Exploring Venezuela’s crypto ecosystem since the start of the pandemic
In the year since the COVID-19 pandemic first disrupted almost every aspect of our lives, many things have happened within the crypto ecosystem around the world. So, what has the past year been like for crypto in Venezuela?
Even before 2020, Venezuela already had a number of businesses that accepted various cryptocurrencies as payment; however, considerably more have moved to adopt this form of payment over the past year. This includes everything from the hotel sector to famous pizza chain Pizza Hut announcing that it will accept Bitcoin (BTC), Litecoin (LTC), Dash and other cryptocurrencies as a form of payment.
Halfway through 2020, crypto exchange Cryptobuyer and payments processor Mega Soft announced that they would form an alliance to allow some 20,000 merchants that use their services to accept payments in crypto through the Cryptobuyer Pay solution developed by the exchange.
Another important landmark was in September 2020 when a Bitcoin node was connected to Blockstream’s satellite network — a first for Venezuela. The result of a joint effort between Cryptobuyer and crypto education provider AnibalCripto, the node was launched despite the logistical limitations imposed by COVID-19-related lockdown measures. Likewise, those responsible for the node announced that this was the first step toward building a mesh network that would be able to process Bitcoin transactions without the need for an internet connection.
Despite the ongoing economic crisis in Venezuela, the crypto mining industry has been growing. According to the Cambridge Bitcoin Electricity Consumption Index, Venezuela contributes the most to the Bitcoin hash rate out of any nation in Latin America, which means that there is a substantial amount of computing power being generated in the country.
However, Venezuela introduced a new piece of legislation in September 2020 targeted at the country’s mining industry. In addition to the creation of an obligatory registry and the establishment of new taxes for those who work in mining-related sectors, the new law introduced the controversial “Pool de Minería Digital Nacional” (National Digital Mining Pool). Under this new requirement, it will be obligatory for miners to contribute their hashing power to a new, state-backed mining pool.
Overall, there is still no real clarity regarding the mining pool, which means that the way in which the law will be enforced is not really known, and it has not yet been revealed exactly how Venezuelan miners will have to participate.
Although it may seem paradoxical to see such a level of support for cryptocurrencies from a government that is often seen as being quite restrictive of its citizens and their freedoms, the past year has seen several crypto experiments, including plans to allow Venezuelans to pay for passports with Bitcoin using payments processor BTCPayServer.
However, even though the administration of President Nicolás Maduro did not end up implementing the passport plan, its vision for the use of crypto did not diminish. For example, Maduro proposed an anti-sanctions bill in September 2020, seeking to use cryptocurrencies to evade the various sanctions imposed on the country and hoping to boost crypto use in various business operations.
More specifically, there were reports that Maduro’s administration was using Bitcoin to facilitate trade between Iran and Turkey, two of the current main geopolitical allies of the state.
Related: A year into the pandemic: How Argentina’s economy struggled while its crypto ecosystem flourished
It was also reported in November 2020 that the Venezuelan Army decided to open the Centro de Producción de Activos Digitales del Ejército Bolivariano de Venezuela (Digital Assets Production Center of the Venezuelan Army), a center that houses ASIC mining equipment designed for proof-of-work cryptocurrencies in order to generate “unblockable” financial income, according to the military leaders who inaugurated the facility.
All this progress made on the part of the Venezuelan state in the crypto ecosystem has been to seek solutions to get around the sanctions that the United States has imposed on Maduro, his cabinet and high-ranking military officials.
However, U.S. authorities have declared that they are monitoring Venezuela’s cryptocurrency operations, and in June 2020, they even added its cryptocurrency superintendent — the highest authority on the regulation of the crypto ecosystem in Venezuela — to the U.S. Immigration and Customs Enforcement’s Most Wanted List.
Record number of bolivars locked up in Bitcoin
The bullish surge of Bitcoin’s price has been coupled with the rapid devaluation of Venezuela’s fiat currency, which has resulted in a record number of bolivars being traded in for Bitcoin. In the first week of December 2020 alone, peer-to-peer exchange LocalBitcoins saw 5.85 billion bolivars exchanged on the platform. By the first week of February, this number had jumped to 8.56 billion bolivars.
The complicated political and economic situation in Venezuela has led the government to consider alternative solutions. In the midst of this scenario, blockchain technology and cryptocurrencies, in particular, have been brought to the fore.
Maduro is not the only one who sees cryptocurrency as a way out of troubled waters. One of his main opponents, Juan Guaidó — who is president of the National Assembly and recognized as Venezuela’s legitimate president by some 60 countries — has used the stablecoin USD Coin (USDC) to evade financial restrictions imposed by the Maduro administration in order to send humanitarian aid to Venezuelans.
The funds used by Guaidó came from assets that were seized by U.S. authorities from the U.S.-based bank accounts of Venezuelan state companies and various members of Maduro’s administration.
Opinions within the ecosystem
To understand better what it felt like on the ground within the crypto ecosystem in Venezuela, Cointelegraph en Español spoke with some of the main actors who were involved in the various events that set the tone during the past year.
Jorge Farias, CEO of Cryptobuyer, opined to Cointelegraph en Español that the use and adoption of crypto as a form of payment in Venezuela is becoming a reality: “The global and local situation has made it so that thanks to the pandemic, businesses and individuals are looking for payment alternatives that do not require the interaction or physical presence of people.”
Ernesto Contreras, head of business development at Dash Core Group, mentioned that Dash’s plans to expand to national chains was halted due to the spread of the pandemic. Additionally, during the lockdown period, “We saw how delivery offers grew, which work in a 100% digital environment, and several services like Dingo, Piido and others have joined in accepting Dash and cryptos.” He added further:
“Despite the immense difficulties that the Coronavirus has brought, the crypto ecosystem continued to reach great milestones in Venezuela during 2020, and this added to a global environment that is increasingly digital, and with a positive trend for cryptocurrencies in the world, has opened more doors of great importance for the growth, adoption and use of Dash and cryptos.”
Javier Bastardo, host of the Satoshi en Venezuela podcast, told Cointelegraph en Español that “Venezuela continues to be one of the most active p2p exchange markets.” However, he believes that the trend has not reached its peak just yet. Moreover, he believes that FOMO — the fear of missing out — is not influencing the situation as much as in 2017 and that a steady inflow of people who heard about cryptocurrencies in the past are only now opting to enter the market. He also added that another factor that has dominated the past year has been the willingness to start paying directly in crypto, which ultimately delivers a sustained level of adoption.
Anibal Garrido, CEO AnibalCripto, told Cointelegraph en Español that “Venezuela has been part of important contributions to the development of the ecosystem.” He further added that:
“The difficult situation of COVID-19 has left us with a great learning experience: NOT to depend on physical presence for the harmonious development of our society.”
He added that the local mining law sets a precedent for other countries to evaluate and consider. He also mentioned the incorporation of crypto payments in retail chains along with the developments in providing fast, secure fiat-to-crypto exchange processes.
Mariangel Garcia, community manager for Binance Spanish, believes that “Venezuelans were shaken out of our comfort zone, businesses were forced to start a digital transformation and now many users can see how options abound that before this situation did not exist.”
She further told Cointelegraph en Español that this translated into the widespread adoption of Binance’s native cryptocurrencies in the country, as well as a surge in demand for its peer-to-peer platform. For Garcia, this means that “Thousands of Venezuelans have found financial freedom in our products without limitations.”
She concluded by saying that: “Venezuela is the only country in Latin America with an inclusive vision towards the adoption of cryptos, which is a good start.”
Jorge Farias, CEO of Cryptobuyer, sadly passed away shortly after the interview.