Bitcoin in Venezuela: Troubled Past and Cloudy Future

Bitcoin popularity is gaining steam in Venezuela. More and more of the country’s inhabitants see it as an alternative for Bolivar, the Venezuelan currency losings its value at the speed of an express train. Cryptocurrency’s popularity amongst locals is confirmed by record-breaking trade volumes at local exchanges.

In order to understand the nature of the phenomenon one has to consider hyperinflation plaguing the country against the background of political instability, extremely low level of life conditions, and abrupt cheapening of oil. According to the IMF, the inflation rate in the country will reach 500% in 2016, and will continue growing afterwards.

No wonder some Venezuelans see Bitcoin as a profitable alternative in terms of long-term investment and protection against the continuing devaluation of their assets. Recently, Diario Bitcoin noted that over the first week of August, the amount of bitcoin transactions through LocalBitcoins reached the record-breaking value of 141.7 million Bolivars ($14.2 million). The previous record was made just a week before, when the amount peaked at 117.1 million Bolivars.

The credit is due to local bitcoin enthusiasts, who, notwithstanding difficult economic conditions do their best to propagate the idea of cryptocurrency. Venezuela has hosted several bitcoin conferences; however, it’s local bitcoin exchanges that do most of the job. 

Exchanges

Today, there are three bitcoin exchanges available to Venezuelans: two of them, Cryptobuyer and Yabit, are relatively young; the most popular of three, SurBitcoin, was founded in 2014 by New York-based brothers Kevin and Victor Charles, and its audience is well upwards of 10,000 people. The platform uses open software BlinkTrade created by Brazilian entrepreneur and developer Rodrigo Souza, also from New York.

Even though the platform is still in beta, it managed to partner with Venezuela’s biggest bank Banesco. This provides the exchange’s customers an opportunity to swiftly buy bitcoins with local currency. In one of his recent interviews, Souza noted that SurBitcoin is one of a few bitcoin exchanges in the world that may offer instant deposits and withdrawals in fiat, with 95% of all transactions processed in less than thirty seconds.

No business can develop smoothly all the time, and SurBitcoin is no exception. In early 2016, the exchange halted operations when its bank accounts were suspended once a customer lamented to Banesco about what he considered too prolonged withdrawal. The subsequent investigation by Banesco’s security service found the claim unjustified, while the claimer was thought to deliberately undermine the exchange’s operations. In July, the exchange’s accounts were brought back online, as well as API integration and Banesco’s fiat gateways.

Bitcoin Regulation

As opposed to neighboring Bolivia and Equador, where Bitcoin is banned, Venezuelan authorities did not present any formal attitude in this regard. The local legislation determines money very strictly, and Bitcoin is not considered one. Most likely, it is considered a property.

Nevertheless, shortly after SurBitcoin’s launch, the exchange’s owners had to settle matters with local authorities, as the latter suggested that the exchange has something to do with illegal exchange of money. However, as Bitcoin is not considered money in Venezuela, the problem was settled in no time. Still, exchanges have to comply with some regulations.

“We have to be extremely transparent and thorough in checking users who open an account with us. We will take money-laundering regulations into account, so that drug traffickers cannot use our platform,” SurBitcoin owners say.

As a part of such measures, exchange users have to upload a scan of their ID’s to open an account. The personal information is subject to further audit, and activation of an account is only possible when the check is complete.

Bitcoin Mining

Venezuela is known for its strict regulation of pricing. The living standards in Venezuela are amongst the lowest in the world, still, locals can be proud of their cheap electricity. BlinkTrade’s Rodrigo Souza exemplifies an operator of a mining farm, who pays only $20 a month for capacity of 1 petahash.

In average, 320 kW in Venezuela is worth around 6 cents, which enables home mining of bitcoins. Even relatively outdated equipment allows for earning more than a decent job of an engineer. Those conditions make mining very profitable, so the lion’s share of all cryptocurrency sold in Venezuela is effectively mined by locals.

“I would say that 10 percent of our 10,000 users are de-facto bitcoin miners. Additionally, a lot of people buying bitcoins in large quantities on SurBitcoin are buying because it is the only way for them to import new miners,” Souza notes.

Still, mining in Venezuela isn’t a bed of roses. Even though there are no regulations in cryptocurrency’s regard, the pro-government media often calls bitcoin a threat to the country’s financial system, and dubs it a currency of cybercriminals.

Furthermore, this March two miners have been arrested in Valencia, and all the mining equipment has been seized. No further information on the development of affairs is available at the moment.

Bitcoin in Everyday Life

As Venezuelan authorities resist Bitcoin by a wink and a nod, the cryptocurrency is gaining popularity as a means of payment. One may buy goods or services for Bitcoin. One of such examples is confectionary store Tortas Don Eduardo in the country’s capital of Caracas. One may also use cryptocurrency in several touring agencies, cinemas, education institutions and parks, as well as clothing, jewelry and drug stores.

Still, as local enthusiasts acknowledge, acceptance and propagation rates of Bitcoin are far from perfect. Thus, according to Eduardo Hernandez, the owner of Tortas Don Eduardo, no one has used the option of paying with bitcoins in two years. There have been some phone calls and questions, but no actual transactions have ever taken place.

Hernandez hopes that the situation will change in the future by efforts of tech-savvy youngsters.

Altcoins

Notably, the option of paying with Dash has recently become available to the Venezuelans due to Tigo, a Panama-based company which enables cryptocurrency payments in South America via a network of special ATM’s.

Currently, the company’s customers lacking services from regilar banks may transfer their digital assets into fiat currencies, trade cryptocurrencies, conduct regular remittances, and buy goods online.

Bitcoin’s Future in Venezuela

Even though one might consider the conditions for crypto-market in Venezuela satisfactory, the future is in the fog. The financial apocalypse that occurred there has become yet another example of socialism’s inviability, and futility of central bank attempts to control financial processes in the country.

The news about endless queues on the border, where people stand for days to go shopping abroad, in Colombia, hit the headlines every now and then. The desire to secure the future via investments in alternative tools is quite understandable in this case.

Venezuela has prohibited importing US Dollars, so the only way to get a couple dollars in Venezuela is going to a black market. The latter, however, holds a host of scammers, which makes Bitcoin even safer alternative. However, the official position of the country’s authorities is decisive here.

This feature is the first in the series on cryptocurrency markets in South America. To be continued…

By Andrew Asmakov