Harold Trinkunas was a nonresident senior fellow in the Latin America Initiative in the Foreign Policy program, and is the interim co-director and a senior research scholar for the Center for International Security and Cooperation of the Freeman Spogli Institute for International Studies at Stanford University. His research focuses on Latin American politics, particularly on issues related to foreign policy, governance, and security. He has studied the role of armed nonstate actors in local governance, Brazil’s emergence as a major power, and Latin American contributions to global governance on issues including energy policy, drug policy reform, and Internet governance. Trinkunas has also written on terrorism financing, borders, and ungoverned spaces.
My understanding is that what is driving the interest in cryptocurrencies is a combination of an attempt to find an alternative store of value, separate from Venezuela’s domestic currency, and dirt cheap prices for electricity that makes mining for [cryptocurrencies] competitive with other jurisdictions around the world. Venezuela’s money supply doubled between March 2016 and March 2017, and the inevitable consequence of this is very high inflation, estimated at 800 percent in 2016. Access to traditional stores of value such as dollars and gold is highly restricted by the government, forcing the average person to go to the black market to purchase these, where Venezuela’s currency has been depreciating against the dollar at a staggering rate. In addition, Venezuela’s highly distorted economy, in which energy is so highly subsidized that it is practically free, makes it competitive for [cryptocurrency] miners to operate. The [cryptocurrencies] generated can be used to purchase scarce goods abroad for shipment to Venezuela. Keep in mind that not only is food scarce enough that malnutrition is a serious problem for the first time in decades, but most medicines are unavailable due to severe import restrictions by the government. So Venezuela is uniquely economically mismanaged compared to other South American countries, which together with highly subsidized electricity makes [cryptocurrencies] one of the possible lifelines for some Venezuelans who have the savvy to enter this market. This is not a combination that you are likely to see repeated elsewhere in the region.