How This Entrepreneur is Using Blockchain to Solve Venezuela's Economic Crisis
... and how it might be exactly what leads to mass crypto adoption.
In an hour-long speech delivered at a Bitcoin and Blockchain Conference held in Los Angeles on March 24, 2018, David Hay explains how he can use cryptocurrency and blockchain technology to help solve the crisis happening in Venezuela. If you have the time to watch the presentation, I could not recommend it more. It is riveting, informative, and as inspirational as they come.
However, for those who do not, I created this lowdown, as the insight is crucial in the context of what we can accomplish through, and the near-unimaginable potential of, Blockchain for Good projects.
The Current Situation in Venezuela
Venezuela is going through what’s called hyperinflation, wherein their dollar is essentially worthless. And to introduce the problem, David Hay gestured toward a huge pile of Venezuelan cash (bolívar), enough to buy you a brand-new Lamborghini just three and a half years ago.
Guess what he bought that cash pile just days before he made the speech? $80 USD.
But how did we get here?
The country’s economic stability relied on a government-controlled oil industry that brought in 95% of their income, resulting in popular social programs like free healthcare and college without setting any of the capital aside in case of a downturn. The government then eliminated other local industries to rely solely on foreign imports for necessities, and their entire economy officially relied solely on oil exports. And when the price of oil quadrupled? They quadrupled their spending. It was an extremely ill-advised economic strategy, one that relied entirely on oil prices staying the same or increasing.
Then, Venezuela’s president Hugo Chavez died in 2013 and was replaced by his Vice President Nicolás Maduro, who continued the government’s economic strategy without interruption, complete with all the rampant government corruption. Then the oil price went down without Venezuela’s spending going down (at a time when even a country as famously wealthy as Saudi Arabia started seeing a substantial economic downturn from the lower demand of oil exports.)
The Venezuelan government also continued printing money, which expedited its decline in value. Incentives to work became nonexistent (oil rig workers can’t even afford to purchase laundry detergent.) The value of their dollar has dropped to the point where the equivalent of $100 would be too heavy to carry. It actually costs more to print any bill than its actually worth, yet the printing is still going.
The result? Their economy went from one of the best to the worst-performing on the planet.
Mass poverty. Food shortages. Mass exodus. Daily rioting. There’s even been fuel shortages despite the country’s having the world’s largest oil reserves. Law enforcement is barely able to keep unarmed protestors at bay, who demand their country back from a leadership who has failed them but refuse to give up power. And they’re being killed in the streets over it, a fact that’s been quelled by hyper-censorship that’s created a complete mistrust for the government. An April 5, 2018, headline in The Guardian read: “‘It feels like we’re all dying slowly’: Venezuela’s doctors losing hope.”
Decentralized Economies Are Not Futuristic
The economy in Venezuela is largely decentralized, where people are dealing their wares from carts in exchange for comparable wares, smuggling fruit across the border to sell in Colombia or other neighboring countries, and other far cries from their booming modern economy of just four years ago.
“When you’re in a decentralized economy where you don’t trust anybody and you’re in a neighborhood or a refugee camp, you only need a pot, a pan — you only need a few basic items — to open restaurants,” David explained. “You only need a few basic things to become a seamstress. You only need very basic things, but you need a working currency, you need a way to transfer value. And not only that, but these people are so dispersed because of the refugee crisis, they need a way to send it across borders.”
In fact, a collaborator on David’s Discord channel was positioned just outside of Cúcuta, Colombia, a city that borders the Venezuela border. From the Venezuela side, he was able to keep in touch with the team and describe what was happening, but his old mobile device wasn’t able to record valuable video from the ground. However, the collaborator was able to receive Ethereum directly from David, purchase a new phone using that cryptocurrency from someone who was accepting it in his area, and began recording footage from the ground within an hour.
So the technology is present, the centralized economy is broken and getting worse, and the situation is so dire, 10% of the population has left, and 57% wants to join them. The problem is massive, but David believes the solution could go beyond just solving this crisis. We’ll get more into that in the next section, but here’s another example of modern decentralization outside of crypto:
In the early 2000s, citizens in Kenya, Tanzania, and other African countries used mobile minutes as currency, which inspired M-Pesa, a currency system that allows users to easily transfer minutes, purchase goods, transfer money, and pay bills from their phone, and it’s still widely used today.
“In Kenya, they’re using M-Pesa as a form of currency. So this is pre-blockchain and it’s something that’s happening right now, but it’s showing that these economies are already looking for solutions.”
Empowering the Powerless Can Empower the World
David’s organization Crypto Cúcuta sees this crisis as the single best case for cryptocurrencies, with a plan to give over half the population of the city of Cúcuta the option to onboard…for under $2 million and within 90 days. His Discord channel already has over 200 volunteers and includes people who work on the dev teams of some of the world’s most respected and established cryptocurrencies.
As Venezuelan refugees are crossing the border into Cúcuta, they’ll have the option of entering a classroom, getting the most basic lowdown on how cryptocurrencies work (how to use a wallet, how to transfer funds, etc.), receive cryptocurrency and a web wallet, and need only give their fingerprint as an identifier (that isn’t matched with any personal information.) The fingerprints ensure no one is receiving the free crypto more than once, but it’s also a great introduction to the total independent control and privacy cryptocurrency allows.
And when the one- to two-hour onboarding class is completed, that’s it. You then have cryptocurrency, a wallet, and forever hold the knowledge of how to use it.
Think about it: if your centralized currency is worthless, you don’t trust your government, and you’re disillusioned by the idea of a ruling body in general, a technology that encourages you not to trust anyone would be inherently attractive. It’s a technology that guarantees you’re the only one with access to your money, that no central power even has knowledge of, much less control over, your finances. It gives you the freedom to create your own economy, one dictated by the market, not by the whims of the powerful few.
“So then when we have these people starting to use it as digital cash, we’re then going to roll out ATMs,” David explained. “So we’ll have these ATMs set around the city, and they’ll provide liquidity.”
“Out of 7 billion people in the world, I’m targeting 30 million of the most vulnerable, and then I’m trying to give them the tools that will give them some chance,” David further explained, and then emphasized: “It doesn’t fix everything, it just gives them some chance.”
The end result could be a real-world example of a successful, globally-competitive, decentralized market that empowered citizens staring at the edge of a cliff to build a bridge to something better — a promising and hopeful economic future.
Looking Toward the Future
Near the end of his presentation, David points out the fact that he’s had some trouble showing investors that the $2 million cost of the project offers that $2 million value, because they see it as nothing much more than a charitable cause with a finite endpoint.
And David couldn’t help but scoff at the notion.
“I’m not saying please, please, please give me this money as a charity operation. I’m saying: ‘Let’s be smart as a cryptocurrency community. And, see, if we want mass adoption (because mass adoption obviously brings a lot more value to the community), if we want to evolve the tech, if we want to get more people involved, we can’t keep pulling from the talent pool we’ve already been pulling from. We have a huge talent pool of [7 billion] people.”
Let’s take a quick pause: if Crypto Cúcuta manages to onboard 300,000 people in three months, and they each only performed one micro-transaction per day, scalability stops becoming a vague problem that needs to be faced once cryptocurrency sees mass adoption. This is mass adoption. This would be an entire population of a major South American metropolis actively using cryptocurrency.
“The cryptocurrency that we choose [for Crypto Cúcuta] is going to get more marketing, more press, more attention from the international community than I think from any of the other projects have in history, because this is what we’re supposed to do.”
If the Goal is to Help Venezuela, Why Are We in Colombia?
People aren’t able to enter Venezuela to help. David’s solution is to empower their refugees in a border city so they can rebuild their economy independently from the governmental stranglehold they fought to escape. The idea is that the natural entrepreneurs within their communities will be able to lead this new influx of opportunity and potential, and the real-world example could inspire clones of the project (Crypto Cúcuta is open-source) to spring up in the other border towns.
In fact, the project has already produced a clone that’s being implemented in a smaller city in Brazil, and could be freely implemented anywhere in the world.
For those of living in strong economies, to consider an economy where money printed on home printers is more stable than the centralized currency the government controls is pretty much impossible to wrap our heads around. Just imagine paying for food for your family by transferring mobile minutes to the merchant.
Then consider how technological innovations, without the need to ask for permission, can disrupt entire industries, or how the most earth-shattering mass adoptions come out of basic necessity. What we’re talking about could well be the beginning stages of a worldwide, mass adopted, completely decentralized economy.
A Promising New World, Powered by Blockchain
One of the first things David points out in his presentation is what I want to leave you with. Desacralized governmental bodies were unheard of just a few hundred years ago, but the United States became an early example of how a society can be governed with a separation of church and state.
Much later on, a largely unregulated, neutral internet gave access to the kind of information that was before reserved for the few who could afford it. Only royalty was allowed to read, only the rich were allowed to become educated.
It’s easy to argue how these disruptions to our global society were for the better, but no one could say they fixed every problem. And the same goes for an initiative like Crypto Cúcuta, wherein we’ve identified the problem, but the solutions are created through mass adoption, entrepreneurial empowerment, and the willingness to take risks for what we believe in.
Author: Cecile Baird