There’s been a lot of hype in the media recently about a supposed rush out of the bolivar and to Bitcoin. It’s a nice story line, and I wish that it were true, but it tends to soft pedal some very real usability problems that make Bitcoin not quite ready to be your WhatsApp Tía’s ticket out of the bolivar crisis.

Now, don’t get me wrong: techies around the world really are excited about decentralized digital currencies. They’re confident that this new kind of tradeable asset, not being subject to the authority of any one irresponsible central banker, will give us citizens of failed states a way to bypass the failed national currency (without resorting to El Comandante’s beloved trueque, that is).

You can think of one Bitcoin as a kind of a digital morocota that you can divide.

So, “decentralized digital currency”? ¿Con qué se come eso?

You can think of one Bitcoin as a kind of a digital morocota that you can divide (down to 8 decimal places) and send to people over the Internet instantaneously. Like morocotas, Bitcoins are scarce: there’s only so many to go around, which currently makes it a more valuable asset than “strong” bolivars coming out of Sanguino’s printing press. Also like morocotas, Bitcoins are guaranteed to remain scarce.

How is Bitcoin doing in Venezuela now? A year ago, we reported on Bitcoin as a small but growing phenomenon in the country. Its valuation is less volatile than many commodities, and contrary to the bolivar, has appreciated recently. It’s also possible to exchange Bitcoin to more stable national currencies without the approval or the knowledge of the Venezuelan government. Some use it to pay employees and to buy food and medicine. Others have set up mining operations to take advantage of the cheap electricity prices and make money, a practice that the government is increasingly cracking down on.

Access to a non-evaporating currency sounds like a dream to every Venezuelan, and that begs the question: will we ever replace our centrally controlled and tragically inflated bolivars with Bitcoin? As a curious technologist, I want to see it happen, but the truth is that Bitcoin isn’t quite ready for mass adoption in the country.

Getting an empty “wallet” —an address where you can send and receive Bitcoin— is as easy as signing up for a website, but keeping that money safe is hard for most Venezuelans.

The problem really is the “key” — which is sort of like a password that allows you to actually spend your bitcoin. A bitcoin key is usually made up of 64 characters in the range 0-9 or A-F, something like:

E9 87 3D 79 C6 D8 7D C0 FB 6A 57 78 63 33 89 F4 45 32 13 30 3D A6 1F 20 BD 67 FC 23 3A A3 32 62

Think you can memorize that? Probably not. You could write it down on a piece of paper and hide it —the equivalent of hoarding cash under the mattress— but as we know, most physical spaces in the country aren’t exactly secure. You could lose all your money if you misplace them or get mugged.

The answer to this, as to most of life’s problems is: software! Bitcoin websites that follow best practices to keep your keys secure in the cloud typically require a bank account or some form of ID from an OECD country – your cédula is no good here.

I still think Bitcoin is more a story about the future than the present.

For certain, technologists are working to invent secure and usable systems that allow anyone to trade digital currencies. Last year WhatsApp pioneered the mainstream adoption of end-to-end encryption in messaging apps. Solutions are coming. They’re just not quite here yet — at least not in a way that past the Tía test.

I still think Bitcoin is more a story about the future than the present. Once deemed safe to store and easy to trade, it could permeate society like smartphones and the Internet have. What happens next is up for grabs: regulations may follow immediately in some places, citizens may assert their right to use decentralized money in others.

Widespread decentralized money might just mark the start of a new chapter in the history of economics. As a debacle-era Venezuelan, I take comfort in believing such a sea change could shift the power from the Merenteses of the world, back to the people living in fiscally irresponsible states everywhere.

21 COMMENTS

  1. I think the VZ is more likely to dollarize than to switch to bitcoin.

    Either will help VZ from its current predicament and relieve some pain. However, neither is a long term solution. A country needs to have some control over its currency in order to grow the economy properly.

    • What Venezuela needs is not “some control over its currency” as you say (Which could be resumed into “be able to devalue its currency when it wants to cover its bureaucrat’s screwups), what the country needs is to control CRIME (Corruption is also a crime and enters in the same sack as murders, mugging and rape), which would be a complete turnaround of the chavista policy of ALLYING itself with crime to control the population.

  2. Farming the bitcoins isn’t cheap by any measure, any decent computer easily goes above 800.000 Bs (You’re not gonna use for that task a cheap 10-year obsolete thing like a dual core, man), not counting the UPS you should also have to acquire to somehow defend the thing against the onslaught of blackouts that strike everyday in Venezuela, and again, decent UPSs can go pretty well by the same price of the computer itself, so this isn’t for the “regular Pedro Pérez”

    PS: You also have to add that electricity in Venezuela is becoming exponentially more expensive, just in december, cortoelec raised the residential rates above 90%, almost doubling the prices, and in october, they tripled the rates for commercial zones.

  3. “Alejandro designs software products from around the world and teaches computer science to kids. He hopes to return to Venezuela with family and friends, to work for its reconstruction.”

    That’s what many Venezuelan of us expatriates say but very few will ever do.. Once established in a much more Safe and Secure prosperous country there’s no turning back to Vzla, unless you get a very lucrative contract, and leave the wife&children safe overseas..

    Most of the readers, and writers of these blogs left. Be honest, how many of you really will consider going back, even if Leopoldo or Capriles are president one day? Will they make Vzla a safe country to live, much less crime, will it be a booming economy, will oil prices be higher, or will we be exporting Vzlan-made cars, oranges, bananas and computers?

    I bet Alejandro, like 95% of us who left Vzla, will never return except for, perhaps, a risky, dangerous, brief adventure to the wonders of El Avila, Choroni, or La Gran Sabana.. With fresh dollars or euros, to come back soon to much safer and prosperous countries worldwide. Get real, be honest.

    • When italians, spaniards and portuguese emigrated to Venezuela, their intentions were to stay a few years, save money, and return. Almost nobody returned. Once you put roots down and have a life, you won’t move again. For what? To start over?

      • It is true that many did not return after a few years in Venezuela. However, they maintained their home country passports. When things in Venezuela started to turn down in the 80’s they started to move their money and assets out of Venezuela to the “home country” to avoid the devaluations. Since then many that were near retirement or had retired did return to their home country. It is still going on today.

        Most of the countries you mention have a “right to return” that goes back 3 to 5 generations. That is being used by the younger generations in Venezuela as an exit strategy. They apply for and receive a EU passports and leave as fast as they can.

      • People moved to Venezuela from Spain or Portugal or Italy 50 years ago , looking for comparatively better opportunities. They found them, and we grew up as children without much crime, good schools, good jobs prospectives.

        Then again, as soon as we could, millions of us got the hell outta there, way before Chavismo hit. I can only imagine – or read – how much worse it is now.

        But my point remains. It was bad enough before Chavismo for many of YOU to leave. And YOU will not ever return. Because it’s too dangerous, mainly, and because we lve better, make better money elsewhere. Face t. Admit it. And yes, our beloved Venezuela is utterly screwed for decades to come – not that it ever was a paradise this century, mind you.

        • 1- You are totally missing the point of the article.
          2- You are talking about your own experience, many of us would return to Vzla, only if there are better conditions, (Peru, Chile, Argentina, Colombia, Spain, Portugal, Italy among many other countries had really bad times and they overcome it). I guess it was a way for you to drain your hate.
          3- Regarding the article, it was interesting to read, and since I’m far from an expert on the subject, I will need to read more about it to comment… thanks.

    • I will return. There’s much opportunity rebuilding a country and I’m not talking about guisos. El Chavismo has completely destroyed the infrastructure and someone has to rebuild it.

      Who better fit to rebuild it then those who left, learned abroad, and seek to apply that knowledge.

      Maybe I’m an optimist but I choose to believe in a better tomorrow.

    • Perhaps you guys should speak for yourselves. You have no say on what others might or might not want to do. Whether they return to the country or not is their choice.

      • I wrote about europeans as an example. My father was one, he never returned home. After you have roots in a country, you won’t go back. Very few will.

  4. Ok. I’ll be honest: For me it’s not a question about returning to Venezuela or not because I’m still here voluntarily!! Haha But if I ever leave, I know that if a (positive) change in government finally ocurred I’d be back home the next day, to be here first before the foreign investors arrive.

    • I bet you are still there, risking your life everyday, not stopping at red lights, going home early, because you or your husband have a good job, and no possibility of getting a better one in the USA or Europe or anywhere else. Or family/friends contacts overseas.

      Otherwise, 9/10 people simply get the hell outta there, first chance they get.

      Foreign investors? Yeah, sure, Venezuela will be a paradise after a few wire transfers from the FMI or Bill Gates.. Soñar es gratis.

  5. I’d like to clarify some misconceptions about Bitcoin.

    “E9 87 3D 79 C6 D8 7D C0 FB 6A 57 78 63 33 89 F4 45 32 13 30 3D A6 1F 20 BD 67 FC 23 3A A3 32 62

    Think you can memorize that? Probably not. You could write it down on a piece of paper and hide it —the equivalent of hoarding cash under the mattress— but as we know, most physical spaces in the country aren’t exactly secure. You could lose all your money if you misplace them or get mugged.”

    Yes, we *can* memorize it, but let me explain how.

    There are encodings that makes it easy to memorize a seed (Which is even longer than a private key, because you can derive a huge numbers of private keys from it), for example this list of words:

    deer wall design snap define pigeon rare habit tobacco core noble sponsor

    is equivalent to: e92bb1bc51523955c2729d9f971b12acf63b564ce2eb68da80cd2b7997d1458c8476a5672df845f7686b6a9fdedd9a83ad009c1d0c26aabc450e991c25cd725d

    Think it’s still hard because words are in English?, no problem, you can get the same equivalent seed in spanish words:

    cosmos vejez cubo ropero cráneo orador pestaña guardia tecla chico muleta sanidad

    I think we can memorize 12 words, it’s doable but still impractical, so there’s a *better* way.
    Just encrypt those words and make backups of it

    Most app wallets lets you encrypt the keys with your own password, so the encryption is as strong as your password is (a password is *very* secure with just 2 or 3 long words).

    So all you have to do is memorize your encryption’s password and make backups of your encrypted seed in multiple locations.

    So Yes, we can memorize it!!!

    • And I don’t recommend Web-based wallets (you know *The cloud*), they’re good for starters and to experiment how bitcoin work, but you lose decentralization cuz you’re letting a third party manage your bitcoins, so it even increases the risk of getting hacked because besides needing to keep clean your device so you don’t get hacked now you need to *hope* that the website is secured enough so they don’t get hacked, which has happened *a lot* https://hacked.com/biggest-bitcoin-hacks-thefts-time/

      On the other hand, With a wallet app you don’t need anything else than your key, internet and a safe environment (no malware).

      If you’re not a techie and you basically swim in a pool of NSA’s viruses everywhere you go, you can get a hardware wallet, for example TREZOR, it’s like a pen-drive and all the encryption and decryption occurs inside of it, the key is never exposed to the PC or mobile, so in theory, no viruses can steal the key.

      BTW, Those websites that requires ID, or bank accounts are not just wallets, they’re probably exchanges to trade bitcoin for other currencies.

      • Wow Marco, thanks a lot for your detailed response! I’m a Bitcoin neophyte, but am fascinated by cryptography and how humans can memorize keys easily with a few memory techniques.

        Yes, I was referring to websites like Coinbase. They lower the barrier for the average user to buy, sell and store Bitcoin, but as you point out, centralization leads to problems (government intervention, hacking incentives). I was going to bring up hardware wallets, but didn’t dig very deep into how they worked. Your comment was enlightening. Still, as a Venezuelan I’d still prefer to keep my keys safely stored in my memory or encrypted in the cloud.

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