An Insider's View Of The Bitcoinization Of Venezuela

Tyler Durden's picture

With Venezuela 'almost' defaulting on their government debt this week, Daniel Osorio, of Andean Capital Advisors, has had a front-row seat in the collapse of the socialist utopia, spending at least a week every month in the almost-failed state.

In a brief but fascinating interview on CNBC, Osorio discussed the fact that as Washington unleashes ever tougher sanctions on Maduro, China and Russia are all that's left for the country with the largest proven oil reserves in the world.

Then exposed the realities of living under Maduro's crazed policies:

"Venezuela was one of the richest per-capita nations in the world... but now, hyperinflation is a very difficult thing to understand until you have to buy lunch..."


"The country has not yet dollarized...  but there's not enough dollars in Venezuela for that to have happened..."


"Venezuela is becoming a cashless society... we are starting to see in Venezuela, the first bitcoinization of a sovereign state."

Watch the full interview below...

As we detailed previously, as oil prices continued their descent and Maduro’s mismanagement of the country’s economy intensified, Venezuelans chose a new way to protect themselves financially.

Venezuela Turns to Cryptocurrencies

Between 2014 and 2016, the number of users on just one Venezuelan Bitcoin exchange skyrocketed from just several hundred to over 85,000 users. Cheap, subsidized electricity and a failing currency pushed a number of young entrepreneurs to build their own mining operations. One trader, John Villar, Caracas-based software developer, most eloquently stated "Bitcoin is a way of rebelling against the system." While the currency remained a niche form of payment in the country, many users purchased food and goods online through online marketplaces such as, albeit indirectly through gift cards purchased with the cryptocurrency.

Noel Alvarez, former president of the Venezuelan Federation of Chambers of Commerce, stated that “A maximum of one per cent of the population has access to it, but it is very useful in our situation.”

Bitcoin’s popularity in Venezuela continued to grow. It became the country’s leading parallel currency. Some vendors even begun accepting Bitcoin exclusively. A popular online travel agency, Destinia, cited that, due to the bolivar’s instability and the trouble many Venezuelans experience when attempting to leave the country, “Giving priority to Bitcoin as a payment method could be of help."

While Destina admitted that Venezuela is not a primary focal point for their company, they chose to prioritize Bitcoin payments in the Venezuelan market to facilitate the travel needs of the people in light of the persisting economic downturn.

With infrastructure in place, trading and mining becoming more popular, and the crisis escalating, Maduro’s government began to take notice.

Maduro’s War on Bitcoin

The Venezuelan government began to crack down on the Bitcoin community, with police extorting citizens for “misusing electricity” or undermining the country’s economy. These grievances intensified over time, however, and the attack on miners became more apparent. In the largest raid, two miners were caught with 11,000 mining computers and were charged with cybercrime, electricity theft, exchange fraud, and even funding terrorism.

In Feb. 2017, following the incident, Surbitcoin, Venezuela’s most popular exchange went offline. The company encouraged users to withdraw their money immediately as Banesco, the company’s banking partner, was set to revoke the account associated with the exchange. Rodrigo Souza, the founder and CEO of Surbitcoin, noted that "When it was found that there were 11,000 mining computers consuming the energy to power a whole town at a time when there are severe electricity shortages, it triggered a reaction.” Souza went on to say that the company was not contacted by the government, but Banesco revoked their account as it did not want to be associated with such an operation. Surbitcoin resumed operations two weeks following.

The economic crisis continued to escalate as oil prices remained stagnant and Venezuela’s oil production shuttered

What’s Next?

On July 31st, in a highly controversial election, Venezuela voted for a new constituent assembly giving President Nicolás Maduro even greater control in the country on the brink of civil war. The new pro-Maduro constituency will now have the power to re-write the country’s constitution.

Critics of the election have suggested that the vote was manipulated. National Assembly President Julio Borges tweeted the vote was “the biggest electoral fraud in our history."

Following the election, Maduro set his sights on opposition parties. At midnight on August 1st, two opposition leaders, Leopoldo Lopez and Antonio Ledezma, were pulled from their homes by teams of heavily armed guards.

U.S. President Donald Trump announced in a statement "The United States holds Maduro - who publicly announced just hours earlier that he would move against his political opposition - personally responsible for the health and safety of Mr López, Mr Ledezma and any others seized."

"We are evaluating all of our policy options as to what can we do to create a change of conditions, where either Maduro decides he doesn't have a future and wants to leave of his own accord, or we can return the government processes back to their constitution,” Trump added.

The United States has since frozen the assets of Maduro and is considering deeper sanctions, possibly even targeting PDVSA, Venezuela’s state-held oil company. An action which could send the country over the edge.  As tensions rise, the country is entering a state of chaos.

With the collapse of the economy, Venezuelans are running out of options. Bitcoin could come as a saving grace to many people. It has kept food on the tables of families, helped Venezuelans escape the distraught nation, and acted as a voice of rebellion against the oppressive government. But how Maduro’s regime will proceed remains to be seen.

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dark pools of soros's picture

...then they fight you....

ThirdWorldNut's picture

Dont tell Bernie and his commie friends, they are stuck at admiration stage ;-)

tmosley's picture

Peanutz would rather the Venezuelans starve than have them use cryptos.

tmosley's picture

Many Venezuelans will die without bitcoin, but that is a sacrifice the oldbugs are willing to make.

Pinto Currency's picture

10s of thousands of cryptos coming.

to paraphrase Volatire "In the end all cryptos reach their intrinsic value of zero."


tmosley's picture

In the end we're all dead and your gold is consumed by a dying star.

While we are alive, we will concern ourselves with the business of living, even if that includes the utilization of means that you don't like.

malek's picture

Typical nihilist stance, who either doesn't have kids or doesn't care about them.

Escrava Isaura's picture

there's not enough dollars in Venezuela 

Correct, because dollar is an American currency, meaning, those dollars come back to the US to finance our debt….while buying their commodities (oil), of course.


hyperinflation is a very difficult thing to understand

No, it’s not. It happens when a nation borrow in other currency beyond its rule of law.


Contrary to popular opinion, excessively high deficit spending and exorbitant government debt levels are not the actual cause of a hyperinflation. In most cases they have been the result of other EXOGENOUS EVENTS such as ceding of monetary sovereignty, war, rampant corruption or regime change.

The United States Secret Service was in fact created specifically for this purpose – to protect the US Dollar. There is arguably, nothing more important to government stability than maintaining the value and faith in the sovereign currency. As long as an economy is productive, the sovereign nation can enforce the use of said currency, and as long as we don’t issue excessive currency there should always be demand for it. In other words, trust in the national currency is safe as long as the rule of law is maintained.


Modern (Post 1900) Hyperinflations

Nations: What Cause

Austria: Foreign denominated debt

Hungary: Foreign denominated debt

Weimar: Foreign denominated debt

Poland: War with Russia

Russia: Civil War

Post WW2 Hyperinflations

China (1948): Civil War

Greece (1944): Civil War

Hungary (1945): Foreign denominated debt

Argentina (75/91): Foreign denominated debt

Zimbabwe (2004): Regime change and Foreign denominated debt


Justin Case's picture

the actual cause of a hyperinflation is a currency event, when the faith in Gov'ts ability to make good on their debt is lost. merica has defaulted twice.

Mr_Potatohead's picture

It's interesting and very telling that you'd get a down vote for your comment. Hyperinflation indeed is caused by massive accelerating loss of confidence in a currency issued by a government that cannot be trusted to safeguard the purchasing power of its currency (usually because it's aggressively creatiing money to pay its bills and has no intention of repaying its debt in real terms).  Hyperinflation is like an avalanche.  It typically occurs long after the stage is set, and it's impossible to know how extreme conditions can get before loss of confidence occurs en masse. 


There's lots of strange stuff being posted on ZH and other places these days by passionately ignorant people.  Almost makes you feel like you're living in an Ayn Rand novel, huh?

Justin Case's picture

Strange indeed, but it's no concern whether there is an up vote or a down vote. Some people are plain ignorant and just do a drive by b/c they are jealous of the poster that is just plain correct.

Thks for the comment!

tion's picture

While we are alive, we will concern ourselves with the business of living, even if that includes the utilization of means that you don't like.

Grumpy geezers need to stop grumbling and look at the situation as it is not as they wish it to be.  

Crypto is a measure of protection for a future potentiality.  If you really hate it I pray that you all will take the even better measure of working towards greater food self sufficiency/surplus.  And once you do that and get bored, please start armoring up to join the international commerce war.  We have to be able to compete on equal footing.  The deficit will eat us alive.  The crypto-retards you so loathe will be the ones who help the show go on when everyone else is wiping their ass with FRN.  No one wants you grumpy geezers to know hunger. One of you shitcucks made a comment to me once as though you wished me to know hunger, but I already became aquainted with it once upon a time ago and I don't wish it on anyone.  Get your head out of your ass because the day will come when it won't be business as usual anymore.  Look how fucked up things have gotten in just these last 5 years.  Where will we be in 10 years? 

malek's picture

Nice sermon.
I'm only missing some facts
-why Crypto is a measure of protection, and against what exactly
-why Crypto will retain value when FRNs become worthless

tion's picture

Cryptocurrency transaction adoption in other nations is growing, and these nations also happen to provide raw materials that are required by a number of industries for making the goods that we use /consume.  We do not have the domestic supply chain set up to fill these needs. It would take awhile for such capacity to come online.  I do not even need people stateside to have adopted cryptocurrency in order to use it as a means for paying for goods from suppliers.  But in order to keep paying suppliers in btc, for example, btc must be earned, earning only in a devaluing currency could pose problems.  This could likely be satisfied through international sales transacted in btc.  I welcome you to look around your home and the store and ask yourself how much of it came from overseas.  Exporting debt for tangible goods will only work for so long.

tmosley's picture

>You're a nihilist

You're a word thinker.

Word thinking doesn't get you anywhere in life.

lil dirtball's picture

> Word thinking doesn't get you anywhere in life.

Neither does standing on the curb and ogling buns with your hand in your pockets at the local pride parade, but that prolly doesn't stop you.


tmosley's picture

Interesting hallucination.

You hallucinate what you think of the most, I understand.

Stuck on Zero's picture

Among the other bad attributes of bitcoin is consuming vast quantities of electricity to produce sequences of bits.

Buckaroo Banzai's picture

If Venezuela had gold deposits that were easily accessible to the public at large, how upset would you be if they used that same amount of electricity to mine and refine gold? I mean, it's all just energy "wasted" on trying to create a personally-owned store of value that is nobody's liability...right?

Pinto Currency's picture

The worst attribute of bitcoin is that it has no intrinsic value.
It will go to zero.

Mr_Potatohead's picture

That's always a great question to ask of your own assumptions.  With respect to bitcoin, I'm 100% comfortable with the consequences of my possibly being 100% wrong about the future of bitcoin.  How about you?  I'm as sure about my view of bitcoin as you seem to be about yours.  Can you afford to be as wrong about this?  That's call risk, and claiming that you know you are right doesn't make it go away! 

tmosley's picture

I hardly own any bitcoin. There are far more interesting cryptos out there.

At worst, it is a HUGE momo trade. AT WORST.

tmosley's picture

The electricity consumption is to secure the blockchain and prevent fraud, actually.

It is highly effective, but yes, it is also expensive. There may be a better way. Feel free to invent it and have the world beat a path to your door.

ronron's picture

sighned in to tell you something for nothing. your a delusional ass.

tmosley's picture

Perhaps your time would be better spent in remedial English?

ronron's picture

pretty sure you own no bit coin. remedial ass.

tmosley's picture

Close enough to consider it zero. It is currently my smallest crypto position.

But seriously, English courses for all grade levels are offered online for free. Take advantage of them.

ronron's picture

signing out. run with your act.

tmosley's picture

You will be missed by literally no-one.

DjangoCat's picture

Tezos is very interesting, as is Iota, although they are moving in the machine to machine space.  Both are energy efficient.

Lots of good things coming down the pike.

I agree bitcoin is an energy hog.  The key is to produce energy efficient money.  We will not have anything like the energy we enjoy today in the fairly near future.



VD's picture

none of this shit is money; please acquaint yourselves with the laws.

DjangoCat's picture

Gold is created in a super nova, so the circle completes.

There is nothing wrong with gold except that the central banks have it all.  Makes for price fixing and undue domination.  

Bitcoin is peer to peer and distributed.  It is really a better idea.

Yellow_Snow's picture

Sure just keep on believing that... to put perspective on just how persistently wrong these nay-sayers' have been... an 'oldbug' comment on Bitcoin in Zero Hedge in 2013

"How do I short this shit" [Price = $25]

Gordon_Gekko's picture

I'm sure <or xyz dotcom catastrophe> share was also $25 at some point before zooming ...doesn't mean it wasn't WORTHLESS...just like shitcoin.

VD's picture

correct. shorting it was only "wrong" bc timing a ponzi like this w/ deep state and crypt0-muppetz alike pumping it is no easy feat.

Gaius Frakkin&#039; Baltar's picture

Let us know when Gold can be transported around the world in a few minutes. Until then it's not viable for a digital economy.

The Gold pushers can't sell any physical Gold because it requires the world to end for it to be a main currency. You see that's the difference. Cryptocurrency is trying to save our modern world and Gold needs everything to end in hellfire and damnation.

Gordon_Gekko's picture

Natural selection will weed you out. Don't worry.

tmosley's picture

Another non-argument from a bitter oldbug peanut.

Gordon_Gekko's picture

No point in presenting any arguments to Crypto-retard MORONS. I prefer to let them die off on their own. Let natural selection run its course.

tmosley's picture

Yes, we know that you oldbugs want everyone to die so you can be rich. But that doesn't excuse your lack of argumentation.

VD's picture

over 6k years of ye olde'ness and the latest flavor o' month crypt0-muppetz zealously believe this time is diff, same muppetz that got hosed on sliver think it'll never happen again. LOL

tmosley's picture

The last ledger based currency (that we know of, in the west) lasted for 730 years. It was put in to stop the kikes and their gold-based ursury from usurping England from the natives. It worked.

It will work again.

Your gold is going nowhere but down :(

VD's picture

dream on racist anti-semite, but, remember, the higher IQ than you (ie "kikes") will always win. and you will lose, again. sorry.

tmosley's picture

Hahaha, are you jewish? Is that what is wrong with you?

Also, my IQ is more than a standard deviation above that of the average 'Nazi kike.

VD's picture

dream on 90 IQ troll.


anyone this overzealous over simple blockchain maths & the marketing of "coin" this and "coin" that w/out realizing what it all really is is certainly at best middle of bell distribution.

tmosley's picture

But you don't know anything about blockchain or crypto.

You seem like the Tel Aviv villiage idiot. They pay you less than minimum wage to troll online forums.

VD's picture

i know quite a bit, since 2010 actually. how much does your mom "pay" you to shit and piss all over this place 24/7/365 from her basement?


2010? that's well before you went all in w/ your mom's retirement savings on silver, right? now this crypt0-bullshit.....


tptb had you as useful idiot back then and they got u shilling today, but in the end it'll be the same exact result. feel sorry for your moms....

overbet's picture

Love you people that say its worth zero. Arrogant and ignorant at the same time. Tough to pull that combo off, but you are doing it. Worthless? I seen plenty bids well above the price of gold. Think that makes your opinion on cryptos closer to the value of worthless.  

DjangoCat's picture

Interesting point, Gordon, and points up the difference between "over exuberance" and a debt fueled bubble.  The Dot com bubble was not a bubble in the same sense as the property bubble of 2008.  The former was based on wild enthusiasm for internet stocks and the latter on nearly free debt enabling purchase of ever higher property prices.  The former caused many investors to lose money, the latter nearly brought down the world financial system.

Bitcoin is not in a bubble in the sense of the 2008 property bubble.  There is little to no debt involved.  The enthusiasm for crypto is based upon the law of the network effect, which states that the value of Bitcoin rises as the number of people using it increases.

It is really that simple.