Bitcoin: A Lifeline in Venezuela

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A Venezuelan refugee reveals how cryptocurrency helped him survive in an economy of desperate privation and crippling hyperinflation.

Hear from Venezuelan refugee Eduardo Gomez, Open Money Initiative co-founder Alejandro Machado, and Splunk Head of Blockchain and DLT Nate McKervey.

Continue below for a written version of this podcast episode. Quotes have been edited and condensed for clarity.

The bedside alarm sounds. You jump to turn it off before it wakes your partner. You quietly leave your house on foot, heading to the grocery store. 

It’s been days since you’ve had a full meal, and you know there’s almost no chance that they’ll have food today. None of the grocery stores have anything now. But you go anyway. 

Your government job pays $25 per month and it will hit your bank account at 7am. You have to run to the store to spend it before it loses too much value. Before the crisis, inflation seemed harmless. Now inflation has destroyed the economy and threatens to starve your family. 

Your family is fighting to find any paying work, legal or illegal. The grocery store is empty, so you head down another alley to buy food “illegally”. You might get arrested, but you’re starving and so is your family.

This sounds like a tale from a district in The Hunger Games… but it’s not fiction or the future. It’s 2020, in a once peaceful and developed democratic country. This is the reality for many in Venezuela today.

For Venezuelans, the decline into chaos seemed impossible until it happened. In the ’70s, Venezuela was the most prosperous country in South America, and one of the richest on Earth. It was praised for its peaceful democratic process and enjoyed the profits of the world’s most oil-rich reserves on the planet.

Hugo Chavez was elected President in 1998 largely because he pledged to put profits from the government-run oil industry into social programs. And he did, building extremely popular welfare systems. But government reliance on oil-money would prove its downfall. When Chavez died in 2013, his hand-picked successor Nicolas Maduro took the Presidency. Before long, Marudo faced internationally collapsing oil prices that left state-sponsored programs in shambles. For five years his response has been clear: consolidate power, while the people of Venezuela struggle to survive.

The state tried to make up for the deficit by printing money, destroying the value of the national currency, the Venezuelan Bolivar. That threw the economy into a downward spiral. Afterward, military police roamed the streets. Food became scarce. Protests ramped up, and violence plagued the country.

In this darkness, a new technology has gained rapid adoption. For some, it’s proven essential to survival. It’s an obscure technical protocol, barely ten years old, alternately lauded and ridiculed elsewhere in the world. But in Venezuela, Bitcoin has found ready and eager users.

“Holding a bag of candy was worth way more than having a bag of your national currency because the candy could hold its value, but your national currency couldn’t… That’s when I fully realized the potential of Bitcoin,” says Eduardo Gomez. “That was the beginning of 2016. It was very clear, that I had found the answer to my problems.”

Eduardo is a young I.T. professional born and raised in Venezuela. Starting college is challenging even in the best circumstances, but as Eduardo considered his future in the country he’d lived in his whole life… that future looked bleak.

I was starting in college, and the economic situation was not even close to what is now. It was way better, but you could see the signs that something was about to happen… The government extended its reach to every industry you can think of with disastrous consequences. Mismanagements resulted in pretty much the destruction of all of the companies that the government expropriated. 

“The minimum wage in Venezuela back then was less than $50 per month of work. Most engineers and skilled workers were getting paid slightly above the minimum wage, so my prospects after graduation were really bad. I learned about Bitcoin and I decided to put my computer to work… and I started mining Bitcoin.”

But before we get too deep in Eduardo’s story, let’s define some terms.

Bitcoin is a new kind of digital money. It’s not based on national currencies, like dollars or Euros or Yen. It’s an entirely new unit of currency, built for the Internet. Just like email takes the idea of paper mail and reinvents it for the digital age, Bitcoin takes the idea of currency and does the same thing. And just like you might have an email address to store and receive emails, Bitcoin users have a digital wallet. You can send and receive Bitcoin on a smartphone or computer like you’ve probably done with other apps. But what’s different about Bitcoin is that it doesn’t rely on an outside group or middle man. There’s no need for a bank or a money transfer company or even a government. Anyone can register a digital wallet, or many wallets if they like. It’s an open, permissionless system that everybody can use. And amazingly, by using the strongest cryptography known today, it’s incredibly secure against hackers and thieves.

Now, people have used Bitcoin for all kinds of scams and funny business, just like criminals historically would use cash. But the system itself, the actual digital code governing how Bitcoin works, is amazingly robust and transparent.

That’s a lot to process. But it’s worth understanding before we dive deeper with Eduardo. He’s using a groundbreaking new form of digital currency that can’t be broken and can’t be centrally controlled by anyone, not even the government.

Bitcoin was considered an obscure novelty in 2012, worth between six and fourteen U.S. dollars. Eduardo dabbled in Bitcoin mining, making a little money, but not enough. He started to accept the fact that after graduation, he wouldn’t have a normal tech career like he’d hoped. He needed to find a way to survive and provide.

I was finishing the degree in information technology. I was very good with computers and I started doing crazy things. I did content creation gigs as a copywriter, community management jobs. I learned that there were people taking online surveys and earning more than a hundred dollars per month of work. And that was five times more than what my mom was getting as a nurse working double shifts,” shared Eduardo.

The main disadvantage of all of the online gigs that I was doing was the currency conversion. These websites were paying you in digital dollars like, so that was by no means an easy feat because you can lose up to 30% of your earnings in conversion fees. And that’s not even taking into account the risk of losing everything because you had to trust intermediaries.”

Even in stable countries, working with payment processors can be extremely frustrating. Users have no say in setting terms. They can’t speed up the process, negotiate fees, and may have no recourse if something goes wrong. 30% fees might have stung for Eduardo, but there was nobody else to trust. It’s a phenomenon that Nate McKervey, Head of Blockchain at Splunk, calls “the trust gap”.

This trust gap is all around us, but we may not be aware of it because we’ve taken different actions to avoid the trust gap by inserting intermediaries or keeping our own systems of records,” says Nate. 

“But this trust gap is a big deal if we can close it. It’s similar to a few other big gaps we’ve had in modern society. In the 1400s the printing press closed the knowledge gap, the steam engine closed the power gap, and the telecommunications industry and the Internet closed the distance gap… And what’s interesting about all of these previous gaps is they weren’t very apparent until after they were closed.”

For Eduardo, the data was clear. There was one thing he knew could close the trust gap for him: Bitcoin.

By the end of 2015, it was clear that I needed to use Bitcoin to circumvent fees of using online payment processors because it was risky… What I started doing was I literally went to all sorts of online forums to seek online opportunities to earn Bitcoin working or providing services.

“I started doing more crazy things like I literally solved thousands of captchas to get Bitcoin. There was this guy on a Bitcoin talk forum that was paying out people for solving captchas. And that was a manual entry job. It was very humiliating, but it was something that you could do anytime from your computer. It was very easy to do and I was getting more than a hundred dollars per month by doing that. It was crazy. But it was worth it at the time,” says Eduardo.

I started to fully delve into the cryptocurrency ecosystem. I started researching everything about it, learning more about Bitcoin, learning more about other cryptocurrencies. And obviously, my first priority was to stop doing captcha resolving and get an actual job in the ecosystem. So that’s what I did. I found a couple of gigs as a copywriter for several cryptocurrency news websites… I was getting more than $400 per month and in 2016, earning that kind of money in Venezuela was great.”

Soon Eduardo got a job working remotely with a San Francisco Bitcoin startup, Purse.io. With the salary from that job, he was able to support his immediate and extended family. It wasn’t long before he was paying the bills in whole or part for ten people — parents, siblings, and relatives.

I could make dozens of times what my mom was making at her regular job. So I became the main provider for my household. That was, that was a nice moment for me because I was getting paid decent money for my time and I was not doing crazy things on the Internet, like solving captchas.”

He had a real job, with meaningful pay, in a functional currency. But his own good fortune couldn’t stop the continual collapse of the national economy. Blackouts became common. Staple goods and medicine were hard to find. Eventually, Eduardo chose to escape Venezuela. 

With the help of his Bay Area employer, he and his girlfriend moved to Argentina, where he lives now. They had to say goodbye to family, friends, and home, not knowing when or if they’d ever see them again.

A real and lasting solution to the chaos in Venezuela can only come when legitimate, functional institutions are restored. But until then, the millions who remain in the country search for any way to meet their basic needs while the national currency dissolves.

Eduardo’s story is one of triumph, but sadly it isn’t common. Many haven’t escaped with their lives and the ability to help friends and family members. However many Venezuelans are discovering how much cryptocurrency can protect them in a collapsing economy. 

Another Venezuelan, Alejandro Machado, helped start the Open Money Initiative to study exactly how people use alternative currencies in closed or collapsing economies.

There’s this rhetoric in the crypto space that if people had broader access to digital currency, then all these problems would be gone,” says Alejandro. “And coming from the product background in dealing with people, made me suspect that it wasn’t so simple as just throw in technology and people will immediately get it and things are going to be amazing. So we decided to create an organization that could really look into these problems and really start researching them.”

When the Maduro regime in Venezuela tried to create its own cryptocurrency, Alejandro became even more interested in crypto. He wanted to explore how it worked and how it could save the crumbling economy of his home country. With the help of two colleagues, the Open Money Initiative was born. And the data they found were sometimes surprising.

I was actually surprised to the extent that people still use the local currency, the Bolivar. In hindsight, I shouldn’t have been surprised – it is what most people have. It is the most widely distributed currency, and it has the weight of the law.”

But as that national currency inflates, wiping out savings or purchasing power, people are desperate for alternatives.

We found that a lot of people, or the majority of people, want access to the US dollar. So that was kind of expected. Growing up in Venezuela, I remember everyone wanted access to the dollar because we always have had high inflation. It’s always been like 30%, 40%, and now it’s ridiculous. It’s in the millions of percentage range. But, it’s always been a concern. If you wanted to preserve your purchasing power, you better somehow get access to dollars,” says Alejandro.

The problem? US dollars are illegal in Venezuela. But they’re necessary to survive, and their use is rarely prosecuted. Unlike in a western democracy, where trading currency is a simple service any bank can offer, there are very few protections in the black market. Banking often doesn’t work in failing or shrinking economies and authoritarian regimes. It’s another reason Nate McKervey from Splunk is excited about cryptocurrencies. 

There’s 2 billion people approximately on earth that don’t have a bank account for various reasons. They may not have access to a physical bank, or they may not be able to prove their identity. But with these technologies, anyone with a $40 smartphone can have their own bank,” says Nate. 

“Then, when you can transfer this money or this value at very low prices, you can do some very interesting things. You could create a global loan market. So when I drive down the street in my local town, I’d see banks I can go to and get a loan at a relatively high interest rate because they don’t have to compete with the world. But soon you’ll be able to have a worldwide loan market where anyone can loan to anyone or borrow from anyone and it will make it highly competitive, which should encourage more borrowing and more entrepreneurship.”

By freeing currency from conventional banks, and by using its own payment network, cryptocurrency gives users control and choice. For Venezuelans, that’s a big deal. They can use or hold Bolivars (which lose value rapidly) or scramble to find US dollars (which are illegal and hard to find).

We have found some outliers, some people that either got into Bitcoin earlier that are younger and savvier and more curious about technology,” says Alejandro. “And they find that the Bitcoin is actually a vehicle. If they can’t get easy access to the dollar because they don’t have anyone in their networks via digital or physical networks that can provide them with this access, then you can use Local Bitcoins, for example. [Local Bitcoins] is a website that connects you with buyers and sellers of Bitcoin. And if you have a bank account in Venezuela, you could turn your practically worthless Bolivars into an asset that can maintain its value a lot better than they have.

Surprisingly, LocalBitcoins.com is serving another function that nobody expected, let alone designed for; it’s taking data from buyers and sellers around the world to give Venezuelans access to real market prices. 

Because Venezuelan currency is controlled, it’s very difficult for anyone to know the market price for any item; there are only government-dictated price ceilings. The reality is that goods are scarce, and real prices, what people are actually willing to pay, are very different from official rates. Back to Eduardo:

There’s no way to measure the exchange rate of the Venezuelan Bolivar against the dollar in a transparent way… The Venezuelan government has a fixed rate, which is the official one, but of course, it’s useless because you cannot buy dollars at that rate. So the black market rate dictates everything. And right now, the area Bitcoin is being used by a lot of people to assess the forex rate of the national currency.”

Having access to that data has created transparency and made a huge difference in Venezuela, even for people who don’t use Bitcoin. Just knowing the exchange rate between Bolivars and U.S. dollars helps people make better decisions about where to put what little money they have.

Open data and distributed ledger technology won’t turn an authoritarian regime into a democratic one. But for those who can use Bitcoin, it helps. It helped Eduardo Gomez support himself and his family. Today, he still gets paid in Bitcoin, and still sends that money back home. It’s helping Alejandro Machado understand the currency crisis, and build better solutions. The Open Money Initiative is promoting and developing tools to make Bitcoin easier for non-technical users. When there isn’t another solution to the trust gap, cryptocurrency can offer users control and privacy that are lifelines in places like Venezuela.

The right data and transparency can make the world a better place. The answers to bridging the trust gap, avoiding economic crises, and, yes, even feeding your family may be… hidden in plain sight.


Episode 2