In economically-ravaged Venezuela, bitcoin has proven to be an important alternative currency, according to an article in Reason Magazine. And because the government supports cheap electricity, bitcoin mining is highly profitable.
But while bitcoin mining has helped provide an economic lifeline to much of the country and made miners wealthy, government harassment and violent crime have dogged the country’s mining community.
As the country’s economy further disintegrates, bitcoin becomes more widely used as both cash and the national currency have lost much of their value.
Bitcoin has more purchasing power in Venezuela than the government-issued currency. The bolivar trades for around one-thirtieth of a penny on the black market.
Some Venezuelan bitcoin miners fell into the profession in search of work. Skilled professionals such as computer scientists have had trouble finding reliable work as the economy has crumbled. For many such professionals, bitcoin mining offers a way to earn a good living.
The main factor encouraging Venezuelans to take up bitcoin mining is the virtually free electricity. Bitcoin mining requires a lot of electricity.
Government price controls, however, cause electricity outages that frustrate bitcoin miners. To address this problem, miners locate their operations in industrial areas where electricity is more dependable.
For many, bitcoin keeps food on the table and medicine in the cabinet.
One young miner interviewed for this article imports food from the U.S. using Amazon Prime Pantry. This would not be possible with bolivars since they are not accepted outside of the country. Moreover, the scarcity of U.S. currency makes it difficult to buy foreign goods with dollars.
While Amazon does not accept bitcoin, intermediaries make it possible to use bitcoin to buy products from Amazon. The young miner buys Amazon gift cards from eGifter using bitcoin. He uses software to hide his computer’s location and routes the orders via a Miami-based courier.
Another young miner buys a variety of products on Amazon, including soap, electronics, clothing and other items.
Several Venezuelans interviewed said bitcoin makes their lives reasonably comfortable in a disintegrating country.
One young miner buys groceries form Walmart.com using a Neteller card, a prepaid credit card that allows users to convert bitcoin into dollars.
The proprietor of a cell phone and computer repair shop said he orders supplies using bitcoin from Amazon, which has allowed his business to survive when his suppliers ran out of inventory due to trade restrictions.
Another young miner uses bitcoin to purchase medicine that is no longer sold in Venezuela. He buys it from foreign suppliers.
SurBitcoin, the cryptocurrency exchange, is helpful to expatriates who want to send money back home. SurBitcoin offers a better rate for its services than Western Union and MoneyGram, and with less paperwork.
The miners, however, live in fear of the country’s secret police who hunt them and extort from them under threat of arrest.
The crackdown began earlier this year when police arrested Joel Pardon, who owned a courier service. Pardon bought four mining computers from a source in China. In March 2014, police claimed power company workers detected high levels of electricity use at his house and demanded to search it. They found the mining equipment, confiscated it and arrested Pardon.
Pardon spent three and a half months in a detention center. He was charged with contraband for not having the proper paperwork for importing the computers from China, a charge he denied. He claimed his arrest was intended to warn the bitcoin community that freedom carried a price. The state-controlled TV station ran a story that characterized bitcoin as a criminal tool.
Pardon claimed police later demanded money from him under the threat of being placed in jail. Pardon was released on July 1 after agreeing to a plea deal.
A Facebook group called “Bitcoin Venezuela” has more than 7,000 members and serves as an online bazaar featuring items for sale. The most commonly listed items are mining equipment and computer parts.
The Facebook group, fearing fraudsters and police infiltrators, uses filters so that it doesn’t appear in search results. Permission is required to join.
Bitcoin’s popularity has led to rapid growth for its largest cryptocurrency exchange, SurBitcoin. Users can trade bolivars for bitcoins, which can be sold for dollars.
Rodrigo Souza, a former New York software developer and YouTube personality, launched SurBitcoin in 2012. SurBitcoin processes about 1,200 daily transactions. Souza said the government hasn’t shut him down since several public officials are clients.
In March, the government accused a SurBitcoin employee of tax fraud and money laundering. The man was released on October 18, but he is barred from leaving the country as he awaits a pre-trial hearing.
Some bitcoin miners pay close attention to their personal security due to rising crime. One young miner calls a security service that provides two bodyguards and a bullet proof car if he wants to go out at night.
Another young miner was the victim of an “express kidnapping. He was chased while driving with his girlfriend, captured by men bearing guns and a grenade, and held captive for ransom for five hours. The young man’s father provided $6,000 in dollars and euros to the captors.
These problems are causing some of the miners to consider leaving the country.
In Venezuela, bitcoin demonstrates the benefits of not being government controlled. It can be traded without requiring a third-party intermediary. It can also be exchanged over the Internet. And it is very hard to steal.
Bitcoin contributes to the country’s overall economy. When miners sell bitcoin for bolivars to buy food on the black market, they make it possible for others to trade bolivars for bitcoin and participate in the new economy.
Souza of SurBitcoin believes that bitcoin will continue to undermine state power no matter what happens in the country.
Images from Shutterstock.