If you want to know how crypto functions in a state of collapsing economy, Venezuela is an interesting country to take a look at. In an effort to come out of the hyperinflation, the country’s government launches the world’s first state-backed cryptocurrency called Petro. Meanwhile, Venezuelan people turn to bitcoins, using it to pay for everything from utility bills to gas and food. And Venezuela’s crypto mining mania goes mainstream.
While many say Venezuela demonstrates another promising use case for cryptocurrency and celebrate the success, opposite opinions become stronger every day. What is the real situation? Can the usage of fintech innovations help to stabilize the economy? Let’s get to our World CryptoMap and figure out.
There’s no mystery about what happened in the country. It was oil revenue that fueled Venezuela’s budget under former President Hugo Chavez. When oil price was at $100 a barrel, billions flowed through the state-owned petroleum company and were syphoned off for social programs and food subsidies. But when oil prices fell dramatically, the economy shifted into reverse.
As of now, the country’s native currency, bolivar, is worth next to nothing. The hyperinflation is poised to reach an annualized rate of 1 million percent by year’s end.
Seems like the financial outlook can’t get any worse, right? Half-empty supermarket shelves and long lines have become a regular part of daily life. Presently, most Venezuelans subsist on a monthly salary equivalent to only $14. In this economically desperate climate, thousands have turned to cryptocurrencies.
In July 2018, a Venezuelan Reddit user named “Windows7733” received the donation of 0.5 Nano. The roughly $1.80 sum in USD might not sound like very much, but to the Venezuelan, it meant securing another month’s supply of products and medicine for his family. After he announced on Reddit he had found a merchant that was willing to accept the tokens for food, more donations in crypto streamed in and Windows7733 was able to purchase 102 kilograms of meat, rice, sugar, beans, and fruit.
Additionally, there were other posts from Venezuelans explaining how crypto was helping them and revealing the bigger picture. Both poor Venezuelan retirees and wealthy business leaders are converting bolivars into digital money online and then using it to pay for everything from utility bills to gas and water. The transactions are relatively swift for anyone with a smartphone — websites like LocalBitcoins and Colibit function as exchanges where Venezuelans can buy and sell bitcoins.
When hyperinflation meets cheap electricity
Crypto mining has also become an integral part of a growing effort to survive the crisis. Thanks to the country’s cheap electricity plans it went mainstream with modified computers humming in almost every home in Caracas.
According to a recent study, the country is now the cheapest location to mine bitcoins: the cost is just around $531. For comparison’s sake: mining a bitcoin in South Korea, one of the world’s biggest digital currency markets, costs $26,170.
However, the government isn’t pleased with the nation’s enthusiasm towards mining. It’s cracking down on bitcoin mining, even though Venezuela has no laws on the books outlawing the currency or its manufacture.
Petro is Maduro’s pet project — an official government cryptocurrency backed by barrels of oil. It was introduced in an attempt to attract foreign investors, as well as bypass U.S. and E.U. sanctions. In Petro’s Whitepaper, it is said that one of its use cases is to become a mean of exchange — to be used to actually purchase goods and services. To keep pushing the adoption of the new currency, the government went as far as introducing a new salary system anchored to Petro.
As to the success of the project, opinions are divided. While many say Petro is exactly what will help to stabilize the economy, others remain sceptical. The critics doubt the currency is really backed up by oil. Additionally, there has been a number of reports in the media claiming that much of the Petro’s ownership reside within a few government-related addresses.
It is still unclear if Venezuela is on the right track with its new state-backed digital currency. The coin is new to the market, thus, it might be too early to judge whether Petro is the much-needed pill for the destroyed economy. On the flipside, Venezuela has already witnessed the power of cryptocurrency — digital money allows thousands of its residents to cover their living expenses.