Bitcoin ‘mining’ is big business in Venezuela

Venezuela has become widely known as an economic basket case in recent years. But with its cheap electricity and volatile national currency, the country has at least one competitive advantage: It’s a good place to make the digital cash known as bitcoin.

Bitcoins are increasingly accepted online for buying real-world goods and services. And, unlike the Venezuelan bolivar, the virtual currency has been going up in value.

Making bitcoins is known as “mining,” but it requires a powerful computer instead of a pick and shovel. Those computers produce bitcoins by creating elaborate algorithms, but they also suck up a lot of electricity. In many countries, the cost of running a “mining terminal” can run higher than the value of the actual bitcoins.

That’s not the case in cash-poor, oil-rich Venezuela, where state-subsidized electricity is so cheap it’s virtually free. But Venezuela’s government isn’t pleased. It’s cracking down on bitcoin mining, even though the country has no laws on the books outlawing the currency or its manufacture.

In November, Venezuela’s secret police raided the house of two brothers in Caracas and found more than 90 mining terminals. The agents demanded $1,000 in bribes for each machine, according to the brothers, who spoke on the condition of anonymity because they fear arrest. The brothers said they paid the bribes to stay in business.

This isn’t an isolated case — and such operations appear to be expanding. In January, Venezuelan federal police arrested four bitcoin miners in the town of Charallave. They were accused of Internet fraud and electricity theft. According to an Instagram post published by Douglas Rico, the director of the federal police agency CICPC, the miners were endangering the stability of the town’s electrical service. During that same week, Edward and Erick Tapia Salas were also arrested in Caracas for selling bitcoin-mining machines through a Venezuelan e-commerce site.

Miners have taken to websites such as Reddit to share their fears of being caught. “Miners are getting jailed and accused of terrorism, money laundering, computer crimes and many other crimes,” read one comment from a user who claimed to be Venezuelan. “It’s getting crazy here and I really don’t want to waste my life for money.”

Those who keep mining in Venezuela said they have started taking extreme precautions to hide their activities. Luis León, 25, a business student and bitcoin miner, said miners have learned not to keep all of their computers in one place. If they do, the state power corporation can detect the abnormal amount of electricity the mining terminals use.

“That was [the brothers’] big mistake,” León said. “They were consuming 20 times the normal level of electricity for that house.”

Venezuela’s crackdown on the bitcoin industry started in March 2016 with the arrest of two miners in the city of Valencia. According to news accounts of their arrest, Joel Padrón, 31, and José Perales, 46, were charged with electricity theft and possessing contraband computers.

But miners and bitcoin users are not the only ones at risk. When Padrón and Perales were detained, Daniel Arraez, a 30-year-old economist who was working as a consultant for a Venezuelan bitcoin market called Surbitcoin, was called by the secret police to testify in their case. Padrón had told the agents that he and Perales had exchanged money through Surbitcoin.

Arraez was asked to come to the secret police offices in Valencia. “To my surprise, I never returned home,” he said. He was placed in the same cell with Padrón and Perales and charged with making illegal transactions and criminal association.

Arraez said his arrest was a way for the government to blame someone else for its ruinous policies, including chronic mismanagement of public utilities. “We were only the scapegoats of the disastrous situation in the country’s electricity sector,” he said.

After eight months in jail, Arraez was released in October. He’s awaiting a pretrial hearing. Despite having to share a small cell with eight other men and seeing the sunlight only twice a week, he said Venezuelan miners should keep making bitcoins to “advance technologically like other countries.”

The crackdown has not stopped Venezuelans from using the currency, either. The continued decline of the Venezuelan bolivar has fueled a growing internal demand for bitcoins. According to Surbitcoin, the number of bitcoin users in the country rose from 450 in 2014 to 85,000 last year.

In a country with the world’s highest inflation rate and strict controls on currency exchange, users see bitcoins as a safe alternative to protect their savings. People have also used bitcoins to buy basic products online that have disappeared from Venezuelan shelves.

But the widespread adoption of the currency seems unlikely any time soon: nearly one-third of the population doesn’t even have a bank account.