For many Americans, Bitcoin and other cryptocurrencies are primarily thought of as investments – risky and unsubstantiated ones at that. Bitcoin even has a place in pop culture in the U.S. – even going as far as a Bitcoin movie. But, that is not the intended purpose of Bitcoin.
When Satoshi Nakamoto first announced his “completely decentralized” currency in February of 2009, he billed it as a replacement for a traditional, centralized bank. Since the introduction of Bitcoin, the U.S. experienced a Bitcoin investment trend that changed the perception of the currency as the price skyrocketed.
But, What About Countries Where Traditional Currencies Have Failed?
Countries with failing currency systems have proven to be excellent testing grounds for cryptocurrencies as working forms of money.
Take, for example, the frequent use of bitcoin in Venezuela. The “Strong Bolivar,” the official currency of the country,” has lost around 98 percent of its value as compared to the USD. Many Venezuelans are looking to Bitcoin and other cryptocurrencies as a “safe haven” for their money.
Information from LocalBitcoins, which we’ll touch more on later, reveals that demand for bitcoin in Venezuela is high and has spiked in recent months.
Largely, the poor economic situation in Venezuela is due to the abuse of treasurer power by the government. Earlier this year, the government released a 100,000-bolivar note that is worth less than 50 cents when exchanged to USD. In a country where the government can clearly not be trusted to maintain the value of its citizen’s assets, Venezuelans are finding relief in Bitcoin.
The tale of an irresponsible government is not a new one.
How Does Bitcoin and Currency Exchange Work in a Country With Volatile Currency Valuation
You might be wondering how cryptocurrencies hold an value in a country like Venezuela where traditional coin currency values are shifting daily.
Most in Venezuela use an app to convert Bitcoin and other cryptocurrencies into Bolivars. The app is called LocalBitcoins, and unless you live in a country with a failing currency system that causes you to need to use LocalBitcoins, you probably have not heard of it.
In other countries, cryptocurrency exchanges usually take place through an online platform designated for exchanging Bitcoin and other cryptocurrencies. One of the most popular examples of these platforms is Coinbase where users can buy or sell Bitcoin, Bitcoin Cash, Ethereum and Litecoin.
LocalBitcoins works in a different way. The app is a platform for cryptocurrency traders to meet other individuals near them to trade cryptocurrency. The users then meet and trade the cryptocurrencies at a rate that they negotiated between themselves. This helps combat the volatility of government-issued currencies like in Venezuela.
In Venezuela, some are paid in USD or even in cryptocurrencies, though most are paid in Bolivars. Those that are paid in USD or Bitcoin are typically self-employed or independent contractors like landlords and freelance professionals.
Living off of the Bolivar is very difficult and is the reason the country of Venezuela is experiencing the level of poverty seen today. The Bolivar is all-but-worthless. It’s reported that on average a summer dress in a store like Zara or H&M costs around $246, a single pair of Nike or Adidas shoes costs around $645 and that 2 lbs. of apples typically costs about $18.
Venezuela’s Government “Cryptocurrency”
Venezuela’s government caught on to the potential of decentralized currency to save their tanking economy, but did not execute their plan optimally.
Venezuela released “El Petro” in February of this year. The note is allegedly backed by oil, gold, and other natural resources in the country of Venezuela and is offered as an alternative to the Bolivar. One method this is accomplished is through the circumnavigation of sanctions placed on Venezuela, such as those placed by the U.S.
The cryptocurrency has been mostly a failure. From the mistake-ridden launch to the lack of substantiated value, and potential for volatility, we don’t expect the Petro to be the “next big thing” in the world of crypto-trading.
Examining Bitcoin Value vs. the Dollar and the Bolivar in Venezuela Has Been a Lesson in Economics
Though the situation in Venezuela is discouraging and sad, in some ways it has offered a glimpse at what a future with cryptocurrency might look like. As the months progress, economists will watch how inflation and trading rates are affected by the increased use of decentralized currency in the daily lives of many Venezuelans.
It’s also likely that citizens of other countries will take note in case of governmental failures. After all the speculation, it is likely that cryptocurrencies will soon be normalized in instances were governments prove to be untrustworthy or irresponsible.
