Can Cryptocurrency Help Venezuela?
Venezuela is enduring an unprecedented humanitarian crisis, causing a mass exodus of its people. An estimated two million people have fled Venezuela in the last two years, and that number is expected to double in upcoming months as the country’s economy continues to implode. In search of a long-term solution to a man-made crisis, the international community debates policy options aimed at increasing pressure on the Venezuelan regime while limiting the suffering of the Venezuelan people. Cryptocurrencies show the potential to be an “out-of-the-box” tool that tackles both issues simultaneously.
Venezuela’s cryptocurrency market is on the rise. The Maduro regime has been tightening controls on the economy and continues to reject humanitarian aid from any sources outside the country—a tactic to strengthen its political power. However, cryptocurrency technology is enabling a form of external aid through peer-to-peer cash mechanisms. Family members are sending cryptocurrency-based remittances directly to the recipient saving fee costs and time. People living abroad are donating cryptocurrency to domestic non-profit organizations to buy and distribute food within the country.
At its core, a public cryptocurrency allows any individual to transfer value directly to a recipient without the need of an intermediary to facilitate the exchange. Given its decentralized and peer-to-peer nature, cryptocurrency transactions in networks like Bitcoin or Ethereum are outside of President Maduro’s control. The implication of these rapidly-emerging grassroots initiatives aligns with international efforts to empower the Venezuelan people while weakening Venezuela’s failing regime.
Addressing Security Concerns
All sorts of cutting-edge technologies can be used by criminals as a way to skirt law enforcement. For example, the Maduro regime is attempting to adopt a state-sanctioned cryptocurrency—a failed attempt to avoid international sanctions and finance its illicit activities. The petro, the regime-controlled and allegedly natural resource-backed cryptocurrency, is not tradable and has no value (other than merely what the government says it is worth). The petro has failed to attract funds or earn the public’s trust, which are key elements for any cryptocurrency to grow. Given that Venezuela ranks as one of the most corrupt countries in the world, the petro was wisely included under the U.S. Treasury Department’s sanction toolbox in order to prevent its potential use for money laundering and other potential illicit activities.
Although cryptocurrencies have initially attracted criminals—given the technology’s lack of intermediaries and inherent pseudo-anonymity—they also attract law-abiding citizens, especially those who are in economically- or politically-unstable environments. According to experts, the amount of Bitcoin currently going through exchange services and being used for money laundering is less than 1 percent of all transactions. On the other hand, the estimated amount of fiat money laundered globally in one year tops two trillion dollars. In addition, given the underlying technology, called blockchain, public cryptocurrencies may become a friendly tool for law enforcement authorities to track suspicious transactions in the network. The cryptography technology verifies transactions by network nodes that are then recorded in a public, immutable distributed ledger.
The amount of Bitcoin currently going through exchange services and being used for money laundering is less than 1 percent of all transactions.
Contrary to mainstream assumptions, most cryptocurrencies can be traceable and transparent, especially when using exchanges that require following Know Your Customer (KYC) and anti-money laundering (AML) verification processes, among other rules and regulations. Further federal and international regulations are yet to come, but Coinbase, a U.S.-based exchange and hosted wallet provider, is a good example of compliant cryptocurrency businesses.
Venezuela’s Cryptocurrency Ecosystem
As the nation’s hyperinflation is on track to reach over one million percent by year’s end, Venezuela is now ranked fourth in the world of countries that trade the most Bitcoin—totaling nearly 12 percent of all transactions. This should not come as a surprise. It is extremely difficult to make any payment in the collapsed state of Venezuela. Cash is scarce and traditional payment networks are so overloaded that it regularly takes hours (and good luck) to pay the equivalent of four dollars to a taxi driver in Venezuela. As a result, a growing number of merchants, from grocery stores to restaurants and utility outlets, are accepting a variety of cryptocurrencies as payment. Nearly 400 merchants seem to be using Dash already, which is another cryptocurrency.
Cryptocurrency is also opening virtual humanitarian aid corridors, which have not previously existed in Venezuela or anywhere else. Initiatives such as EatBCH and Bitcoin Venezuela are limiting the suffering of thousands of people by receiving cryptocurrency donations, which are then used to buy and distribute food on the streets of Venezuela. Bitcoin Venezuela, a non-profit organization, feeds about 2,000 people on a daily basis. Within only a few months since being founded, eatBCH now has about 18 food distribution centers in six states across Venezuela. Donations to these organizations are coming from all over the world and incur almost no costs from intermediaries. EatBCH’s model is now being replicated in South Sudan.
Other initiatives are being developed, including “airdropping,” or sending millions in Bitcoin to hundreds of thousands of Venezuelans on-the-ground. There is vulnerability involved in this type of initiative, such as making sure that the cryptocurrencies will not fall into the hands of the wrong people, passing KYC and AML verification processes, among other risks. But the technology is rapidly developing. Smartdrops, a more targeted way to give away cryptocurrency, could be an option moving forward. In addition to these vulnerabilities, important operational challenges remain ahead, including Venezuela’s rapidly declining telecommunication industry. However, finding efficient ways to empower the Venezuelan people with cryptocurrencies remains.
To facilitate the flow of cryptocurrency-based remittances into the country, the use of platforms like Abra could also help. An estimated 120 million dollars is entering Venezuela via remittances on a monthly basis. But as oil revenues dries up, the cash-strapped regime is taking steps to identify and potentially capture hard-currency remittances from a growing Venezuelan diaspora. Decentralized, neutral, and censorship-resistant cryptocurrencies, such as Bitcoin and Ethereum, could be used to mitigate the regime’s currency controls and help the Venezuelan people more efficiently.
Although cryptocurrencies have accrued an often-dubious reputation, their adoption amid repressive environments such as Venezuela can provide alternative policy options. Cryptocurrencies—if carefully and precisely planned and executed—may offer a new tool to break regime control over societies, both in and beyond Venezuela.
Moises Rendon is an associate fellow and associate director of the Americas Program at the Center for Strategic and International Studies in Washington, D.C.
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