In this week's edition of EXPOSED!, I take a look at a number of countries where economic mismanagement is fueling crypto mass adoption...
As Venezuela grapples with an economic crisis that has plunged people's lives into chaos, Bitcoin and cryptocurrency use there remains far above other countries with transaction volumes climbing according to peer-to-peer exchange LocalBitcoins.
The country's citizens quite rightly fear for the worst as the plunge in oil prices, effectively Venezuela's sole industry, has only exacerbated the situation in this sector which is already crippled due to a shortage of equipment and expertise. Inflation has devastated the country as residents are unable to purchase essential goods and services due to a collapse in their purchasing power.
For this reason, many Venezuelans are buying into Bitcoin to store their wealth and to get around the government's capital controls. Bitcoin first came on the scene in Venezuela as miners were able to make use of very cheap electricity which was then subsidized by the government.
Those Venezuelans who have managed to leave the country and earn abroad, are making good use of Bitcoin to transfer funds back home as this is the cheapest and most direct way. The use of Bitcoin has lowered the bar for Venezuelans seeking relief, enabling them to buy much needed goods. Some companies in Venezuela are even exclusively accepting payment in Bitcoin, knowing the bolivar to be largely useless.
Even the nonprofits in Venezuela are making use of cryptocurrencies to get aid to where it is most needed. Circumventing banks and companies that handle remittances, a handful of charities are using this method to send relief directly to those who require it. A test project was run by GiveCrypto with the help of EOS Venezuela, a local blockchain developer. Joe Waltman, the executive director of GiveCrypto said
“Crypto has the highest likelihood of being helpful to people in places where money is broken, and there is probably no better example of broken money right now than Venezuela.”
GiveCrypto's help provided temporary relief to vulnerable families by providing them with a weekly deposit of around $7 and it is also aiming to make people familiar with crypto apps. This way they can transfer their own earnings into digital currency and use it to buy goods long after they have stopped receiving free deposits. This was the first stage of a larger project to promote the use of cryptocurrencies in Venezuela, using “stable” currencies whose values have less fluctuation than Bitcoin.
Paul Lamb, a nonprofit management consultant based in California says the idea of distributing funding directly to people in need is becoming increasingly popular among humanitarian groups, because in some contexts it is cheaper than organizing the logistics to physically hand out food and medicine.
And it is not just in Venezuela where nonprofits are attempting to help vulnerable people by introducing them to digital currency platforms. In Europe, Bitnation, a humanitarian agency, has enabled hundreds of refugees without bank accounts to receive direct donations through Bitcoin accounts. In Jordan, the World Food Program delivers aid to 100,000 Syrian refugees by creating digital currency accounts for each recipient, using blockchain technology but official currencies. To pay for goods, refugees only need to have their iris scanned.
Due to the ongoing economic war between Washington and Tehran, Bitcoin has become an important tool for Iranians. This is because the banking sanctions which are in place have effectively stopped foreign companies from doing business with that country, thus Bitcoin is being used by Iranians to circumvent the US imposed restrictions. Large companies will, of course, comply due to pressure from Washington but small and midsize companies will be able to use Bitcoin and other cryptocurrencies to do business under the American radar.
The US Treasury has warned digital marketplaces that buy and sell Bitcoin and companies that sell computers used to process Bitcoin transactions that they should not provide services to Iranians.
The Iranian government's positive attitude towards Bitcoin has been recently reflected in its decision to award a license to the Turkish Bitcoin mining giant, iMiner to operate in the country. The company will run the biggest Bitcoin mining facility in Iran and in addition it has been given the go-ahead to offer crypto trading and custody services in the country.
Due to the current economic situation, Iran has been left with no option but to embrace Bitcoin mining since the US sanctions have cut it off from global financial services.
Argentina is burdened with billions of dollars of debt and its residents have been hoarding dollars in an effort to preserve their wealth as the peso constantly declines in value. The Argentinian central bank has recently imposed some severe capital controls with dollar purchases restricted to $200 per month via a bank account and $100 only each month in cash in an effort to stem the slide in the peso. With little faith in their own national currency, Argentinians have been turning to Bitcoin. For people who need to make large payments on a regular basis, purchasing Bitcoin is a good alternative, albeit they have to buy at a hefty premium of more than $1,000 and at times the premium has been known to go over $2,000. But this is better than having to rely on a currency which struggles under the weight of a 50% inflation rate.
Having your funds far from the control of the authorities may be worth these premiums when extreme measures are in place and even if there is a 25% correction in the price of Bitcoin, it is a risk Argentinians are willing to take. Bitcoin adoption is among the highest in the world and since the country has relaxed regulations regarding cryptocurrencies, there are a rising number of blockchain-based start-ups and initiatives to encourage everyday use of Bitcoin. These include making the capital city's underground transport card (the SUBE) rechargeable with Bitcoin.
Professor of Finance at Babson College, John Edmonds said:
“In Argentina they do so many things well, except finance. The financial system is exactly the same design as it was in 1860. Every 15 years it collapses; you can pretty much set your watch by it.”
The banking sector in Lebanon is significantly exposed to debt and this has led to the imposition of harsh and informal capital controls. Regardless of the size of their accounts, depositors have only been allowed to withdraw a few hundred dollars per month from their dollar accounts and in an effort to stem a severe liquidity crisis, transfers abroad are also increasingly limited. All of this is taking place as a tanking economy has caused businesses to slash salaries, fire staff or even close. The country has been rocked by unprecedented nationwide strikes in recent months led by young people who blame government corruption and incompetence for the lack of jobs and basic services.
Those that can get access to their dollar accounts are often forced to withdraw Lebanese pounds instead and only at the official rate which has been pegged at $1:1500 since 1997. The unofficial rate currently stands around 4,250 and as a result there is a flourishing black market in the currency. There are 28 apps available showing the actual exchange rate but this has caused the Lebanese General Prosecutor to order the Ministry of Telecommunication to compel all internet service providers to block the apps, claiming they were spreading false information about the “unofficial” exchange rate.
Because of these tight banking restrictions, people in Lebanon have been turning in droves to Bitcoin in order to secure their financial freedom. This appears to be the only way to get around the banking system but actually buying Bitcoin isn't that simple as the central bank have disallowed the use of credit cards for purchasing cryptocurrencies. Most sales happen face to face with buyers and sellers meeting through WhatsApp groups.
The fact that Bitcoin is not within government control scares those nations with a strong central bank, but for nations whose currencies are in disarray, Bitcoin is a relatively stable investment.
One Lebanese Bitcoin trader, Simon Tadros, summed it up nicely:
“Bitcoin is protected by mathematics, fiat currencies are protected by governments. Which do you trust?”
Stay safe, wherever you are, we are living through crazy days!
The Privacy Advocate