If there’s one policy chavistas love, it’s regressive subsidies. You know, things like cheap dollars and cheap gasoline. While they last, they keep the masses happy and enable them kleptocrats to make a killing via a million guisos.

But because indirect subsidies are, almost by definition, poorly targetted, they tend to spill, generating some unforeseen windfalls to a few crafty people who find an angle on the system. Take this: the folks over at Reason have a pretty comprehensive report on Venezuelans who turn watts into bits (and $) leveraging the lowest electricity prices in the world.

Bitcoin mining requires a lot of computer processing power, which in turn requires a lot of electricity. In most of the world, utility bills eat into the cost of mining. In places where energy prices are high, it can even be a losing proposition. But in Venezuela, the government has turned bitcoin mining into something akin to owning a home mint.

Price controls, of course, invariably lead to shortages, and the country’s frequent electricity outages create constant headaches for bitcoin miners. But they’ve also come up with workarounds, such as locating their operations in industrial zones, where electricity service is generally uninterrupted.

Since bitcoin mining is a process, in effect, of converting the value of electricity into currency, Venezuelan miners are engaging in a form of arbitrage: They’re buying an underpriced commodity and turning it into bitcoin to make a profit. The miners have turned socialism against itself.

The piece goes on to discuss underground Facebook groups where miners can get everything they need, how they avoid SEBIN and CORPOELEC audits (by cutting them in: the only way someone could run an operation so big as to make $1200 a day), and how people are using exchange sites such as SurBitcoin to send remittances.

Read it all here.

12 COMMENTS

  1. SEBIN aside, the operational challenges of mining in Venezuela is not nearly as easy is made it out to be. If you add the SEBIN to the mix, it might just be worth skipping. What the article does not go into, is that Bitcoin itself is proving to be a valuable alternative to the dollar to store their value.

    • “If you add the SEBIN to the mix, it might just be worth skipping.”

      When you can’t afford food nor medicines and your life is at risk, it puts things on perspective.

    • This is very true, and it is not only useful in a place like Venezuela as a store of value. It is also just about impervious to enforced capital controls. You can send them over the internet, you can carry as many as you want on a USB thumb drive (or of course, something like a laptop, where they will be easily hidden), you can print out the addresses and private keys on pieces of paper, etc.

  2. I saw that article a couple days ago – it was a very interesting read. Especially the part about the confiscated equipment that notified it’s owner that it was processing again.

  3. Wouldn’t be even more profitable to join the millions of illegal connections to the electric grid without having to pay a dime?
    The outages can be mitigated with high capacity UPS or a batteries bank.
    Chavistas have basically removed any incentive of energy efficiency. Why struggle with being efficient if the electricity comes at almost no cost or free.
    This is one of the major reasons for power shortages, unfettered demand. Chavistas are intellectually incapacitated understand the phenomenon.

  4. Whenever I research the subject of Bitcoins, in spite of the unnecessarily technical jargon, I am fine, right up until I get to “bitcoin mining”. Then, something in my brain just screams, “BS!”. I was raised to believe in the Law of Conservation of Energy and that you just don’t get something for nothing. All that electricity used in computing is not producing goods which can be consumed or used in any manner. If people are getting money from doing this, it is because they are exploiting a defect in the system and it is costing someone else, somewhere within the system. TANSTAFL: There is no such thing as a free lunch.

    I have been tempted to use the Surbitcoin angle for changing, but every time I research it, I run into the “mining” angle, and it makes me run away from it again. It smells too much like a scam. If someone can demonstrate that I have this wrong, I would happy to listen, so long as they keep the vocabulary simple.

    • You are only partially wrong. The mining represents inflation (I guess I should really be saying increase in money supply but we’ll leave that to the economists here). However, there is a schedule to the inflation and this schedule is unalterable. Once there are 21 million btc in existence, no more will will be issued to miners. Theoretically, the miners will continue to do what they do solely for the purpose of collecting transaction fees. Right now there are about 16M btc already in circulation. The “inflation” is winding down.

      Think of it like printing dollars. Is it something from nothing? Sure. But bitcoin’s “central bank” is an unalterable algorithm and the schedule for “printing” bitcoins is known. And once 21M coins have been created, that’s it, no more will be issued.

      https://en.bitcoin.it/wiki/Controlled_supply

  5. Bitcoin mining requires a huge upfront investment for the rigs that people use. The return on it is now measured in MONTHS with the difficulty in mining going up much faster than the income.

    But, if electricity is “cheap” and access to cooling mechanism is plentiful, who cares… time is money.

    Bitcoin is a huge space and lots of people are able to reap the benefits of the market successfully. China is now the #1 mining country in the world. Cooler climates and subsidized electricity make mining plentiful.

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