On the evening of Jan. 28, a mysterious Russian airliner without any passengers landed in Caracas, the capital of Venezuela. Rumour had it the plane was there to transport to Russia 20 tonnes of the nation’s gold reserves worth over $1.1 billion. Russia claimed to know nothing about it.
No, this was not a James Bond movie.
So what exactly was Venezuela’s disputed leader Nicolás Maduro up to? After all, he’d already failed trying to withdraw Venezuela’s gold reserves out of the Bank of England. No one knows, at least not yet.
But this moment is why some say cryptocurrencies could be key to survival for people caught in the midst of a national economic meltdown like Venezuela’s.
“That is a perfect advertisement of why you should use Bitcoin,” argues Bitcoin.com’s Latin America head Matt Aaron.
Not only that, figuring out how to give Venezuelans cryptocurrency is an exciting way to “potentially reinvent not-for-profit work,” says Vancouver-based investor Boris Wertz of his related charitable efforts.
Could they be right? I was forced to check my assumptions.
I have been relentlessly skeptical of cryptocurrencies. To me, they’ve seemed like vapourware traded by two types of people: libertarians innately distrusting of financial institutions or speculators hoping to get rich quick.
In 2013, Vancouver became home of the first ever Bitcoin ATM in the world, located in a Waves coffee shop next to the B.C. Supreme Court. Some of my friends rushed to feed stacks of their hard-earned cash into the machine in exchange for prized bits of virtual coin. I held off.
Recently though, because I have a friend from Venezuela with family members still there, I imagine myself living in a country where the currency has inflated a million per cent in less than a year. And I am not sure whether to boo or cheer the many cryptocurrency startups rushing into Venezuela right now.
I am going to refer to my Venezuelan Canadian friend by a made-up name, Lola, to protect her mother and other relatives still living in Venezuela.
In Vancouver, Lola helps organize elections and plebiscites for Venezuelans living in Western Canada. Lola co-founded a group called Action for Venezuela that fundraises with the UNHCR (United Nations High Commissioner for Refugees) for Venezuelan refugees. She advocates passionately to bring attention to the dire conditions in her homeland.
Rich in oil reserves, Venezuela should be the envy of many other countries. Yet economic mismanagement and other destabilizing forces have devastated it. Its currency, the bolivar, named after “El Libertador” of South America Simón Bolívar, is worthless. “People can’t buy medication. They can’t buy food. Your salary is worth nothing,” Lola told me after recently returning from Venezuela.
Credit cards there are almost as useless as cash, she said, because card companies cannot adjust the credit limits quickly enough to keep up with inflation. A single trip to the grocery store exceeds the limit set the previous month. Lola saw pensioners standing in line for hours. “They get paid in bolivars. Then they run and spend it, because tomorrow it is going to be worthless.”
Beyond the bolivar
Venezuelans cope with the hyperinflation by taking two or three jobs, helping each other out or by clever circumventions. For example, some people with access to U.S. dollars — typically those close to the government, involved in illicit trade or receiving remittances from relatives abroad — can purchase on the black market everything from jewelry to surgery.
The problem with carrying around U.S. dollars in Venezuela is that it’s illegal, and the police and military are desperate like everyone else. “On the highway, soldiers can strip search you,” Lola said. If they stop you and find U.S. money, “they take it away. There’s no report and they take it for themselves.”
Some Venezuelans have figured out how to get money in and out of the country via trusted intermediaries. But sometimes those intermediaries betray them and run off with the money.
This is where virtual currencies like Bitcoin can be of help. Bitcoin is a peer-to-peer currency that does not require any central party, such as a central bank or a trusted person, to mediate its exchange. Bitcoin is one form of cryptocurrency among many, such as Ethereum, Dash, Zcash and more.
To keep track of the transactions, cryptocurrencies use a decentralized ledger technology called blockchain that is distributed across many computers owned by unrelated people around the world called “miners.” These miners receive some cryptocurrency in exchange for processing energy-intensive transactions for the blockchain ledger. Cheap electricity heavily subsidized by the socialist Venezuelan government has sprouted a thriving industry of cryptocurrency miners and evangelists in the country.
While Bitcoin’s value is highly volatile, it is more stable than the current bolivar. This and the abundance of cryptocurrency miners in Venezuela has caused a surge in Bitcoin usage there. Some Venezuelans are using Bitcoin to store and hedge their savings, while others are using it to receive remittances from out-of-state relatives without a human intermediary. Venezuelans with web-based businesses serving foreign clients can also receive payment for their services in Bitcoin or other cryptocurrencies.
Recipients then trade their cryptocurrency for bolivars or U.S. dollars with cryptocurrency buyers through online peer-to-peer services, such as LocalBitcoins.com or an e-wallet similar to Venmo, seemingly free from regulation and government scrutiny. They can also use the online e-commerce site Purse.io to buy products with cryptocurrency and ship the items to Venezuela via Miami. An enterprising startup from Panama called Cryptobuyer is rolling out the first Bitcoin ATM in Caracas in February to make it easier for people to buy and sell Bitcoins — that is if the government doesn’t shut them down.
Meanwhile, a few businesses including Church’s Chicken, the department store chain Traki and hotels in Venezuela are accepting cryptocurrencies as payment. Cryptocurrency remains not generally accepted as tender by Venezuelan firms. But that may be changing. Dash, a rival to Bitcoin, recently announced it has recruited over 2,500 merchants, from bars to medical clinics, to accept Dash as tender. Most are in Caracas.
The day I spoke to Aaron of Bitcoin.com, his firm launched its merchant adoption campaign for Bitcoin Cash, a cryptocurrency separate from Bitcoin designed for everyday transactions. The St. Kitts and Nevis-based company hired a six-person team on the ground in Venezuela to go door to door to educate merchants. “Our first stage is trying to get as many merchants to try to accept Bitcoin Cash as possible,” Aaron said. (Note: Bitcoin.com is a software company that promotes Bitcoin, but is not the creator of Bitcoin.)
Venezuela campaign is underway:— Bitcoin.com Official (@BitcoinCom) February 7, 2019
If you are in Caracas and looking for cupcakes and/or baby supplies, buy them with your https://t.co/SWijtaKhD6 wallet.
CuchiCakes and Bebecitos en linea are now accepting Bitcoin Cash! #bchvenezuela #bitcoincashvenezuela pic.twitter.com/ydj8NX31jC
Even Maduro got swept up in the cryptocurrency craze by starting a state-sponsored oil-backed centralized cryptocurrency called the Petro, which requires users to register their identities with the government before they can use it.
The Petro seems like a desperate attempt on Maduro’s part to liberate his own state from bolivars and U.S. sanctions. There have been reports the government tried to force Venezuelans to pay for their passports with Petro and receive pensions in Petro.
It’s a hardly welcomed alternative, however. Lola told me that “no one had Petros” in Venezuela when she visited.
Crypto charities and visions of liberation
The financial anonymity Bitcoin enables makes it attractive or dangerous, depending on where you sit. It allows users to avoid state surveillance, interference and state levies or hefty transactions fees. This makes Bitcoin an ideal medium for money launderers, but also handy for desperate citizens hoping to escape the prying eyes of strongman regimes. Some migrants fleeing Venezuela are transferring their assets into cryptocurrency to easily re-access their savings once they are out of the country without hassle at the border.
In Venezuela, Bitcoin is proving a weapon against authoritarianism, according to a writer in Time magazine. Aaron of Bitcoin.com echoes that his company is aiding the “freedom and well-being of the country.”
That strikes me as hyperbole given Venezuelans are being killed and detained for protesting and journalists are being grabbed and kicked out of the country. Millions of Venezuelans have fled their borders in search of real freedom.
But if you want modest claims, don’t look to cryptocurrency startups. They will tell you Venezuela provides the perfect opportunity to be charitable saviours and increase mainstream adoption of cryptocurrency at the same time.
AirTM, a Mexico-based company that allows users to save and send cryptocurrency launched a fundraiser called #AirdropVenezuela in partnership with Bitcoin.com in November. They vow to raise US$1 million in cryptocurrency by May this year and distribute it to 100,000 verified Venezuelans with AirTM accounts.
AirTM’s website boasts a quote from Simón Bolívar: “A people that loves freedom will in the end be free.”
Coinbase, a leading cryptocurrency exchange network based in San Francisco, donated cryptocurrency to Venezuelan families in the town of Barquisimeto. It’s given through GiveCrypto.org, a software non-profit founded by one of the co-founders of Coinbase, Brian Armstrong.
In an interview, Joe Waltman, the executive director of GiveCrypto.org told me this was one of dozens of crypto-giving charity “experiments” GiveCrypto.org has conducted in Venezuela and other countries to test alternative financial aid mechanisms in environments where they deem that money or government is “broken.”
On the surface, GiveCrypto.org’s campaign appears to be an innovative philanthropy initiative funded by wealthy crypto donors with a genuine intention to fulfill the tech startup cliché ambition “to make the world a better place.” Boris Wertz, a Vancouver-based technology venture capitalist at Version One, was one of the first donors who gave US$25,000 in crypto assets to the charity (Version One is also an investor in Coinbase).
Wertz said he became involved in the charity as a donor and advisor because “it was an interesting experiment to potentially reinvent not-for-profit work.” He lauded how the unique giving scheme provides recipients the individual agency to purchase what they want with the cryptocurrency, while the crypto-blockchain technology is an efficient way to track and use the money.
The total donation of the GiveCrypto.org campaign is a mere US$9,000, a drop in the bucket for a charity associated with and promoted by a company currently valued at $8 billion. Critics called the holiday giving campaign opportunistic self-promotion by Coinbase, nicknaming the company “Scroogebase.”
“This is not being cheap. This is understanding how to get the money into the hands of the right people,” responded Wertz. Cryptocurrency “right now is a very immature technology,” he says, “So what we’re trying to do is to run a few experiments to [figure] out how we can make that happen and how to use that technology.”
Add it all up, and Venezuela’s economic mess has made it a laboratory for how to spread the use of cryptocurrencies globally. In “a country with extreme poverty coinciding with a high inflation currency,” Wertz said, “crypto is a natural play where crypto can be very beneficial and it’s a good testing ground.”
‘Using these people who are suffering’
I tried that idea on people hanging out at a Vancouver-based cryptocurrency club named Dctrl (pronounced “decentral”). Were they cheering on the Venezuelan crypto boom?
“We are using these people who are suffering, who are in a miserable situation and social upheaval to see how this stuff [cryptocurrency technology] pans out,” Pablo Duboue, a computer scientist and expert on cryptocurrency told me with a tone of disgust.
Twenty years ago, Duboue immigrated to Canada from Argentina, another Latin American country with high inflation and soaring cryptocurrency trading volumes. In Argentina, he lived through a war, dictatorship, hyperinflation and a state debt default, not unlike what Venezuelans are facing today.
“Crypto is not going to solve Venezuelans’ problems,” said Duboue. He believes the country’s woes are fundamentally due to social problems with social solutions.
I found myself nodding in agreement. Yet a growing movement of international development researchers sees humanitarian crises as opportunities to experiment with new systems and technology. They call what they do “humanitarian innovation.”
Esther Duflo, a renowned development economist and a cofounder and director of the Abdul Latif Jameel Poverty Action Lab at the Massachusetts Institute of Technology, popularized field experimentation as an important tool to help alleviate poverty in developing countries.
Duflo and her team travel to countries in trouble to collaborate with local organizations, institutions and governments to run experiments that can inform potential policy interventions. Their studies are designed to comply with ethical principles and are reviewed through rigorous ethics review boards.
Okay, but how does this fit with the ethos of cryptocurrency startups, who worship disruption?
The word “innovation” is typically associated with Facebook’s once popular mantra of “move fast and break things,” yet the cornerstone of humanitarianism is to “do no harm.” In humanitarian emergencies, moving fast and breaking things can increase the risk of harm. What to make, then, of the experiments being run by AirTM, Bitcoin.com, and GiveCrypto.org?
While pondering that question I came upon another term: "ethics dumping."
It was invented by the European Union for when privileged organizations conduct research experiments on vulnerable low-income populations in places where they perceive regulations and ethics governance to be more lax than their originating countries. To combat ethics dumping, experts have drafted a code of conduct that mandates fairness, respect, care and honesty (see sidebar).
I asked Wertz what consideration GiveCrypto.org gave to the ethics of treating Venezuela’s distress as a test bed for growing cryptocurrency. “There is nothing these families have to give up in exchange” for receiving the cryptocurrency, he said. “It’s free money. No one is forcing them to take the money. No one has to give up anything to take the money.”
“I’m not sure what the downside is for anyone to participate,” he said. “The intention is to try to find the most efficient way to get [money] to people in need using crypto. And to learn about that path. This is not to make a profit on these people or anything like that.”
Aaron of Bitcoin.com was much less diplomatic and went on the defensive. “I’d be curious to know the intellect of those people making those critiques. Do they fully understand what they’re talking about?” he scoffed.
Shortly after our phone interview, he called back. “We’re not forcing [Venezuelans] to take Bitcoin Cash. Bitcoin Cash is voluntary. By giving people more options of economic freedom, I see no downsides to what we’re doing.”
But there is a downside. A huge one: the legal risks potentially faced by Venezuelans who participate in the cryptocurrency experiments in an unpredictable and rapidly changing regulatory environment with a government eager to tighten control over its monetary system.
At Duflo’s MIT Poverty Action Lab, researchers are urged to follow the Belmont Principles to design ethical social experiments. One of the three key principles is “Beneficence: researchers should seek to increase wellbeing, and avoid knowingly doing harm.” Harm, as defined by the Belmont Report, includes legal harm.
This isn’t about who is making money or not. The risk of getting on the wrong side of the authorities for participating in cryptocurrency is real, and related law in Venezuela is fast changing.
For a while, the Venezuelan government targeted cryptocurrency miners for charges that are allegedly unrelated to their mining activities. Now, miners need government-issued licenses to operate.
Last August, journalist Robert Marvin of PCMag reported that the Venezuelan government sent cease and desist letters to AirTM and similar services for posting unofficial exchange rates as part of a crackdown called Operation Paper Hands. Nine AirTM users out of 300,000 were detained by the government for unknown reasons. A press release from AirTM mentioned the government had also taken legal action against employees and users.
AirTM is currently officially blocked by the Venezuelan government. They skirted the ban by changing their domain name. Still, AirTM and Bitcoin.com decided to move ahead with an even more ambitious campaign to give cryptocurrency to 100,000 Venezuelans who sign up as AirTM users.
Disaster capitalism 2.0?
After Hurricane Maria devastated Puerto Rico in 2017, former child actor-turned cryptocurrency entrepreneur Brock Pierce of the Bitcoin Foundation moved there. So did other crypto-preneurs.
Price and his peers say their goal is to rebuild the island into a cryptocurrency paradise called “Puertopia.”
Skeptics say Puertopians are there to evade taxes, while retaining their American citizenship in the U.S. territory. If so, Puertopians, along with AirTM and Bitcoin.com, are practicing a brave new form of “disaster capitalism,” an idea popularized by author Naomi Klein, where businesses and individuals rush in to capitalize on the aftermath of horrific disasters. One person’s plight is another person’s enterprising opportunity.
Aaron of Bitcoin.com made it clear to me why, as he put it, “the cryptocurrency community is focusing on Venezuela. The central thesis,” he said, “is that if cryptocurrency doesn’t work in Venezuela, it can’t work anywhere. It’s underserved.”
My mind went to the disturbing case of American drone companies who, pledging benevolence, rushed into Africa to test drone deliveries for transporting medical and other supplies. They could be said to have practiced ethics dumping. They were there to take advantage of lax airspace regulations and perceived vacuum of ethics governance, while they perfected their technology for Amazon deliveries and surveillance at the same time.
What about GiveCrypto.org’s philanthropic campaign to give cryptocurrency to Venezuelan families? Was it the latest twist to disaster capitalism? When I put that to Wertz, he assured me the non-profit is completely separate from the for-profit Coinbase even though the two shared a founder.
Walton further emphasized that GiveCrypto.org is only using a small part of Coinbase’s software, and is largely focused on building out their own giving delivery software. “We are being very careful that we’re minimizing the chance of what we’re doing won’t put someone in danger,” he said. “We are not aware of any legal risks posed by our service in Venezuela.”
When I asked if GiveCrypto.org’s campaign had any issues with the Venezuelan government, Walton said, “Candidly, at the scale that we’re operating at, at a few dozen or a hundred people, I’d be really surprised if the government knows we exist.” He claimed “the Venezuelan government has been quite explicit around allowing cryptocurrencies. While there’s a lot of uncertainty, they have been pretty clear that crypto is kosher.”
In April 2018, the National Constituent Assembly of Venezuela did release a legal framework that governs cryptoassets and the Petro. It declared that cryptocurrencies can be used as legal means of exchange in Venezuela. The catch is that miners, exchanges and any “other entities dedicated to savings and virtual intermediation of cryptoassets” must register with the government.
Further, the government reserved the power to regulate the cryptocurrency market. GiveCrypto.org confirmed they have not registered with the government, and Bitcoin.com did not disclose their status when I asked.
As recently as Jan. 30, the government swerved again, releasing a new decree on crypoasset regulation to establish a national regulatory agency called SUNACRIP (National Superintendency of Crypto Assets and Related Activities). It will oversee crypto-mining, the promotion and development of digital assets, crypto-financial services and audits. Operating, issuing, mining and even using cryptocurrencies without government authorization can now lead to legal consequences detailed in the decree. On Feb. 8, SUNACRIP released new cryptocurrency remittance regulations, including a government levy and monthly cap.
In other words, “crypto is kosher” as long as the government regulates or owns it — the very opposite of what crypto-libertarians mean when they say cryptocurrency is freedom.
Still, if Venezuelans are participating in cryptocurrency despite the potential risks they face, they must find value not so apparent in Canada, where our currency, economy and government are stable.
It is true that in Venezuela, Bitcoin and other decentralized cryptocurrencies are only accessible to those with a certain level of financial means, technological know-how and appetite for taking legal risks — far from being the great economic equalizer or enabler of freedom.
But if my country’s economy were to dive into the abyss as happened to Lola’s family, I might be grateful for any different way to store value — one delinked from the financial machinery crashing all around us. I would be desperate to survive.
That makes it all the more crucial that crypto-entrepreneurs acknowledge the ethical pitfalls they risk in supplying cryptocurrencies to people in crisis in the name of experimentation. And all the more important that we keep a skeptical eye on their claims to be workers of charity and liberation while they push a new economic order that confirms their ideology. One that would just happen to make them very rich.
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