Tag Archives: Bitcoin

Venezuela: What Next with the Money?

As I write this, Venezuela is in crisis. The world is waiting to see if we will get the peaceful transition of power that we all hope for, or whether the brutal regime there will manage to continue on once again. Right now, we can only wait.

While we wait, I’d like to pose a challenge to the Cryptocurrency, Blockchain, and FinTech Communities. I want to hear your best ideas, evidence, and advice for Venezuela. In the past few years I’ve heard a lot of innovative (perhaps sometimes extreme) ideas about money, how it should be managed, and its role in our societies from these communities.

So, this is my challenge for you: Clearly the Chavez/Maduro regime has done just about everything wrong when it comes to managing currency. Once Venezuela has made a peaceful transition and carried out fair elections, what should the new government do to provide a functioning and stable currency for the Venezuelan people? How can they avoid the same inflationary crises which are all too common in Latin America? What role might new technologies play in the solution?

Here is a list of the big questions on my mind. Feel free to comment on them individually or as a group. Also, feel free to add to this list in your reply.

The Bolivar

Venezuela’s long-time official currency has been in an inflationary nosedive for years, worsening dramatically in recent months. Foreign exchange has long been strictly controlled by the state, including a pegged exchange rate that they could only afford to honor for a privileged few or in very limited amounts to ordinary citizens. The Bolivar is not currently traded on international exchanges making travel and trade very difficult for most Venezuelans.

Is it possible to fix the Bolivar, at least bringing it back in line with other Latin American currencies? Or, does it need to be replaced – and how would that happen? Is there any way to preserve value for regular Venezuelans who currently have Bolivars in their accounts?

The Petro

I’ve said many times that the Petro is the first state-sponsored crypto-scam. I stand behind that statement. The Petro is not a real cryptocurrency according to the judgement of every person I trust to make that evaluation. Unfortunately, it is a scam that has continued, and Venezuela now has accounts, including pensions, that show Petro balances.

What should be done with the Petro? Should it be scrapped? If so, how can they unwind what has been done? Would a “real Petro” (a state-issued, commodity-backed digital asset hosted on a publicly-verifiable blockchain) make sense? Could the fake Petro possibly be replaced with a real one?

In responses for this one, please hold on any critique of my Petro assessment. If you think that it’s a real thing, a friend of mine will be coming out with a bigger and better challenge for you soon. I’ll be announcing it when it happens. Be patient, your chance to embarrass yourself will come.

Foreign Currencies

The US Dollar has been an unofficial (and mostly not legal) secondary currency in Venezuela for a long time. The Euro is also used, and probably anything that isn’t the Bolivar at this point. Legal trade in the dollar and other foreign currencies has been severely restricted under the regime, and there is a very active black-market trade. Other Latin American countries have experimented with dollar-pegged currencies, with mixed results.

Should the US dollar or any other foreign currency have some official role or status in the Venezuelan economy? How would that work? Is adopting the US Dollar or some other foreign currency a valid option for Venezuela as a sovereign country?

Cryptocurrencies

Ok, this is the one that many of you were waiting for. Part of my interest in cryptocurrency came from the potential I see for it to help in Venezuela and other countries with failed currencies. It may be that a major window of opportunity is opening, but I would suggest that we need to proceed with caution. Cryptocurrency is in use in Venezuela, but it’s very much in the early adopter phase – something for a relatively limited few. Bitcoin’s 10 years of existence is impressive, but no cryptocurrency has yet been tasked with supporting a national economy. No matter how solid your economic theories may sound, nobody can know in advance what might happen. Economic theory has a tendency to bite us when it is put in to practice in new and different situations. Now that you’ve been reigned in a bit, I do think there are some important questions to discuss.

Is blockchain and cryptocurrency technology really ready for official use by a sovereign country? Are the people of Venezuela really ready for digital money? Should Venezuela adopt a decentralized, public, global cryptocurrency? Or, should they consider developing a (real) state-issued one? (Again, the “real Petro” concept.) If Venezuela is to adopt one or more cryptocurrencies, how should they manage the transition from conventional fiat currencies? What accommodations would they need to make in their financial system?

Share Your Ideas

In the end, these decisions must be made by Venezuela alone. But, it would be great if could give them some good ideas to consider. If you respond, please refrain from projecting any political dogma on the situation. There is too much of that going around. No stories of how Venezuela does or does not prove things about socialism, totalitarianism, etc. Just ideas for how they can create a fair and useable currency for their people please.

This is an informal challenge. Share thoughts on Twitter, LinkedIn, or on the blog of your choice. I’ll find some way to feature good and well-considered responses. I’ll also award the first 100 good and well-considered responses that come with an Ethereum address with one ArepaCoin* as a thank-you. If tokens aren’t your thing, just reply and I’ll consider featuring your ideas if they are excellent and unique.

* ArepaCoin is an ERC20 token created by me to raise awareness for Venezuela. It has absolutely no monetary value and I nave no reason to think it ever will. It is a digital “thank you note” and nothing more. Limit of one per person. The token details can be seen here.

Thanks for helping Venezuela!

Anti-government protesters hold their hands up during the symbolic swearing-in of Juan Guaido, head of the opposition-run congress who declared himself interim president of Venezuela during a rally demanding President Nicolas Maduro’s resignation in Caracas, Venezuela, Wednesday, Jan. 23, 2019.(AP Photo/Fernando Llano)

The Venezuelan Bolivar: One Reason I’m a Crypto-believer

Among the reasons that I’m a believer in the long-term potential of cryptocurrencies is the story of the Venezuelan Bolivar.  Venezuela is my wife’s homeland, so it’s something I’ve been aware of for many years – since well before the dawn of cryptocurrency.  In fact, when I first heard about Bitcoin, this is one of the first use cases that came to mind – a replacement option for countries with failed currencies.

I ran across a few Venezuelan bills that we have from trips over the years.   Especially for us with a Dollar/Euro/other-major-curency perspective, they serve as a  good reminder of the massive demand in countries like Venezuela where the official currency is horribly mismanaged.  I also think they are fascinating works of art, despite their negligible current value.

All but the largest 2,000B$ note are now out of circulation.   Late last year, the country rolled out a new 100,000B$ note.  The Venezuelan regime maintains some official exchange rates.  But, as with any pegged rate those don’t reflect the actual value of the currency.  The black market represents the real value, and people there keep track using sites like DollarToday and BolivarCucuta.  As of now, that rate is at around 240,000B$ per US dollar.  With Bitcoin around $8,700, the notes you see here would be worth:

  • 2,000B$ = $0.0083 (or just under 1 cent.) = ~96 Satoshi
  • 100B$ = $0.00042 (less than 1/10 of 1 cent) = ~5 Satoshi
  • 5B$ = 0.000021 (about 1/500 of a cent) = ~0.25 Satoshi
  • 2B$ = 0.000008 (just under 1/1000 of a cent) = ~0.1 Satoshi

The smallest two bills are worth less than the smallest possible division of a Bitcoin.  Those valuations may seem a bit funny, but it’s really a sad situation.  At one time these bills were “real money” that people depended on as a medium of exchange and a store of value (at least for the short-term.)  Now things are so bad that whenever Venezuelans receive payments of Bolivares, they rush to spend them as quickly as possible.  Even household goods like dried pasta and toilet paper are better stores of value than the Bolivar.

So, from the Venezuelan perspective the big fluctuations in Bitcoin’s price are not much of a worry.  That is especially true since Bitcoin has generally increased in value.  The Bolivar has done nothing but decline, and there is no reason to think that trend will ever reverse.  Instead, it seems more likely that the regime will keep printing more new bills with more zeros on them.   Dollars and Euros are probably still the first choices as safe havens for Venezuelans, but they are not easily available.  Cryptocurrencies represent an important new option for hedging against hyperinflation.

Speaking of “new options”, these bills also remind me of a cautionary lesson in this new world: not all cryptocurrencies are created equal. The crypto marketplace is filled with many poorly considered ideas and outright scams.  The case in point here is the Petro, which is brought to you by the same brain trust that managed this “Bolivar Fuerte” (“strong Bolivar”) from it’s launch in 2007 (done by removing 3 zeros from the “weak Bolivar”) through a 99.9991% decline in value over the last 10 years.  Since it’s a high-profile cryptocurrency launch, I wouldn’t be shocked if the Petro shoots up after its initial offering.  But, I’d give it’s long-term chances of delivering value at about the same as I give these elegant pieces of worthless paper.

Crypto Crash Flashback

With all the crypto market turmoil, I decided to take a look back at the last big crash which happened at the end of 2013.  That crash, along with the news around the seizure of the Silk Road and the collapse of Mt. Gox were what finally drew my attention to Bitcoin, blockchains and cryptocurrencies.

I shared these on Twitter and elsewhere, but thought I’d put them in my blog and perhaps update as things progress with the current market correction.  Comments are welcome.

Here is what the correction looked like on the way down.  Notice that there were several big swings on the way down that raised a lot of false hopes.  In the end, it took almost two years for the market to find a bottom point.

From there, the recovery was mostly steady but with plenty of drama along the way.  Finally, about 3 years after the 2013 peak, bitcoin took three tries over three months to finally hold prices above $1100 again.

From there, bitcoin and most other cryptocurrencies went on a massive bull run that dwarfed the price action in the prior years.

You should be skeptical of anyone who seems certain about where we go from here.  Every correction is different, and the space has changed a lot in those four years.  But, it does seem possible that we are still in a downtrend and it may be a long time before we see steady gains again.