There has been a substantial surge in demand for the cryptocurrency bitcoin in Venezuela as its local currency, the bolivar, has lost significant value due to the severe economic distress and hyperinflation that the country is currently facing. Not surprisingly, therefore, many Venezuelans have started to look at alternative stores of value and as bitcoin is accessible to anyone with an internet connection the demand for the digital currency has shot up in the last six months of 2016.
Aside from bitcoin purchases increasing in Venezuela, another area of the Bitcoin economy that Venezuelans have been looking to benefit from is mining the cryptocurrency. As Venezuela has incredibly cheap electricity, the main cost of Bitcoin mining is, therefore, heavily reduced making it an excellent breeding ground for miner operations.
Bitcoin Miners Arrested for Alleged Cyber Fraud, Electricity Theft
Announced January 26, the Venezuelan police arrested four Bitcoin miners aged 23 to 57 in the small town of Charallave near the capital Caracas and charged them with cyber fraud and electricity theft. The Bitcoin mining operation in question was quite substantial in size with 300 mining rigs of the make Antminer S4 and SP31 Yukons confiscated during the arrest.
The arrests, however, were not the first arrest of Bitcoin miners accused of stealing electricity. At the beginning of 2016, a 31-year old bitcoin miner named Joel Padrón was detained and imprisoned for over three months on charges of electricity theft.
Bitcoin mining is not illegal in Venezuela, and neither is the cryptocurrency itself. However, the government introduced an energy rationing program last year as a severe drought reduced Venezuela's ability to produce hydroelectric power. Consequently, energy theft is high on the agenda of the Latin American country’s law enforcement.
Rising Demand for Bitcoin in Venezuela
Bitcoin mining not only provides Venezuelans with an income but also with a currency that is substantially more stable and valuable than its local sovereign currency, the bolivar. The bout of hyperinflation has been the key driver behind the Bitcoin boom in the Latin American country. The country’s severe hyperinflation is affecting businesses and individuals alike as it becomes harder to pay salaries, bills and for food.
In response to the uselessness of the bolivar for transacting, businesses such as Destinia, a travel agent offering flights, have begun to accept bitcoin as a method of payment.
While the Bitcoin user community is still a tiny subset of people in Venezuela, the demand for an alternative store of value and for a currency that allows users to make and receive payments online is increasing steadily. This phenomenon is not new, as we can visit similar scenarios in other distressed economies, such as Bolivia or Brazil, where Bitcoin adoption is also on the rise due to weakening local currencies.