Diana Aguilar, a Venezuelan, opined about her personal experiences on the ground in Venezuela and the viability of crypto in saving the nation’s degenerating economy. Although bitcoin and cryptos have helped Venezuelans in the reformation process, the narrative that crypto is saving the economy of Venezuela or cutting down hyperinflation seems to be too unjust.
Diana believes it is officially unknown how many crypto wallets are active in the country and who owns how much. Besides some businesses and a few trusted exchange platforms, crypto users in the country do not enjoy many services linked to cryptocurrencies. Most of the hype that has been made around cryptocurrencies, bringing the lives of people from a dark place to a bright one, has largely been based on assumptions. There are no mainstream ATMs or prepaid cards which a normal citizen on the ground can use to carry out their day to day activities. The assumption that high transactions emanating from Venezuela are because of the citizens using it on the ground is somewhat flawed. As pointed out by Diana, access to cryptocurrency is limited to certain groups like those earning freelance income, trading and mining.
Hyperinflation is “deeply-seated” in Venezuela’s economy. Bolivar has deteriorated by a huge amount as compared to the U.S. dollar. Inflation rate in the country is also projected to jump to 1,800,000% by 2020. Citizens can buy dollars with bitcoins but that still does not solve the innate issue of Bolivar’s depreciation. Although cryptos have provided an alternate way of making payments to a few sectors of the society, that does not mean it has cured the depreciating economy of the country. This recent report showed that the forced promotion of bitcoin as the savior of Venezuela and the cure for hyperinflation is too overrated.
This viewpoint from a Venezuelan gives an entirely new insight into the world of cryptos as well. If bitcoin isn’t saving Venezuela, what do cryptos need to succeed? Is there any way through which cryptos can save the dwindling economy of a country? Are cryptos limited to a few societal sectors only?
For cryptos to succeed and gain widespread adoption, they first have to resolve the issue of volatility associated with it. For any currency, whether fiat or crypto, a sudden depreciation or appreciation in its value makes it highly unattractive for usage as a payment method. This makes the currency more of a store of value for investors rather than a commodity for daily usage.
Here is how the issues related with cryptos can be handled easily:
Step 1: Stability needs to be introduced in the world of cryptos, though one could argue that a kind of stability is provided by stablecoins while inheriting features from traditional fiat currencies.
Step 2: Easier and simpler entry points for people to step into this space. No one should ever see a hashstring address of a person in hexadecimal. Usernames and wallet addresses should be simplified for everyone so that they do not have to put in several log-ins and passwords just to make one simple purchase.
Step 3: There is a need to provide people with opportunities to sell and purchase items of their choice in cryptos in the real world. For a digital currency that is entirely internet-based with no physical backing, general adoption among the public will be a problem if there isn’t strong internet connection or there is a lack of facilities to use cryptos. If cryptos are to rival or even replace the traditional banking and financial systems, they need to be as easy to use as fiat.
Step 4: Last but not the least is the legislation around this nascent space. Criminal elements find their ways in almost all the systems across the globe. Since blockchain technology, the underlying technology of cryptos, provides a decentralized nature of operation with a focus on privacy and the elimination of control by any one central party, this makes it a bit more enticing for negative elements to exploit. We are already seeing cryptos being used in the dark web, an online marketplace for all kinds of highly illegal and malevolent activities. With legislation, such negative elements can be tackled with legally and an aura of trust can be established, which will ultimately increase general adoption.
The narrative that bitcoin can save an entire country’s economy maybe presumptuous, though it can provide some relief to its people by providing an alternative to its native currency. It can also give a pretty strong global remittance system and a monetary framework which can be used by online businesses.
All in all, bitcoin is too far away from saving a country’s economy. As developments are made in removing the negative aspects of the cryptoverse and in increasing its adoption across banking and financial institutions, it is sure to become a system that can strongly rival, and even replace, fiat. But its a long road ahead and the journey has just begun. Only time will tell what may happen to this uncertain space.