Let’s say you work a 9–5 job and get paid $3,000 at the end of the month. This $3,000 had allowed you to purchase the daily necessities for you and your family. However, the next month you realize that the prices of your nearby groceries had increased 50%.

You can only purchase half the amount of food with the same amount of money. You are infuriated but can’t do anything about it. You can’t blame the grocery owner. You can’t blame your employer for not paying you enough. The system is not working. Before you know it, your savings are up in smokes. What a nightmare.

The picture painted above depicts the situation in Venezuela. Prices of goods and services were doubling every 26 days during 2018. The same cup of coffee that cost 450 Bolivars in 2016 cost a whopping 2.5 million Bolivars in 2018.

I want to show you how cryptocurrency has become a savior for Venezuelans during this imminent crisis.

I hope that by the end of this article, you will understand that cryptocurrency is more than a fad, meme, or get-rich-quick scheme. Instead, it is a technology that is actually solving social issues, and that we are still very early in the adoption cycle of this nascent technology.

Venezuela has one of the most abundant oil reserves in the world. In 1960, Venezuela was one of the wealthiest countries, providing 10% of the crude oil demands on the whole planet. However, through a vicious cycle, the country has been in chaos ever since the Maduro administration took power in 2013.

Very briefly, Venezuela reached a hyperinflationary economy through three steps: 1) High spending on social programs leading to government deficit, 2) Overexposure to oil revenue (90~95% of Venezuela’s export revenue is oil) 3) Excessive printing of money to compensate for the government deficit.

When oil prices plummeted in 2014 from $100 to $70, things started turning sour for the newly appointed Maduro administration. The situation worsened when the oil price plummeted to $30 in 2016. Also, the US sanctioned Venezuela from international markets for additional capital. In desperation, Venezuela had no choice but to turn their hopes for a solution from within by printing more Bolivars.

The Venezuelan Bolivars quickly became worthless. Inflation reached an annual rate of 65,000% in 2018. The Maduro administration eliminated 5 zeros to avoid citizens carrying bags of paper cash, but it didn’t solve anything fundamentally. While the Venezuelan Bolivar was losing credibility, the Maduro administration decided to develop and deploy its own cryptocurrency called the Petro.

The Petro was heavily marketed in Venezuela and caught international media attention. But the cryptocurrency was not built with the decentralized ideals of crypto-economy but instead reflected the authoritarian nature of the Maduro administration. The government still controlled the supply of the cryptocurrency, and the value was backed by the natural oil reserves of Venezuela.

There is speculation that Maduro developed the cryptocurrency to circumvent US sanctions to convert Petros and raise US dollars and Euros. Needless to say, The Petro isn’t widely adopted in Venezuela due to its instability and lack of usability. Currently, it is only used to pay taxes (Petro is the only option for Venezuelans to get their taxes done).

As a result, both the Petro and Bolivars have not served as credible currencies in Venezuela. The US Dollar has become an informal currency in the country, and as of now, 1 dollar is about 248,210 Venezuelan Bolivar. The hyperinflation crisis has led the economy to grave poverty, inaccessibility to food and medicine, and a high crime rate.

“Prices are stable in dollars. But the price rise in terms of the Bolivars. The salaries here are in Bolvars. And people are getting increasingly upset. — Rafael Garcia, Charcao Residents Group

Cryptocurrency has been gaining popularity amidst hyperinflation as a choice for a store of value. Bitcoin, Dash, Eos, Ether, and Reserve are the cryptocurrencies getting traction in Venezuela.

Bitcoin volume has surged in Venezuela over the last couple of months. A lot of merchants have been accepting cryptocurrencies as a form of payment. A famous example is Pizza Hut, announcing that it would start accepting payments in Bitcoin and Dash on November 30, 2020.

“Whether it’s furniture, clothing or groceries — virtually everything can be purchased with cryptocurrencies” — Jose Maldonado (Journalist for Cointelegraph)

In addition, Reserve has been an upcoming choice for Venezuelans as an alternative to more volatile cryptocurrencies. It has a stablecoin pegged to the US dollar and allows Venezuelans to preserve their wealth in US Dollars. Bolivars can be easily converted to RSV (the stable coin of Reserve) via a mobile app called Reserve. You can check the details of their project here. Sam Altman (President of YCombinator), Coinbase Ventures, and Peter Thiel are investors.

In the last week of March 2020, Reserve was the #1 most downloaded finance app in Venezuela, and surpassed 100,000 total downloads. — Reserve Team

The popularity of cryptocurrency among Venezuelans is due to the utility they provide:

・Store of Value: If a Venezuelan keeps his/her salary in Bolivars, hyperinflation will quickly eradicate the value of savings. $1,000 in 2013 would be virtually $0 in 2018. Cryptocurrency allows for the preservation of wealth.

・Ease of Conversion: Venezuelans can easily convert Bolivars to cryptocurrency through their mobile phones. Before cryptocurrencies, the conversion rate in Venezuela has been vastly manipulated, and there are different rates in different markets. Cryptocurrency trading platforms such as Binance and Reserve have given a haven for transparent and liquid conversion of Bolivars to other currencies.

・Security: Cryptocurrency can be stored on your mobile phone. You do not need to keep it somewhere or in the bank account physically. It mitigates the risk of physical looting and any encounters with the government. According to Carlos Henandez, a Venezuelan economist, Venezuelan military personnel at the borders have a reputation for seizing the money of people who want to leave.

“I think mining is a tool against the government. Because it helps everyone who is mining here to resist” — Anonymous Miner in Venezuela, Quartz Documentary (Why cryptocurrency is loved by oppressive rulers)

Although the adoption cycle of cryptocurrency has been accelerating in Venezuela, there are still issues such as the lack of mobile and internet access for some families living in poverty and limits of transactions.

However, the usage of cryptocurrencies in real-world situations is precisely what has allowed emerging companies to develop a feedback loop with all the stakeholders involved: customers, merchants, government entities, etc. The feedback loop is crucial for products with emerging technologies to go live and hopefully reach wide-scale adoption in Venezuela. As showcased in Venezuela, cryptocurrency has shown a viable solution to a country with an imminent crisis. It will be a benchmark for other developing countries in dire need to follow suit.

The adoption of cryptocurrencies will soon lead the price indicators and make the mass realization that the soaring price of cryptocurrencies is not simply due to FOMO and mania.

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Source: https://medium.com/geekculture/how-cryptocurrency-is-protecting-venezuelans-from-hyperinflation-7b419c7e272e?source=rss——-8—————–cryptocurrency