Protests continue to rage in Venezuela as inflation soars to unprecedented levels and the price of oil remains low. The country’s national currency is now worth less than fictional gold in Azeroth, the setting of the popular massively multiplayer online role-playing game World of Warcraft, pushing Venezuelans to bitcoin to hedge against the nation’s struggling economy.
So, What Happened?
Under President Hugo Chavez, Venezuela underwent a revolution, bringing social programs such as education and health care to the people, propped up by increasing oil prices. During his presidency, however, Chavez was accused of bending the economy for personal gain, human rights violations, and intimidation of the media. Price controls placed on basic goods, including food, initially meant to redistribute wealth and reduce costs, led to hyperinflation and shortages. Crime and violence also increased drastically under Chavez, leaving the country as one of the most violent in the world.
Venezuela’s misfortune increased, however. In 2013, Chavez passed away and his Vice President, Nicolás Maduro, took power. Worries of corruption mounted while plummeting oil prices created an economic climate which was less than desirable. Maduro’s inherited economic burden, in addition to the leader’s failure to diversify the country’s economy led to widespread protests in 2014.
In response to the deepening political crisis in Venezuela, then-President Barack Obama hit prominent level officials with sanctions, with White House spokesperson Josh Earnest saying that the administration is "deeply concerned by the Venezuelan government's efforts to escalate intimidation of its political opponents." The administration’s efforts to dissuade corruption, however, were in vain.
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 Amazon.com, 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.
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.