At the beginning of October, the digital bolivar came into force in Venezuela, the new denomination of the fiat currency of the Caribbean country. While the name is misleading, it is not a central bank digital currency (CBDC), but can it be?
To answer that question, . spoke exclusively with the computer engineer and CEO of Blokchain Hub Venezuela, Luis Gilberto Caraballo. He maintains that it is possible to bring the currency to CBDC, as long as a blockchain is created on the digital bolivar “to make it transparent.”
He is optimistic when considering that the bolivar could become a “digital currency backed by the central bank”, but warns that the “light handling” of the concept of digital asset at the government level complicate the task and “generates confusion” in the population.
Therefore, the expert believes it is essential, to advance in this sense, having to “clean” these conceptual aspects. In addition, from your perspective, you have to educate in Venezuela on the subject of cryptocurrencies and blockchain, as well as creating educational centers where technology is used, all for the sake of converting the bolivar into a digital currency.
“I would insist on the creation of several academies (…) and with the bolivar I would try to do the work on blockchain to make it reliable, transparent.”
Luis Gilberto Caraballo, Venezuelan engineer expert in blockchain.
And is there the infrastructure for a Venezuelan CBDC?
Asked whether Venezuela currently has the necessary infrastructure to sustain a digitized bolivar, Caraballo stressed that it did not, but defended that it is something that “is being built”, since countries “do not launch that (the CBDC) from one day to the next.”
For this, he cited the examples of the Bahamas, whose project, the Sand Dollar, has been developing since 2017; as well as China, where the digital yuan has been studied since 2018.
And returning to Venezuela, he clarified that in that country there is already a “path traveled” on the issue of virtual currencies and that he does not believe that everything is wrong. “It’s just making some adjustments and changes,” he said.
“It’s not just the CBDC, it’s the ecosystem, the regulation, what’s behind it. It is a complete structure that must be created for the commercial, public, exchange and services areas. This, so that it has a much larger capacity. If it is not done that way, there will be elements that cause short circuits in society ”.
Luis Gilberto Caraballo, Venezuelan engineer expert in blockchain.
The petro was the first cryptocurrency issued by a government, although its use is scarce. Source: Petro.gob.ve
The petro, the token that the government uses for public spending
We spoke with Caraballo about the petro, the token created by the Venezuelan government in 2017 and that would be backed by the costs of raw materials, among which oil stands out.
Promised as a way out of the United States (US) sanctions and a boost to the local economy, the asset went from being highly promoted to being used sparingly. In fact, in public bodies they only take their price as a reference for the payment of procedures, but little is received as a means of payment.
There are isolated cases in which it can be used to pay. It was news in recent days that the Maiquetía International Airport, the main air terminal in Venezuela, is working on the enablement of payment buttons with crypto assets, among which bitcoin (BTC), Dash and, of course, the petro stand out.
But what else is it used for? According to the expert, right now, the petro is only used by the government of Nicolás Maduro for, among other things, to close deals in commercial issues of a public nature and payment of services.
“The petro is being supported for commercial transactions that have to do with the payment of jet fuel, customs, commercial agreements; and of course, for everything that has to do with the bonuses that the State gives to the citizens ”.
Luis Gilberto Caraballo, Venezuelan engineer expert in blockchain.
Caraballo adds that the crypto asset has support in a highly complex secondary market (determined by supply and demand), which depends on many geopolitical factors: the tanker.
As he says, this characteristic makes it unfeasible, from the point of view of free trading, because it maintains parity with the oil basket. Given this, he exposes, “the government has had to promote it with regulations and different decrees, which are issued to achieve a certain commercialization,” but the result has not been as expected.
The petro can work if it is anchored to another asset
According to the engineer, the petro has not helped Venezuelans facing a hyperinflationary economy, although he acknowledges that, correcting some key aspects, the asset can be made suitable for digital marketing.
He clarifies that, contrary to estimates, in Venezuela there is a greater adoption of other crypto assets, which are free for sale, recalling what the recent Chainalysis report says, which places that nation among those that use cryptocurrencies the most. He specifies that it is due to the loss of purchasing power of the local currency, “because there is galloping hyperinflation.”
“In addition, it is a de facto dollarized economy, because Venezuelans look for other assets to take refuge in, and crypto assets have been used par excellence for that,” he suggested.
In any case, it affirms that the petro can be rescued, anchoring it to another more stable asset, such as gold, a commodity or precious minerals, “that serve as a reference value.”
Bitcoin mining in Venezuela in progress
We consulted Caraballo about the cryptocurrency mining activity in Venezuela, a country with serious electricity problems and where the lack of energy is recurrent, although it is also very cheap.
He affirmed that there are important mining farms in the state of Aragua (center), as well as in other regions within that country, which remain in the extraction process at all times. He stressed that the sector in Venezuela has, at least, 8 years of development.
Those farms, it is worth noting, operate based on an energy agreement that established the parameters to be followed for Bitcoin mining, and that was reached by the miners in conjunction with the National Superintendence of Cryptoactives (Sunacrip) and the state-owned National Electric Corporation of Venezuela (Corpoelec) in December of last year, as we reported in ..
“There are improvements in the algorithms, in the devices, there is everything, a technological advance,” he said. “But the important thing is that operations have to be adjusted. Regulatory bodies will delve into these issues, “he added.
Caraballo highlights state oversight on certain farms and the regulations that have been established, then, “like any process, it takes time. Nothing else happens in Venezuela ”.
“The improper use of electricity, in urban and industrial areas, generates electrical management problems and that is a highly sensitive issue because it has impacted several states.”
Luis Gilberto Caraballo, Venezuelan engineer expert in blockchain.
In fact, it was news last August that the Bolivarian National Police (PNB) had seized 17 equipment to mine bitcoin and detained a 39-year-old woman for alleged smuggling, as we reported at the time.
Venezuela, the country in crisis with great use of cryptocurrencies
In the midst of a harsh hyperinflation and the deepest crisis in its history, Venezuela is in the top 10 of the Global Cryptocurrency Adoption Index of the firm Chainalysis. It is ranked number 7, also registering one of the peer-to-peer (P2P) trade rates higher.
But all out of necessity. According to the firm, in the Caribbean nation, almost 3% of the total volume of transactions are P2P, and, in general, they are small operations, as we reported in .. “Indicating increased grassroots adoption driven by need,” they estimate.
According to Luis Caraballo, bitcoin has had a “very important” acceptance in Venezuela, although he emphasizes that lately “many crypto assets have emerged”, which are having “a lot of momentum” in the Caribbean country.
Thus, it only remains to await how technological and financial innovation develops in Venezuela, where cryptocurrencies are gaining more and more prominence, leaving aside, perhaps unintentionally, the beaten bolivar.
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