Venezuela is starving. The country has plunged into a deep crisis after oil prices – their biggest export – dropped some 50% last year, sending the economy down a cliff with inflation expected to reach an incredible 2,200%.
The starving people have risen against their government, which has sent the Venezuelan army into streets, driving armored trucks into defiant crowds that have to face empty shops and scavenge through rubbish for food.
The situation has become a humanitarian crisis. Hospitals have run out of soap, let alone antibiotics or other medicine. Their paper money has become worthless, falling in value by the second, grinding everything to a halt.
It is the latest tragedy to remind us of the dangers of centralized market control since Venezuela has nationalized most things, including banks. But can ethereum really have any role to play in such a desperate situation?
Search trends have shown that out of all countries which use Google, Venezuela indicates the second strongest interest in ethereum after Switzerland where the Ethereum Foundation and the Crypto Valley is based.
We tried to find some evidence these search trends have translated into actual ethereum use, but we could not find any ethereum related Venezuelan exchange and coinmarketcap doesn’t list any eth/vef trading volumes.
There is Bitso, a Mexican exchange which handles a trading volume of eth to Mexican Peso of almost half a million dollars daily. The exchange might perhaps be acting as a hub for all of South America, but another explanation might be that Venezuelans are entering ethereum through bitcoin.
Bitcoin’s price increased considerably last year after a number of countries, including China, India and Venezuela, experienced currency crisis. There were studies which suggested bitcoin is uncorrelated, therefore could be a good hedge, but bitcoin’s transaction fees have increased since then from negligible to now a high of $1.50.
That might not be too much in the west, but a Venezuelan merchant might be priced out from accepting regular bitcoin payments. It may well be the case, therefore, that they have begun looking at eth as an alternative.
Ethereum, The Currency
Ethereum isn’t really meant to perform the function of a currency, but it does perform it very well in one aspect: ethereum is an excellent means of exchange. Transactions finalize in seconds, with no means of reversion, fraud, double spending, or manipulation. Moreover, fees are as good as non-existent.
It is, however, very volatile compared to traditional currencies such as dollars. Ethereum has increased in value from $15 to $100 – great for investors, but somewhat of a headache for setting prices.
That might be less of a consideration in a country which basically now has no currency. In such situations, usually the preferred method is using dollars, pounds or perhaps euros, but the national banks of Venezuela are unlikely to provide the option, forcing them to use cash.
In a country of great crisis, safely storing and transporting this cash is a serious consideration. With ethereum, they could lock up that value for a year or two, with no ability of moving funds during that period. While transporting it would be far too easy as ethereum is digital, requiring no physical form.
For international merchants specifically, especially if they do not have a foreign currencies bank account, they can easily pay with eth for almost no fee save for exchange fees.
Conceptually, they do not necessarily have to convert it to fiat at all. They can instead exchange eth directly for food if their local shop accepts it, which then itself can directly pay suppliers in eth.
That’s some long way off at this stage. Ethereum is barely two years old and hardly known so it is unlikely anyone would accept it, but the crisis would probably lead many to appreciate an alternative means of exchange and value storage which can easily be transported across the globe for as good as no fee.
And, since bitcoin has done much to raise awareness of such alternative method, the path may be easier for ethereum which tends to have a far better reputation due to its focus on the technological aspects of the currency, such as smart contracts that can hold value under coded, unchangeable, rules.