Venezuela is currently experiencing hyperinflation, which started in 2016 while the nation was still going through a socioeconomic and political crisis. Inflation in Venezuela started in 1983 and hasn't stopped since, with double-digit annual inflation rates. Under Nicolás Maduro, inflation rates reached their highest point ever in 2014 and remained high over the following years, surpassing 1,000,000% by 2018.
Venezuela and other 3rd world countries are heavily impacted by rapid inflation, causing their nation currencies to lose value every day. Last year alone, the annual inflation rate reached 6,500%, causing Venezuelans' lifetime savings to go up in smoke. Citizens of these countries are looking towards DeFi in order to have some sort of stable currency, specifically Bitcoin. It is estimated that over 2.9 million Venezuelans own cryptocurrencies, which totals 10.3% of the population. Venezuelan native currency has lost 70% of its value in the last year. So, Bitcoin/crypto provides an opportunity to use a slightly more stable currency that’s not as variable as the current bolivar.
Here’s an interesting video on a Venezuelan startup looking to integrate blockchain to help reduce inflation :
Blockchain: Possible Solution
Since Venezuela's local currency has lost 70% of its value in the past year, using Bitcoin or other cryptocurrencies offers a chance to utilize a little bit more stable money that isn't as volatile as the current bolivar.
- It is estimated that over 2.9 million people, 10.3% of Venezuela’s total population, currently own cryptocurrency
- 51% of consumers in South America have made a transaction with crypto assets. This compares to much lower rates of crypto adoption in developed economies, with an estimated 16% of Americans investing in, using or trading cryptocurrency, with similar numbers in Europe and Australia
- The government's drive to promote the usage of its digital token seems to be bearing fruit. Gas station operators reported in mid-2020 that about 15% of all fuel payments were made with the Petro.
History of Petro
- Petro is built on top of the DASH blockchain and is centralized around government issuance, making it more like a central bank digital currency (CBDC) than a cryptocurrency.
- The petro's price will depend on the price of a barrel of Venezuelan oil from the previous day
- The president of Venezuela, Nicolas Maduro, announced the new monthly minimum wage of 126 Venezuelan bolivars ($28). This represents a 18-fold increase to the national minimum wage, which would be 50% pegged to petro, the government cryptocurrency
- However, as was previously indicated, the contentious token has drawn several critics, including Venezuelan Congressmen who are part of the opposition. One politician previously described it as "illegal" and claimed that it was utilized as a means of corruption in comments to the media.
How is Crypto being used?
- This transactional activity is largely focused on stable coins. More than any other nation in Latin America, stable coin trades made up 34% of total small retail transaction volume in Venezuela
- Users in nations with weaker economies frequently rely on cryptocurrencies where inflation is high, for the preservation of savings
Looking Toward the Future
- Venezuela's economy grew 17.04% year-on-year in the first quarter of 2022
- 5.85 billion bolivars were moved on peer-to-peer exchange LocalBitcoins in just the first week of December 2020. This amount increased to 8.56 billion bolivars by the first week of February
- Criptolago's bitcoin transfer volume in July 2020 was 13 times higher than it was one year ago
- Overall blockchain and cryptocurrencies like Bitcoin are revitalizing Venezuela's economy, protecting citizens from hyperinflation, and as we move forward Blockchain will be a staple in their economy