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Venezuela's cryptocurrency boom

Nicolas Martin
April 16, 2021

With Venezuela's official currency plummeting for years, both the government and cryptocreators are trying to stem the rot with digital tokens. For ordinary Venezuelans, the cryptoboom also means regaining freedom.

Customers stand in lines at the cashiers of a store that accepts the Venezuelan cryptocurrency Petro
Hyperinflation caused by a massive economic crisis has boosted the use of cryprocurrencies in daily life Image: Yuri Cortez/Getty Images/AFP

Returning to his home country of Venezuela would be dangerous for Gabriel Jimenez. The 31-year-old programmer has been living in exile in the United States for two years now, from where he is striving to push a cryptocurrency revolution in his country with a digital coin called Reserve.

The cryptocoin is intended to circumvent Venezuela's notoriously high inflation and has been in circulation since March this year. The socialist politicians ruling Venezuela "have no solutions for our country" and its depreciating legal tender, the bolivar, he told DW.

Officially charged with designing Venezuela's first cryptocurrency three years ago, Jimenez — then a youthful startup founder at the age of 27 — saw a chance for both beating hyperinflation and taking clandestine revenge on the country's detested socialist government.

AS picture of Gabriel Jimenez in front of his home in the United States
The story of the life of now exiled cryptocurrency creator Gabriel Jimenez is one of big hopes and high treasonImage: Privat

Before the government of leftist leader Nicolas Maduro approached him about creating a digital coin, Jimenez was part of Venezuela's anti-government movement and took part in several street protests. At the time, the economy of the oil-rich South American country was already in free fall.

Petro: the world's first state-backed cryptocurrency

Jimenez saw an opportunity to change his country from within. For him, a digital currency like Bitcoin was the epitome of freedom: no central control, complete transparency — actually the opposite of what the Venezuelan government was looking for. Caracas wanted a way to circumvent US sanctions slapped by President Donald Trump.

The perilous ride transported Jimenez from the life of an activist to the center of Venezuela's dark institutions of power. However, the world's first state-owned digital coin, the Petro, he helped create didn't become the kind of revolution he had hoped for.

The logo of the "Petro" is displayed next to images of Venezuelan late President Hugo Chavez and Venezuelan President Nicolas Maduro in a building in downtown Caracas
Venezuelan strongman Maduro (rigth) hopes the Petro can blunt the effects of US sanctions and a homemade economic crisisImage: Federico Parra/Getty Images/AFP

As the Petro is backed by Venezuela's oil reserves, it breaks the tenets of Bitcoin and other cryptocurrencies, whose values don't derive from a natural resource or government fiat money, but only the laws of mathematics. Before and after Petro's launch in February 2018, Jimenez was also repeatedly forced to change the token's so-called white paper, stating on which blockchain platform the coin runs.

"I was naive at the time, and it's still hurting me to see how the petro is being misused as a political weapon by the government," he said, adding that eventually he was forced to flee into exile to escape arrest and punishment.

Inflation and digital coin usage going through the roof

Jimenez's former dealings with the Maduro government have made him a controversial figure, who's lost much trust within the global cryptocommunity. And yet, he says, he's still determined to fight his country's spiraling inflation that forced the government just in March to issue a 1 million bolivar note — worth about half a US dollar. 

Last year alone, the annual inflation rate reached 6,500%, causing Venezuelans' lifetime savings to go up in smoke, and accelerating their flight to the US dollar. According to Venezuelan think tank Ecoanalitica, some 66% of all financial transactions in the country are already made in the US currency. At the same time, cryptocurrency trades paid for with Venezuelan bolivar have been surging, data from cryptotrading platform LocalBitcoins shows.

Venezuelan bolivar

Blockchain analysts from New York-based Chainalysis also say cryptotraders from Venezuela are among the most active in the world, ranking close to those in the US and Russia when it comes to peer-to-peer (P2P) dollar-based cryptotrading. 

Jose Maldonado, a journalist who writes for crypto news platform Cointelegraph, says it's even possible to pay street vendors with digital coins in some bigger Venezuelan cities like Caracas, Maracaibo or Valencia. The trend was also spreading to traditional brick-and-mortar stores, he told DW in an email.

"Whether it's furniture, clothing or groceries — virtually everything can be purchased with cryptocurrencies," he said, adding that Venezuelans' coins of choice are mainly Bitcoin, Ether, Dash and Eos. Cryptocurrency exchange Binance, he noted, had meanwhile become as well known as the country's biggest commercial bank, Banco de Venezuela.

Plaything of the well-heeled, expats and the government

In Venezuela, it's primarily the elites and members of the upper middle class who can afford to dabble in cryptocurrencies. Internet connections in many parts of the country are often too poor to allow access to coin trading. "For a majority of the population, using digital currencies remains an illusion," said Maldonado.

Still, cryptocurrencies are a financial lifeline for many Venezuelans, as they are an easy and affordable way for their relatives in exile to send money home. Widespread discontent with the country's socialist rulers has forced 5 million Venezuelans, out of an overall population of 30 million, to leave their country.

Venezuelan president is holding up the so-called white paper for the launch of the Petro cryptocurrency in 2018
The Venezuelan president is using the Petro as a propaganda tool to boost public support for his social policyImage: picture alliance/dpa

Petro struggling for recognition

At the end of last year, about 8 million public workers were paid half a Petro each, roughly $30, as a Christmas bonus. Those who wanted to get it had to register on an internet platform of the government. Since this year, tax payments can also be made using Petros.

The government's drive to promote the usage of its digital token seems to be bearing fruit. Gas station operators reported in mid-2020 that about 15% of all fuel payments were made with the Petro. There are, however, also reports that state officials are increasingly using the token to transfer their riches abroad, because, similarly to Bitcoin, digital coin trades are an ideal way to secretly stash away ill-gotten money.

Are cryptocurrencies the answer to Venezuela’s woes?

Gabriel Jimenez thinks working on the Petro project was a mistake — one that pushes him to "work harder" to make up for it. The only good thing that has come out of it, he said, was a wider acceptance of cryptocurrencies in Venezuela. Although growing slowly among the population at large, those who are using digital coins are gradually regaining ever bigger parts of their financial freedom. And even if the risk of wild swings in their value is high, he said, cryptocurrencies are still a worthwhile investment, given the seemingly never-ending slide of Venezuela's official currency.

This article was adapted from German.

Paragraph 5 has been corrected to make it clear that Jimenez never intended to give the Venezuelan government a way to bypass US sanctions and was not aware of Caracas' real motive behind its cryptocurrency push.