás Maduro.

Maduro fixed the official exchange rate of Venezuelan fiat as 10 bolivars / 1 USD, however in reality, most Venezuelan citizens can't access this rate. Only Maduro, his family, and his close allies can access this lucrative rate, and all other Venezuelans are forced to trade at the black market rate, which in August 2017 was much over 12,000 bolivars / 1 USD.

As a result of this incredible hyperinflation, the Venezuelan bolivar is now worth literally nothing. Just to buy lunch in Venezuela, you'd have to carry around a backpack filled with bolivars at the highest denomination (100 bolivar bills). The bills are so useless, some citizens are resorting to extracting the paper behind the bills, as they see that even the paper is more useful than the bills themselves.

This has created an immense distrust in cash and fiat currency (specifically Maduro's Bolivar) in Venezuela, and many citizens are beginning to see the great disadvantages of a centralized currency like theirs, creating a possible window for decentralized, trustless, and valued cryptocurrencies like Bitcoin to swoop in.

Electricity is Practically Free in Venezuela

The second condition propagating Bitcoin adoption is that electricity is super-subsidized in Venezuela thanks to Nicolás Maduro's laws, making it practically free. Electricity is even more valuable than many basic goods in Venezuela (source). This, as expected, has created a huge opportunity for Bitcoin miners in Venezuela.

The main problem with running Bitcoin miners in many parts of the world is cost. The cost of the hardware and equipment is a one-time payment, and eventually (pretty quickly) the mining equipment should pay for itself. However, miners have huge power demands which make them unprofitable unless they're pooled into large farms or are in a region with low electricity prices.

Many Venezuelans have noticed this opportunity, and Bitcoin mining is becoming increasingly popular in Venezuela. A Venezuelan operating a few Bitcoin miners can make over $500 USD monthly, which is more than enough to afford many necessities like diapers, insulin, and more from online retailers (source).

However, there are no cryptocurrency laws in Venezuela. Though Maduro seems to be allowing Bitcoin trading, police are starting to crack down on miners citing random and irrelevant charges. This also seems to be promoting Ethereum mining and the mining of cryptocurrencies with more CPU-friendly mining algorithms like Monero. ETH/XMR miners can be run on a regular computer, so they don't attract the attention of Venezuelan police, and seem out-of-sight.

The subsidization of electricity is providing quite an incentive for Venezuelans to mine cryptocurrencies such as Bitcoin, Ethereum, Monero and others. This is also helping greatly to propagate crypto in the country.

Venezuelans Despise their Government

One of the most important "features" of Bitcoin and decentralized cryptocurrencies is that they aren't governed by a central authority— they're global currencies, that, though not backed by any single government, still hold a lot of value.

This is actually very important for Venezuelans, who have recently seen the effects of a corrupted government.

Though 80% of Venezuelans wanted their current leader, Nicolás Maduro, removed from office, he still got elected. From mandatory government participation to twisted government estimates/numbers, there are many possibilities for what happened at the actual election.

Many Venezuelans refer to the event as one of the most fraudulent elections the world has seen. Every day, there are protests against the government and against corruption, some even turning very violent.

Venezuelans are quite sick of government rule, and they'll do anything to push their country out of the grasp of their current leaders. Venezuela has been a democracy for a while, and has been hailed for making that decision, but currently it seems like Maduro and his allies are starting to shift the country out of its democratic state. Maduro is consolidating his power in the region, as many members of the opposition have been removed from office or even shot.

The citizens of Venezuela are readying themselves to adopt whatever it takes to obtain freedom for themselves, and in the case of economic freedom, it looks like cryptocurrencies could be the answer.

Bitcoinization is Coming

Given all of these factors, from the worthlessness of the Bolivar, to the propagation of cryptocurrency mining and the distrust of the government, it's clear that cryptocurrencies like Bitcoin are becoming increasingly looked to as the solution to the problems of Venezuela.

Daniel Osorio stated on CNBC last Friday, that:

We are beginning to see in Venezuela, ... potentially the first "bitcoinization" of a sovereign state.

And it looks like everything is set for the "bitcoinization" to spring into action. Venezuela's crisis may be the opening Satoshi needed to propel his vision out into the world.

Thanks for reading,
— @mooncryption

image sources: 1 - The Bitcoin Miners Club, 2 - Zerohedge, 3 - CoinDesk, 4 - ABC News

disclaimer: This article is intended simply to provide news about Venezuela and Bitcoin/cryptocurrencies. All opinions provided are my own. Please do not act based on any of the information in this article.