An Insider's View Of The Bitcoinization Of Venezuela

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.


Escrava Isaura malek Sun, 09/24/2017 - 15:54 Permalink

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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  

In reply to by malek

Mr_Potatohead Justin Case Sun, 09/24/2017 - 21:28 Permalink

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?

In reply to by Justin Case

tion malek Sun, 09/24/2017 - 17:29 Permalink

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? 

In reply to by malek

tion malek Sun, 09/24/2017 - 18:05 Permalink

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.

In reply to by malek

Mr_Potatohead tmosley Sun, 09/24/2017 - 20:57 Permalink

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! 

In reply to by tmosley

DjangoCat tmosley Sun, 09/24/2017 - 20:36 Permalink

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.  

In reply to by tmosley

Gaius Frakkin'… Gordon_Gekko Sun, 09/24/2017 - 16:48 Permalink

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.

In reply to by Gordon_Gekko

tmosley VD Sun, 09/24/2017 - 17:45 Permalink

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 :(

In reply to by VD

VD tmosley Sun, 09/24/2017 - 21:56 Permalink

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....

In reply to by tmosley

DjangoCat Gordon_Gekko Sun, 09/24/2017 - 20:19 Permalink

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.

In reply to by Gordon_Gekko