What crypto’s fight for Venezuela says about global currencies
Recovering from economic collapse is one thing; preventing it in the first place is another entirely.
At its heart, bitcoin is the world's first immutability machine, and one of the immediate applications of this machine was the creation of a new entirely digital form of currency. As its popularity grew and scaling problems highlighted its impracticality as a payment network, the goalposts shifted towards it being a kind of digital gold.
Its popularity, wide acceptance and relative accessibility means it's still widely used as a payment system though, and it has been joined over the years by a field of dozens of other cash-style cryptocurrencies whose primary purpose is to be a kind of digital money.
They have yet to catch on in most of the world, where fiat is still a much more reliable store of value and medium of exchange.
Venezuela is a different story though. Hyperinflation has flayed the fiat Venezuelan bolivar of almost all of its value, and residents have found genuine functionality in cryptocurrencies, Argentinian pesos and US dollars as stores of value and mediums of exchange. In other words, it's actually being used as a currency.
One of the unique outcomes of this is that different cryptocurrencies are battling for market share in Venezuela, essentially creating a situation where there are competing currencies, each with their own pros and cons and differing levels of acceptance and adoption.
Bitcoin, DASH and Nano are all among the currencies getting involved in different ways, and seeing what they're doing in line with their features can highlight some of the benefits, and the clear limitations, of different types of cryptocurrency.
By many accounts, bitcoin is still the top dog, thanks to its wide acceptance and perception of it as a more reliable store of value and a hedge against inflation. It has also enjoyed the benefits of earlier adoption and has been used in Venezuela in some form longer than its competitors have even existed.
A look at the CoinDance LocalBitcoins trade volume for bitcoin (BTC) to the Venezuelan bolivar (VEF) reveals some interesting goings-on.
2012-2018 volume in VEF
There's been consistent and considerable volume as far as back as 2012, but it happens to be so low as to be invisible next to the current volumes. For example, in the week of 23 March 2017, one of the invisible weeks near the middle of the chart, LocalBitcoins' trade volume in Venezuela was over 20 million bolivars. However, the most recent week was about 14.5 trillion bolivars, worth roughly US$4 million.
This is mostly a testament to the bolivar's extraordinary loss of value.
A look at the same time frame in bitcoin paints a different picture. Although this time it might be more of a testament to bitcoin's extraordinary growth in value.
2012-2018 volume in BTC
Uniquely, the volumes measured in BTC run exactly opposite to prices, unlike most other countries where bitcoin interest boomed in line with prices. This suggests early adoption of bitcoin in Venezuela, and that people might have just built bitcoin conversions into their routines.
However, it's also worth emphasising that these are people converting between BTC and VEF in both directions, and it's still typically necessary to convert crypto to bolivars before you can actually spend it. As one Reddit user from Venezuela said, bitcoin is still the preferred cryptocurrency because it's easier to sell as needed than the others.
This is easier said than done though, and finding merchants who accept it isn't easy either. Part of the problem might be that the economic collapse has been accompanied by a certain amount of civil collapse, and businesses which openly advertise that they accept bitcoin find themselves at increased risk of extortion and robbery.
Dash has concentrated on making inroads as an actual payment method, helped along by its relative centralisation around the Dash company, and people being paid to promote DASH adoption around the country.
So far, some 522 domestic store owners accept DASH in the country, said Dash public outreach director Joël Valenzuela. But outside of Venezuela only 1,729 merchants accept DASH, so it's definitely an outsized portion.
Valenzuela attributes this to Dash "holding monthly conferences, educating users and onboarding merchants at a breakneck pace."
In business terms, this might simply be seen as heavier advertising in markets where there's more demand for a product. Venezuela is one of the very few regions where alternative currencies are genuinely useful, so organised companies like Dash are investing more into that market.
Putting organised forces behind market movements can definitely make things easier and quicker. However, the more community-driven cryptocurrencies aren't able to be quite as organised and are largely limited to donations and grassroots word-of-mouth initiatives.
Nano is another dedicated payment coin, focused on near-instant zero fee transactions. It's also introduced itself to Venezuela in the form of a semi-organised donation drive to try to raise awareness from within.
But one of the main challenges, according to one user, is convincing people to actually accept Nano or any other less popular altcoin.
One Nano recipient, Héctor, said "You have to search carefully to find someone willing to sell you goods directly for cryptocurrencies. Cryptocurrencies — and any other currency but bolivars — are banned for all citizens, so it has always been common to buy assets, coins, foreign currencies, tokens, etc. in the black market (or "mercado paralelo" as people refer to it) by contacts, friends, family members who travel abroad and brought cash with them."
Uniquely, the Banano joke coin (a fork, or "peel" of Nano that can be relatively easily exchanged for Nano itself) is quite widely distributed through faucets and games. As of about a month ago, it was supposedly possible to earn 0.5 Nano from about an hour of game-time, which is worth more than many Venezuelans make in a month. Airdrop communities have similarly taken off in Venezuela, while systems like Bounty 0x, which mostly pays out fairly small amounts in low-value cryptocurrencies for those who can work remotely, have also become popular in low-income areas.
Small amounts of crypto money might not be enough to interest those in the luckier countries, while being a lifesaver in poorer regions.
The entire system is very reminiscent of the video game cash farming industry, such as the once-thriving World of Warcraft gold farming industry, which was more profitable than manual labour or just about any other unskilled work for a while.
Stablecoins and globalisation
Héctor also noted that any goods bought in large quantities were at risk of being confiscated by authorities. Once again, the societal breakdowns that accompany economic collapse might be an issue that no currency can solve.
Whether that's a point for or against wide cryptocurrency adoption might depend on how secure and well managed a country's economy is. The ideal currency, whether crypto or fiat, would avoid an economic collapse in the first place. The bolivar is one of the very, very few currencies that's actually less stable than bitcoin, but that doesn't necessarily mean bitcoin is anywhere near stable enough to be an actually effective currency.
Stablecoins are an option, and recent projects such as Basis have been explicitly designed to serve as functional self-sustaining currencies in economically unstable regions.
It's also worth considering the potential for cryptocurrencies to improve on even the most stable fiat currencies and to insulate individual economies from mismanagement by operating on a global scale. Even if it's not necessarily cut out for the job, this is one of the reason bitcoin was created.
A relatively stable global currency might not be as far-out an idea as it seems. In fact, similar effects have already started happening from the other side of the counter.
The Amazon effect, for example, is having a tangible effect on the cost of living and measurable inflation rates around the world. This is essentially the ability to buy things online and have them shipped from overseas more cheaply than just buying locally. It might not sound like much, but this touch of globalisation has already started confounding economists and throwing off inflation rates.
For the first time, cryptocurrencies present a viable way of achieving a similar equalising effect from the currency side of the equation.
One of the takeaways from watching cryptocurrencies fight for hearts and minds in Venezuela is that adoption matters. A currency is only as useful as it is widely accepted and that small distributions of free money can go a long way.
But it also shows that access to more stable alternatives don't solve problems after they arise, and that issues such as endemic corruption might persist and undermine recovery efforts. Cryptocurrency can clearly help in extreme circumstances, but in the long run, its full potential might be found as a prevention rather than a cure.
Beyond international scuffling for fiat dominance, there are some clear benefits to be found in a reliable, stable and global currency that can remain self-sustainably stable without relying on an external peg – theoretically at least.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.
- Binance releasing everyday crypto-backed Visa debit card
- CoinSpot is Australia’s first ISO27001 certified cryptocurrency exchange
- Nexo adds PAXG gold stablecoin as collateral option
- US coronavirus relief bill includes push for digital currency
- How Bitcoin’s energy consumption compares to other “useless” industries