Once Latin America’s richest country, the oil-dependant Venezuelan economy has suffered a savage self-implosion since the price of oil began to fall from almost $100 per barrel in mid-2014 to around half that by the beginning of 2015.
High levels of hyperinflation, and a dramatic rise in civil unrest within the country of 33 million has led to scenes of violence and disarray portrayed within the global media over the past few years.
To put the situation into some form of perspective, in Novemeber 2017 the cost of a cup of coffee according to the Bloomberg Venezuela Cafe Con Leche Index was at 0.08 Bolivars. Within the period of the last 12 months, hyperinflation of 187,400% has led to that price sky-rocketing to 150 Bolivars for a single cup, highlighting the plight of Venezuelas citizens and the need for drastic economic change.
Under conditions such as these it’s no surprise then that the Venezuelan government looks to become the first fully-integrated crypto-state, by transitioning away from the failing Bolivar to a new blockchain-based national currency, the Petro.
Whereas the transition of much of the world away from traditional fiat currencies may take years or even decades, Venezuelans have already widely-adopted Bitcoin and other cryptocurrencies in record-high numbers.
As was seen in Cyprus in 2013 during a similar economic crisis in that country, under the conditions of having the value of life-savings and earnings crushed on a weekly basis, citizens from both states turned towards an alternative and more secure option in emerging digital currencies.
As nothing short of a lifeline being extended to Venezuelans in a time of open lawlessness, economic chaos and a mass-exodus to neighbouring countries, cryptocurrencies have provided a medium of exchange and store of value that is significantly more stable and reliable than the Bolivar.
The past few months has been marked in the development of the Petro currency, with renowned economist and Bitcoin skeptic, Steve Hanke, joining the board of Mexico-based crypto startup, AirTM, and advising the project on the application of stable-coin technology which Hanke himself worked to design.
AirTM aims to create stable coins which be adopted and used within vulnerable economies, such as Venezuela, Argentina and Mexico. Today almost 2 million transactions have been carried out by the AirTM network, which as of May of this year, showed that around 65% of those using the service were from Venezuela.
Also this week, Venezuelan President, Nicolas Maduro released a statement via Twitter, stating that:
“Experts from the world see Petro as an innovative project that will open the doors to economic development. I share the impressions of Lluís Mas Luque, General Director of Blockchain and participant in the International Meeting of Criptoactives.”
This comes amid the majority of the world rejecting to trade via the Petro, stemming in no small part from sanctions being placed on parties that trade for oil in Petros by the United States President, Donald Trump.
But, even as internationally the widespread-use of the Venezuelan cryptocurrency is being restricted, the high level of adoption of cryptocurrencies by locals within the struggling state has led to the “Walmart of Venezuela”, Traki, to begin accepting Bitcoin and other digital currencies throughout their stores. This is significant for people of Venezuela in this time of strife, but also for the world as a whole.
The exponential increase in inflation playing havoc in the country shows no signs what so ever of slowing. In short, the likelihood is that hyperinflation there will lead to the imminent collapse of the contemporary economic system, and the ability for locals to use the currencies that so many Venezuelans are already transferring their funds into is a strong step in the right direction.
This phase in the evolution of cryptocurrency adoption is also huge for the rest of the world as well.
Traki is one of the largest employers in the country, with over 30 locations nationally, and is one of Venezuela’s retail giants. This is as much an experiment into what happens when the major institutions within a country transition away from fiat, as it is a necessity for the people of Venezuela in order to continue to have access to essential goods.
What’s clear at this point is that cryptocurrency has been shown to be an effective solution to many of the problems experienced by traditional economic systems. Both in Cyprus, and now Venezuela, the mismanagement of economies through unchecked borrowing, often leading to catastrophic national debt whilst being compounded by corruption, has led to the stripping of wealth from the lower and middle class.
The availability of cryptocurrency to these communities has provided a strong example of tangible, real-world use-cases and solutions for the Venezuelan people, which could not, and had not, been provided by alternate traditional financial systems.