Venezuelan economist, Carlos Hernández, wrote an op-ed about the importance of cryptocurrency in a volatile economy. The article, published in the New York Times this weekend, was based on his personal experiences.
The story is a universal story about the importance of decentralised currency. It is also a specific and personal case of how one man uses cryptocurrency to exist in a crisis.
Why Is Bitcoin so Important in Venezuela?
To really understand the piece, you need to have some understanding of what’s going on in Venezuela. It also helps to understand how cryptocurrency comes in.
Due to contested elections earlier this year, the country currently has two opposing presidents. The government and the economy are virtually at a standstill leading to, among other things, food shortages.
Foreign governments are eager to offer aid but the military believes they are trying to gain influence in the country’s politics. As a result, international efforts to offer humanitarian aid have largely been stopped at the border. Prices of food and other basic goods have skyrocketed.
Bolívar, the already volatile Venezuelan currency, is now subject to extreme inflation that makes it more useless by the day.
Most of you know that cryptocurrency is volatile by most standards. However, because of the decentralised nature of major cryptocurrencies, their fluctuation is not based on national economics. This actually makes them more stable than the currencies of most countries, especially in times of crisis.
Bitcoin may fluctuate by within two percent up or down on a given day, bolívars have been falling in value by over three percent for over a month. Thus, in countries like Venezuela, Bitcoin is safe on a bad day and easily profitable on a good day.
The Hernández Story
Considering these factors, Hernández put literally all of his money in Bitcoin. Bitcoin is not widely accepted in Venezuela, so to use his money Hernández has to move it into bolívars. He does this by selling his Bitcoin to others for bolívars. Hernández writes that finding a buyer and selling his Bitcoin to do things like buy milk usually takes around ten minutes.
And before I can buy milk, I need to convert Bitcoins into bolívars. Actually, that part is easier than you might think, writes Hernández. It’s so fast because other Venezuelans are catching on. The country is setting records for use in cryptocurrencies. This has actually been going on since well before the recent crisis.
However, Hernández (or any other Venezuelan) can’t change too many Bitcoins at once.
The government doesn’t monitor cryptocurrency transactions (yet), but it does monitor transactions in bolívars — and any worth about $50 or more will automatically freeze your account until you can explain to your bank where the funds come from, he explains.
As Hernández mentions at the end of the story,
even cryptocurrencies can only go so far. Even after changing his Bitcoin into bolívars, he could not find that milk to buy. Compelled to buy something before his bolívars devalued any further, he bought cheese.
Having your money in a cryptocurrency doesn’t only help you live in Venezuela. It also helps you leave, as the author’s brother, Juan, did.
Venezuelan military personnel have a reputation for seizing the money of people who want to leave, but Juan’s being in Bitcoin, was accessible only with a password he had memorized, writes Hernández and adds:
‘Borderless money’ is more than a buzzword for those of us who live in a collapsing economy and a collapsing dictatorship.