On October 18th, 2017, an unidentified group in uniform burst into the family home of Ernesto* in Caracas, claiming to know the presence of illegal devices for bitcoin mining. According to the young miner, the men entered without a warrant and took three mining rigs, one of which held a wallet with 3 BTC in it, worth around $17,000 at the time.
As Ernesto recalls, he wasn’t told of the regulations he was presumably breaking, as there weren’t any.
“They just said it was illegal and they would seize the machines. They pointed at me with a gun and asked for money and the name of other miners in exchange for my rigs. I refused,” he says.
A few days later, Ernesto tracked the stolen devices to their new location: the same block where the main offices of the CICPC detective corps are located. His case, like many others, went unreported to avoid further retaliation.
Ernesto’s story is not uncommon. As more Venezuelans lean into digital financial solutions, the taboo of admitting ownership (or mining) of cryptocurrencies is clear, with miners risking severe sanctions by the regime. Between 2016 and 2017, the lack of a clear legal status of bitcoin and cryptocurrencies in Venezuela provided law enforcement with the perfect opportunity for corruption and abuse, and the use of cryptocurrencies had already started to grow steadily as a financial alternative for some Venezuelans looking to obtain dollars to trade for bolivars.
Now, Venezuela is seen as a pioneer in cryptocurrency regulation, even legalizing bitcoin mining on September, 21st, 2020 (on Official Gazette No. 41,969), as a legitimate way to earn income. But despite this apparent step forward, the legal barriers not only escalated: they also left a trail of inconsistencies that’s hard to follow.
New Rules, Same Confusion
Nowadays, the major problem for Venezuelan miners is their very legality. The first mining licenses were issued in 2018 by the short-lived Superintendence of Cryptoactives (SUPCACVEN), the first attempt of a regulatory institution for cryptocurrency in Venezuela. In 2019, it was replaced by the National Superintendence of Cryptocurrencies (SUNACRIP), which discontinued the licenses and left miners back to where they started.
It wasn’t until the aforementioned legislation on September, 21st that they announced they’d grant mining licenses using the new Integral Miners Registry (RIM). It isn’t clear yet how miners can obtain these licenses, as none have been given yet.
Despite this apparent step forward, the legal barriers not only escalated: they also left a trail of inconsistencies that’s hard to follow.
“We never had a license because they never made one, until now,” says Alexis Lugo, CTO of Tecnominado, a Caracas mining company. “What we do in the meanwhile is just keep in direct contact with (government agents).”
According to Lugo, the SUNACRIP also collects payments of electricity and taxes as an independent regulator, charging extra fees aside from the energy expenses that miners owe CORPOELEC (the state office in charge of electric power), also allowing payment of taxes in cryptocurrency through the Cryptoactive Treasury.
Another subject of concern is the recently created National Mining Pool (NMP) that centralizes the mining activity in Venezuelan by making miners work directly under the regime’s eye—miners operating outside the NMP will be penalized. There are still questions about how it would work, since rewards would be distributed by the government, leaving the system vulnerable to mismanagement of funds.
But mining isn’t the only area where regulations have fallen short.
In Official Gazette No. 41,575 from January 2019, it was declared mandatory for businesses using cryptocurrencies to register and comply with SUNACRIP, extending the powers of the state over the private sector involved with this financial technology.
According to law, SUNACRIP is defined as an “autonomous institution” that acts as an “auxiliary organ of the justice system” for subjects related to cryptocurrency and related activities. What isn’t specified is how far these powers can go.
Because despite the ongoing wave of popularity for cryptocurrencies, there’s still no certainty on how to properly tax this digital currency, and the legal void creates instances where some stores in Venezuela charge interest to those paying in crypto (a practice made explicitly illegal by SUNACRIP). Operating in this gray area for Venezuelans, then, comes with a high risk for business owners who look for ways to keep up with the escalating hyperinflation and dollarization.
Operating in this gray area for Venezuelans, then, comes with a high risk for business owners who look for ways to keep up with the escalating hyperinflation and dollarization.
This is the case for Carlos*, a young salesman who ran a clothing factory with his father in Yaracuy, western Venezuela, back in 2019. Seeing the strong decline of the economy, the factory started paying their employees with bitcoin.
According to Carlos, this experiment went wrong after offering bitcoins to a new employee who refused the cryptocurrency and demanded bolivars. A few days later, the SUNACRIP appeared in Carlos’s factory.
“I thought workers’ complaints were managed by the Ministry of Labor, not SUNACRIP,” he says. “It didn’t make sense. They only had a paper that presumably was the report of a complaint made by the worker, but they wouldn’t even give us a copy.”
The public officials allegedly had no papers to back the complaint and ordered Carlos to pay the corresponding taxes. After his refusal, the SUNACRIP staff accused the factory owners of violating the cryptocurrency regulations and ordered them to pay the equivalent of 3 BTC (nearly $38,870 at the time) in the Venezuelan made-up cryptocurrency, petro.
According to regulations in Official Gazette 41,575, infractions can reach a maximum of 300 petros, which at the time was worth about $18,030 ($17,631 today). This was over $20,000 less than the amount the authorities ordered the small company to pay.
A week later, on July 30th, the National Guard showed up in front of the factory. The SUNACRIP then proceeded to expropriate the business, armed soldiers in tow.
“They took all the machines, even the industrial ones,” Carlos says. “I didn’t know what to do. I started recording them, to have proof, and one of the guards took my phone away. There was nothing we could do.”
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