Bitcoin has become a lifeline for citizens and residents of Venezuela, due to the hyperinflation of the bolivar that has rendered the country’s national currency worthless.
For more than a year, Venezuelans have struggled to obtain food and basic necessities because of the instability of the country’s economy. Residents have started to smuggle medicine and food from the Western border of Venezuela, purchasing goods such as fruits, food, and diapers from Colombia.
A report by Time read:
“That’s because the combination of the extremely low valuation of the Venezuelan Boliviar—it takes 800 boliviars to buy a U.S dollar compared to just 200 one year ago—and the strong price controls that the Venezuelan government has applied to many basic goods has made it extremely profitable to buy just about anything cheaply in Venezuela, and smuggle it into neighboring Colombia, where no such price controls exist and the local currency, the peso, is significantly stronger.”
As the Venezuelan bolivar began to lose its value rapidly and residents could no longer purchase goods using the national currency, residents started to search for alternatives. The restrictions imposed by the government on the trading of US dollars in the black market made it difficult for local residents to obtain foreign currencies.
Eventually, the people of Venezuela landed on bitcoin, the only currency that is censorship-free and digital, which cannot be confiscated or restricted by the Venezuelan government. University graduates and professionals that could no longer search for jobs within Venezuela began to mine bitcoin, to generate the digital currency to purchase goods online on platforms like Amazon.
According to a recent report by The Economist, Venezuela is the cheapest region on earth to mine bitcoin, because of its cheap electricity and the worthless bolivar. The Economist revealed that miners have also started to arbitrage bitcoin mining, by mining the cryptocurrency with cheaper resources in Venezuela and selling it elsewhere either within the country or other regions through LocalBitcoins.
“The extent of the government’s subsidies means that, according to data from Crescent Electric Supply Company, Venezuela is the cheapest place to mine bitcoin in the world. Miners are arbitraging, buying an underpriced commodity (electricity) and converting it to bitcoin for a profit. On localbitcoins.com, a site that allows the cryptocurrency to be exchanged for local currencies worldwide, Venezuela trades more bitcoin than China,” said The Economist.
In regions like Iran, China, and Malaysia, bitcoin is still being utilized as an efficient border payment method, due to the strict policies the three governments have on remittances and overseas transactions. In South Korea, local financial authorities gave licenses to fintech companies to process bitcoin transactions as remittances, to better facilitate remittances.
If the user activity of bitcoin in underbanked regions and in countries with overly strict border payment regulations continues to grow, bitcoin could evolve into a major medium of exchange and payment method, potentially accepted by companies, retailers, and financial institutions.
Already, in countries like Japan, major retailers are accepting bitcoin as a legitimate payment method.