Cryptocurrency and Troubled Economies was written by James McGirk, and it’s included in issue #9 of 21Cryptos Magazine. To read more articles like this subscribe today. To read other free articles check out our Magazine category. Follow us on Instagram, Facebook and LinkedIn.
This article is from an earlier date and as such can contain figures that were actual at time of writing.
Crypto has the potential for both mischief and relief in the world’s most miserable economies.
In January 2018, two Goldman Sachs analysts (Zach Pandl and Charles Himmelberg) published a note pointing out the use of the US dollar “suggests there is already demand for an internationally accepted medium of exchange and store of value.” And that in “corners of the financial institution where the traditional services of money are inadequately supplied, Bitcoin (and cryptocurrencies more generally) may offer viable alternatives.” (Business Insider)
Venezuela was once the world’s second richest country (after the United States) in the 1950s after the discovery of massive oil reserves, but a series of socialist governments and sloppy nationalization programs have left it in ruins.
When the International Monetary Fund announced in June that it expected consumer prices in Venezuela to increase 14,000 percent in 2018 (following a report that the government was postponing a currency overhaul) Bitcoin trading soared. This came only a few months after the Venezuelan government released its own oil-reserve backed cryptocurrency, the Petro.
After the U.S. government banned purchases in the United States in March 2018, the currency lost much of its momentum. Venezuelan president Nicolas Maduro claims the currency raised nearly $735 million during its initial coin offering (ICO), although few speculators believe Venezuela would honor the Petro’s alleged tether to the price of a barrel of crude, and many doubt whether so much currency was raised. Others point out that the currency is backed by fiat so it hardly qualified as a cryptocurrency to begin with.
Just beyond the Venezuelan border, in Cúcuta, Colombia, a young crypto entrepreneur named David Hay is attempting what could be the first use of crypto currency as a revolutionary act. He’s raising $2 million worth of crypto donations to give to the impoverished city’s population in the hope of igniting a kind of crypto conflagration that would eventually spread across the border into Venezuela (cryptocucuta.com). He’s hoping for a fifty percent adoption rate.
Many of the problems which make cryptocurrencies little more than exotic investment tools in the West—the volatility, the occasional pillaging of exchanges and other hacks—are of little concern when in Zimbabwe or Venezuela the official currencies are cleaving in half everyday. As Hay points out in a post attached to an image of a currency exchange bureau offering to buy Venezuelan pesos for $0.01 and to sell them for $0.05, “Warren Buffet may call bitcoin ratpoison squared. Alright oracle,
please tell me what other system millions of Venezuelans should use
because the spread on fiat at the moment is 500 percent.”
While Bitcoin remains the digital gold standard of cryptocurrencies world wide, privacy coins such as Monero, Dash, ZCash, Solaris, BitCoin Private, Verge, CloakCoin, DeepOnion or Enigma, that conceal their ledgers from unauthorized users, can also be used as stores of value in economies that are hostile to cryptocurrency (or mined for profit) or, alternatively, by crime syndicates and rogue governments skirting international banking regulations (such as the Iranians and North Koreans are alleged to have done/are doing).