Bitcoin offered only a moment of reprieve for crisis-stricken Venezuela

How bitcoin surged and was clamped down upon in Venezuela

As the Venezuelan crisis deepens, more people are struggling with necessities like food and electricity. Food shortages have even led to soldiers cracking down on bakeries using too much wheat. Now up to 81% of Venezuelans are living in income poverty.

In the midst of this economic crisis, Venezuela’s currency, the bolivar, has been in steep decline and inflation has skyrocketed. The drop in oil prices in 2014 and ineffective policies have led to chaos, sending the economy into freefall with protesters taking to the streets to demand the resignation of President Nicolas Maduro.

The government even withdrew the 100-bolivar note with only 72 hours’ notice, leaving people scrambling to change their cash before it became totally worthless. When your fiat currency has little to no value and access to bank accounts is hindered, people need a better way to send and receive money.

While the bolivar has been tumbling, a segment of the population has turned desperately to digital currencies. Bitcoin has been experiencing a renewed burst in value in early 2017, reaching values of over a thousand dollars, some of its highest values in years. Securing some bitcoin and exchanging it for dollars would provide just a little comfort for people rather than holding on to their bolivars as the value drops and drops.

The authorities don’t like it though and have been allegedly targeting bitcoin miners in an attempt to stem the flow of the digital currency. The computational power needed for bitcoin mining is massive and puts a huge strain on electrical resources. In Venezuela, electricity is subsidised by the state and such use of power would, the authorities claim, put the grid at risk. There have already been several cases of power outages in the country.

The Washington Post reported that in November two men in the capital Caracas were raided by police, demanding bribes and threatening to seize their computers and mining hardware. The two men paid the bribes to stay in business and avoid arrest, which amounted to about $1,000 per mining terminal. They had about 90 terminals reportedly.

Venezuela’s community of bitcoin miners are now on edge. One miner claimed that people involved in bitcoin mining are being “accused of terrorism, money laundering, computer crimes”. Now miners are allegedly distributing their computers in different locations to avoid falling victim to one big raid by the police.

While police attention on bitcoin and miners has seemingly increased of late, the matter goes back over a year. In the city of Valencia, west of Caracas, two men named Joel Padrón and José Perales were arrested for electricity theft after they were caught mining for bitcoin.

The two men had used Venezuelan bitcoin exchange SurBitcoin. An economist named Daniel Arraez, who was working as a consultant for the exchange, was called by police to testify however when he presented himself he was instead arrested and placed in a cell with the two men. Arraez is still awaiting trial.

The bitcoin crackdown has left SurBitcoin in a difficult position. In early February, it suspended operations after Banesco, the country’s largest bank, shut down its account. Banesco had reportedly told SurBitcoin that users were not allowed to trade the bolivar against bitcoin.

In late February, SurBitcoin stated on Facebook that it would soon begin operations again but there has been no follow up from the company. Emails to SurBitcoin went unanswered.

Bitcoin, if only fleetingly, offered an alternative to some people in need of help. However the crackdown on cryptocurrency use shouldn’t be surprising, whether it’s to save electricity or otherwise. Venezuela has a poor track record when it comes to intersection of technology and politics and specifically maintaining control of its currency and exchange rates.

Telecoms regulator CONATEL has repeatedly tried to block the website Dólar Today, which publishes exchange rate data for bolivars. Publishing such data in Venezuela is illegal but the site is actually operated in Florida so the owners have avoided arrest but CONATEL has regularly instituted blocks on its URLs.

In a broader sense authorities have not hesitated either to institute blocks on news sites to curtail negative stories, especially economic ones. Whether or not Venezuela’s bitcoin community can survive the cull from police remains to be seen. Bitcoin’s moment in Venezuela may have been just that, a moment.


Also read:
As Venezuela’s crisis deepens, its ICT infrastructure is withering
Venezuela: The rise of digitally-enabled barter
India takes the tough path to digital payments