Venezuela takes further action against Bitcoin mining

According to local media reports, the Venezuelan government wants to exclude miners of Bitcoin and other cryptocurrencies from the national power grid because the high power consumption has allegedly led to frequent power outages and a stable power supply for the population is now planned.

The Venezuelan Ministry of Energy has also announced this plan on social media channels.

Shortly before the publication of these plans, the government in Maracay in the state of Aragua, around 120 kilometers southwest of Caracas, confiscated several thousand mining devices - allegedly as part of an anti-corruption campaign. While most media report 2,000 ASIC miners confiscated, far higher figures are occasionally found.

Numerous 𝕏 users have strongly criticized the actions of the Venezuelan government and the associated reporting. Many observers and Bitcoin enthusiasts are of the opinion that the blackouts are not connected to the mining companies, but are rather due to wrong decisions by the government, corruption and the long-lasting economic and supply crisis in the country.

The lives of people in Venezuela are characterized by a prolonged, severe crisis. The country has been struggling with an extremely unstable currency for several decades. Since the 1980s, inflation of the Venezuelan bolívar has been at least in double figures. With the start of the socialist presidential system under Hugo Chávez and the associated centralized decisions on all areas of life, the living situation of most people has steadily worsened. The economy in particular was controlled without knowledge by presidential decrees and ruined as a result. Numerous serious cases of corruption as well as a lack of maintenance and investment in the state electricity grid have also led the country into an electricity crisis since 2009. This is said to have led to massive power outages, particularly in the last five years, which have had a major impact on people's lives and economic activity.

Since 2015, the US government and the EU have also imposed sanctions against Venezuela in order to withdraw financial resources and force a regime change. This has made the sale of Venezuelan government bonds and the export of oil and gold extremely difficult.

In the 2010s, the oil price also collapsed, which made the situation even worse for Venezuela - the country with the world's largest oil reserves that is almost entirely dependent on oil exports for its economy. The new President Nicolás Maduro, who has ruled the country since 2014, was also unable to overcome the economic crisis. The consequences were a complete economic collapse, hyperinflation, supply shortages, famine, extreme poverty and mass emigration. In 2018, the poverty rate reached around 90 percent and inflation was 80,000 percent at times. The value of the Venezuelan bolívar was in free fall.

There were even attempts to combat inflation with a separate state cryptocurrency, the petro. The petro was supposedly backed by one barrel of oil reserves at a time, but could not actually be redeemed in this way. The regular currency was pegged to the Petro by decree at a fixed exchange rate. In addition, the government also allowed partial payments in US dollars, which it also used to pay the military and its loyalty.

In order to avoid the national currency, the use of cryptocurrencies alongside the US dollar has become increasingly prevalent in everyday life. In 2020, Venezuela was the third country with the highest use of cryptocurrencies. It is assumed that the government wanted to use the petro to circumvent sanctions, displace other cryptocurrencies or destroy the population's trust in these digital currencies.

Although inflation of the bolívar returned to triple digits in 2022 (337.5% in 2023), a major corruption scandal involving the state oil company Petróleos de Venezuela (PDVSA), the national supervisory authority for crypto assets (Sunacrip) and other state institutions in 2023, which also involved El Aissami, one of the most powerful people in the country, ultimately led to the discontinuation of the petro in January 2024.

For many observers, such cases of corruption are also the reason for the numerous power outages and the necessary power rationing, for which Bitcoin miners are currently being blamed. However, this is not the first time that the Venezuelan government has targeted Bitcoin miners.

Back in 2020, the government under Maduro tried to capture the cryptocurrency miners based in the country. At that time, Venezuela was the 9th country with the highest Bitcoin hashrate. Just as the economy was determined by centralized decisions, Bitcoin miners were also to be centralized. On September 22, 2020, the crypto-asset regulator passed a decree requiring miners to join a national mining pool, with the regulator overseeing and licensing the miners and taxing and distributing the shares earned.

In 2021, the government temporarily banned mining. Many 𝕏 users noticed that the government also confiscated numerous mining devices, which they then used to mine Bitcoin themselves.

As environmental activist Daniel Batten suspects, the current case is ultimately another example of misdirection, with journalists acting as mouthpieces for state propaganda. The blackouts are solely due to corruption and it is all about ensuring that the power and ability to control the supply and price of electricity remains in the hands of the mafia.

Venezuela could get to grips with many social and ecological problems with the help of Bitcoin and its monetary properties. Bitcoin can serve as a savings technology and hedge against inflation, help to expand and stabilize the electricity grids or monetize stranded energy sources - such as methane gas in the oil fields - and reduce emissions at the same time. To do this, however, the government must also relinquish centralized decision-making power, as Bitcoin cannot be controlled. But this is probably the biggest problem: as long as a dictatorial regime is in power that wants to control everything, it will probably continue to fight Bitcoin or other aspects that promote freedom.

The example of Venezuela is a good illustration of how a country can be ruined by an unstable currency, inflation, a dictatorial government, corruption and sanctions.

At the same time, the Venezuelan government's treatment of Bitcoin miners shows that low-cost energy sources should not be the sole reason for Bitcoin mining companies to choose a particular operating location. Political stability, local corruption, regulatory requirements and property rights should also be considered.

Blaming Bitcoin miners for problems and more or less banning them from the country will ultimately have little impact on the Bitcoin network. However, this closes a door to financial, social and economic stabilization for the country, which ultimately also affects the freedom of the Venezuelan population.With a better currency, it might also be possible to solve other problems in the country.

Fix the money, fix the world!