Better Than The Bolivar, But Bitcoin Is Far From The Perfect Solution
“Prices in Venezuela rose 454 percent in the first three months of 2018 and hyperinflation is expected to hit 13,000% by year’s end, so it’s no surprise that many local businesses now refuse to accept the bolívar, Venezuela’s national currency.
Venezuela’s current financial crisis is the creation of its socialist autocracy, founded in 1998 by the now-deceased Hugo Chavez and led today by his acolyte, Nicolas Maduro. Chavez took power using an age-old mass brain hack: amid the pain of economic crisis, he concocted scapegoats to trigger tribal group-think among a constituency and get himself elected.
Once elected, Chavez exacerbated the crisis and consolidated power. He changed the constitution, neutered the legislature, abolished term limits, expropriated private property, and manipulated the currency. Maduro now follows a similar playbook. The government’s currency manipulation has turned Venezuela into an ATM for the over-fed Maduro and his cronies and a hellscape for its citizenry, many of whom now eat out of garbage cans.
Maduro, who will undoubtedly win the upcoming sham election, recently claimed to join our ranks as a fellow cryptocurrency pioneer. His Petro cryptocurrency is intended to help the regime skirt U.S. sanctions and source foreign investment.
But the aims of the centralized, (supposedly) oil-backed Petro fly in the face of the crypto industry’s ethos. While cryptocurrency is dedicated to decentralization, empowering individuals, removing intermediaries, and increasing human freedom, the Petro is maximally centralized, relying squarely on the central authority of the Maduro regime.
What’s more, the Petro could be engineered to allow fine-grained government control far beyond what is possible with traditional fiat currency. Indeed, financial advisory company Weiss Ratings does not even recognize the Petro as a cryptocurrency, declaring it instead a fiat currency.
A better solution for Venezuelans would be a true cryptocurrency such as Bitcoin, which could potentially bring unparalleled financial freedom to citizens of Venezuela and those of other autocratic countries. With digital currencies, those living in places with serious inflationary problems (in large part caused by extreme government centralization), can now, for the first time, have access to alternative stores of value.
On a secondary level, with the adoption of digital currencies, those marginalized from the international financial system also gain the ability to transact globally despite established government restrictions. Theoretically, the ease with which people can now transfer value will have huge implications for the quality of life of citizens suffering within the confines of broken economies. The decentralized public ledger means that access to cryptocurrencies should translate to access to global job roles as well.
Yet Bitcoin is a flawed fix.
Last month Bitcoin surged 14 percent in an hour after falling nearly 70 percent in under a month at the start of the year. With the bolívar, Venezuelans can see the price of milk double by the time they reach the checkout line in a grocery store. Adding Bitcoin to the mix introduces a whole new level of instability over very short periods of time.
Forced to choose between the lesser of two financial evils, many in collapsing economies have nowhere to turn.
The solution lies in the emergence of “stable” coins.
This next generation of cryptocurrencies aims to maintain stable price pegs through innovative measures like supply management algorithms, or, in some cases, through physical asset backing (such as gold, silver, or even the USD). Stable coins offer the best of both worlds. They bring with them the financial freedom from centralized authorities so desperately needed by those in countries with collapsing economies while at the same time bringing the stability needed to function as a consumer or business with tight margins. With a reputable stablecoin, a Venezuelan citizen can avoid fears of hyperinflation, meaning they’ll be able to confidently store their wealth and transact freely and predictably.
As the crypto market develops, it seems likely that the winners will emerge where cryptocurrencies are needed most acutely, in the economies such as Venezuela with collapsing fiat currencies. If the people of Venezuela fully abandon the bolivar for a stablecoin, Maduro’s regime may be the first government to be toppled by crypto.
Don’t bet on it being the last.”