Whoever Satoshi Nakamoto is, he/she might be deserving of the Nobel Prize in economics for inventing Bitcoin (BTC), the nascent digital coin that is currently rescuing crypto-adopting Venezuelans from the abyss.
Fiat cash has long been problematic because of their unsustainable, long-term value: Central banks and governments can simply turn on the printing press to print notes that are not backed by gold or anything of fungible value. In Venezuela, which has a population of 32 million, the bolivar has become unusable and the local economy has arrived at a grinding halt: Suppliers have stopped producing; workers have stopped working; and grocery shelves are empty because nobody can get paid given that the medium of exchange (bolivar) has lost all value.
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That's where Bitcoin is saving the day in contrast to Venezuela's President Nicolas Maduro and his socialist administration.
The World Bank estimates gross domestic product (GDP) to shrink by 14% in 2018 as most daily transactions become impractical, if not impossible. Last year, the country had an inflation rate of 652%. Annual inflation is now estimated at 200,000% and the International Monetary Fund (IMF) expects it to rise to 1,000,000% by end of 2018.
Two million people have left the country.
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[caption id="attachment_36844" align="aligncenter" width="1050"] Credit: Diar.co[/caption]
Bitcoin is replacing the bolivar — at least for a few thousand residents who are turning to financial technology to preserve their wealth. According to cryptocurrency research firm Diar, BTC monthly trading volume has consistently risen from $1 million in January 2017 to nearly $17 million in August 2018. In that span, local inflation has skyrocketed to mathematically incomprehensible levels. What this means is that some Venezuelans have turned to cryptocurrencies to make payments and to store whatever purchasing power they have left. The country's GDP per capita is roughly $13,000.
On Thursday, President Maduro announced wider implementation of state-sanctioned petro token to stabilize the economy and for use in global trade beginning in October. He also said that the bolivar will be pegged to the oil-backed petro. Domestic banks have been ordered to use the petro as unit of account. However, economists doubt that the petro will be accepted by international banks because the state token does not address the root causes of Venezuela's economic problems. Ultimately, sound money policies is what improves the monetary system.
Many people are skeptical of state tokens. A 2018 survey by Foley & Lardner found that 58% of respondents believe sovereigns and central banks should not create their own cryptocurrencies. Probably because these state tokens require trust in central planners and many have proven incapable and/or corrupt.
Don't expect Maduro to accept the blame for socialism's failure in a free-market world. This week, he blamed business and "mafias" on national television and arrested 34 storage managers on charges of price gouging and hiding food, per Reuters report.
"Venezuela's [government] is … extremely corrupt," says Dr. Kate Gillespie, business professor at University of Texas at Austin, in an interview with CryptoDaily. "It is better thought of now as a narco dictatorship. Populism often resulting in socialism (creating lots of welfare promises) does fuel inflation in South America and can be especially bad in election years."
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