Cryptocurrencies have become a way out of the crisis for Venezuelans; however, it could bring other problems

If anything has characterized the Venezuelan economy in recent years, it is exchange control and the acute crisis it is going through. Given that Venezuelans do not have great savings capacity due to the high inflation rates that their economy has presented recently, cryptocurrencies, especially Bitcoin, have become a haven. 

According to LocalBitcoins statistics, in February there were transactions equivalent to 234 Bitcoins on average per week, which at the average price of the same period represent 2.4 million dollars, a figure that leaves Venezuela as the main country of the region in the use of this cryptocurrency.

Among other things, this is one of the reasons that prompted the Venezuelan government to launch its own cryptocurrency, the Petro, which is backed by oil reserves.

Cryptocurrency mining and the cheapest electricity

Another reason that has driven exponentially transactions in cryptocurrencies in Venezuela is the low cost of electricity. Cryptocurrency mining has become famous in the world both for its high profitability and its high power consumption. A legal framework apparently friendly to the miners, coupled with the subsidy of electricity service fees, makes Venezuela an ideal place for this activity.

Venezuela is the country with the cheapest electricity. According to figures from Corpoelec, the National Electric Corporation, the Kilovatio per hour (Kw / h) has a price of 0.0020 dollars at the official rate, while at the parallel rate the price of Kw / h is located at 0.00026 dollars .

This low price of energy added to high inflation rates, difficulties to obtain foreign currency, a serious economic crisis and the difficulties to obtain cash are the perfect combination for cryptocurrencies to be more and more accepted by the population and mining is seen as a highly profitable activity that reduces the effects of the crisis.

The largest consumer of electricity in the region

The low rates have made Venezuela occupy the first place as a consumer of energy per capita in Latin America, according to figures provided by the World Bank and the Ministry of Electric Power of Venezuela, with 4,179 Kw / h per inhabitant, above countries as Chile that has an energy consumption of 3,393 Kw / h for each inhabitant, Argentina with 2,860 Kw / h, Uruguay with 2,750 Kw / h, Brazil with 2,317 Kw / h, Mexico with 1,999 Kw / h, Ecuador with 1,575 Kw / h Colombia with 1,331 Kw / h per inhabitant.

Although Venezuela has a population that surpasses the 30 million inhabitants, it consumes more energy than Brazil, which exceeds 206 million inhabitants, Mexico with a population of 127 million inhabitants and Colombia and Argentina with its 48 and 43 million of inhabitants respectively.

Mining and electricity consumption

According to Digiconomist, Bitcoin mining worldwide uses approximately 45.2 Twh / year, placing the global consumption of mining above the annual consumption of countries like Ireland.

Venezuela, according to figures from Corpoelec, has an installed capacity to generate between 22 and 34 Tw / year. However, it is only generating around 17 Tw / year, which indicates that half of the electrical system is inactive due to lack of maintenance and new investments.

The electrical distribution system in Venezuela has been experiencing significant failures since 2009. During the past nine years, millions of Venezuelans have had to get used to living between blackouts and electricity rationing, which are more or less frequent depending on the climate, the demand and the time of year.

Power outages and momentary interruptions of service are recurrent in the 23 states of the country, and if the light or the Internet fail, mining is impossible. In other words, the advantages of cryptocurrencies are counteracted by the irregularity of the electricity supply. In addition, an increase in mining could have considerable negative impacts on the already battered national electricity system, so that this saving alternative does not seem to be sustainable over time.

Latin American Post | Daniel Ramírez Pérez

Translted from "El mercado y la minería de criptomonedas en Venezuela: ¿Una carga insostenible?"