Bitcoin turns into a wealth code, this country does not hesitate to use the army to dig

Bitcoin turns into a wealth code, this country does not hesitate to use the army to dig

Bitcoin surged in the first week of 2020, earning the attention of the world.

Although it took a brief "dive," the price of one bitcoin is now back up to about $34,719.

Some people think bitcoin is a "bubble", while others think it's worth holding for the long term. Either way, the unpredictable nature of bitcoin is that there is no traditional measure, and no one can say for sure whether it is overvalued or undervalued right now.

Image source: Internet

It is precisely this uncertainty that allows people or countries to "throw in the towel" - such as Venezuela, which is in the midst of a crisis.

On a day just past the end of 2020, a ribbon-cutting ceremony was held at a military base outside of Caracas, Venezuela. Several officers used scissors to cut a blue ribbon tied with balloons.

They then walked into a bunker on the base.

The bunker, not some military training base, but a newly opened bitcoin mining facility, also housed not ammunition and weapons, but a computer.

The bitcoin mining site probably looks like this

Image source: Internet

This is a country that has decided to use the military to mine bitcoins.

Collapsing Currency

Venezuela's Maduro government is in a deep economic crisis due to harsh U.S. sanctions.

Inflation in the country reached 800 percent in 2016, more than 4,000 percent in 2017 and about 1,700,000 percent in 2018. By early 2018, the Venezuelan government had "largely stopped" providing official inflation estimates.

The International Monetary Fund (IMF) estimates that by April 2019, Venezuela's inflation rate reached 10,000,000%. The Central Bank of Venezuela (BCV) officially estimates that inflation in the country rose to 53798500% between 2016 and April 2019.

Katherine Hasegawa Perez, a Venezuelan, used 2,500 Venezuelan banknotes to make the world's "cheapest dress"

Image source: Vision China

The original currency, the bolivar, accelerated its depreciation and ended up like scrap paper, and the government had to raise the face value of the currency to facilitate its circulation.

Previously, sources close to the matter revealed that the Central Bank of Venezuela is considering printing a currency of 100,000 denominations, the largest in the country's history.

Even so, a Venezuelan with 100,000 is poor - by now, officially 10,000 bolivars is about one dollar, but the black market value is only $0.14.

Due to the extreme lack of foreign currency, even money printing factories refuse to cooperate with the Venezuelan government.

Venezuela's original printing partner was De La Rue, a world-renowned British printing, paper and currency business.

As Venezuela's own economic situation deteriorated, it could not afford the higher printing costs and began to default on its payments to De La Rue, resulting in a loss to De La Rue of $23 million, which would be an astronomical figure if converted into the Venezuelan currency, the bolivar.

14 million to buy a chicken

Image source: Reuters

For now, Delarue has announced that he refuses to print any more money for Venezuela.

In 2016, Maduro designated the southern region of Orinoco as a "strategic development zone" where the military organizes gold mining in veins.

The military has invested in a dozen companies that control all gold refining operations, from mining to refining.

In 2018, Venezuela sold nearly 24 tons of "unrefined" gold to Turkey, worth more than $900 million, to buy supplies. But due to the U.S. embargo, Venezuela has very limited buyers of gold.

Bitcoin's recent frenzy has given Venezuela a glimmer of hope.

On Dec. 17, 2020, Bitcoin crossed the $20,000 mark for the first time since its introduction, and it has tripled so far this year.

Image source: The Atlantic Monthly

Various financial institutions have also increased their positions in bitcoin, including prominent hedge fund managers Paul Tudor Jones and Stanley Druckenmille, insurance giant Aptar Financial Group, UK investment firm Ruffer Investment Management, and more.

This situation has led the Venezuelan government to pin its hopes of earning foreign currency on Bitcoin, with the military building its own mining sites and mining Bitcoin.

"This mine was built in conjunction with private capital and our army opened the first digital asset production center in the country." Venezuelan state television announced the mine's commissioning on Nov. 20, saying the mine would guarantee the army's foreign exchange needs.

Domingo Antonio Hernandez Larez, commander of Venezuela's defense strategic zone, presided over the opening ceremony, and then he toured the mine.

The main mining machine at the site is the Ant S9, which was launched in 2016 by Chinese company Bitmain and was once recognized as the "king of the generation" by the bitcoin mining community.

Ant S9 Miner

Image source: Internet

But after the new generation of miners came out, the S9 mining efficiency is relatively low and has now been retired in China, and used models can be bought for $100 in China.

Ironically, three years ago, the Venezuelan military also heavily raided bitcoin mining sites.

Presidential calculations

Electricity prices in Venezuela are so cheap thanks to state subsidies that many people have started mining privately.

According to April 2020 figures from Crescent Electric Supply Company, a U.S. electrical hardware supplier, Venezuela has the lowest mining costs in the world.

Mining costs include energy costs, land costs, hardware costs, cooling costs, maintenance costs, and employee costs, with energy costs accounting for the largest share.

In bitcoin terms, South Korea has the highest mining costs at $26,170 per coin mined, the U.S. costs $4,758, the world's mining hub Russia costs slightly less than the U.S. at $4,675, China at $3,172, and Venezuela at $531, just one-sixth of China's cost, to the point where even backward S9 miners are profitable there.

An electronic screen displays the interest rates of various electronic currencies, including bitcoin, on the streets of Seoul

Image source: Reuters

Cheap production costs have given rise to a large number of private miners in the country.

By September 2017, tens of thousands of people were mining privately in Venezuela, according to the U.S. media outlet CNBC, when a miner could earn up to $500 a month, which is considered a huge amount of money in the country.

A mining boom developed in Venezuela, with professors, university students, and even police officers and politicians taking up mining.

For the poor people of the country, an S9 was an ATM machine.

With the bitcoins mined, miners can buy some of Venezuela's shortage goods online, such as baby diapers and insulin.

Amazon has started accepting bitcoin

Image source: Internet

While most online stores, such as Amazon, do not offer direct mail to Venezuela, miners in the country can buy Amazon gift cards through some sites that accept digital currency, such as eGifter, use the gift cards to shop at Amazon and then ship to Venezuela via a Miami-based forwarder.

The miners have become a privileged class in the country and live a relatively privileged life. The only problem for miners is the high price of mining machines.

Venezuela imposes strict restrictions on the import of electronics. in 2017, an S9 miner was less than $1,000 in China, $500 on Amazon in the U.S., and sold for $1,500 in Venezuela.

But the good times didn't last long, and the Venezuelan government soon began cracking down on private miners, arguing that cryptocurrencies were causing more capital flight and a serious waste of the country's energy.

Private mining carries multiple charges of terrorism, money laundering and computer crime, and can carry up to the death penalty.

The Venezuelan military monitors power fluctuations across the country and immediately locks down and makes arrests when abnormal consumption is detected.In 2018, a Venezuelan miner once complained on Reddit, "It's crazy, I'll just have to give up and not risk my life to make money."

November 30, 2020, Caracas, Venezuela, Pizza Hut starts accepting cryptocurrency payments in all Venezuelan stores

The Venezuelan government is cracking down on Bitcoin private miners while seeking to promote its own cryptocurrency: petrocoin (Petro).

Venezuelan President Nicolas Maduro announced the birth of Petrocoin in a televised speech on December 3, 2017. Maduro said the new currency will be backed by Venezuelan reserves of oil, gasoline, gold and diamonds. Venezuela has thus become the first country in the world to issue a legal cryptocurrency.

However, the launch of petrodollars was not widely accepted. in 2019, government agencies issued petrodollars to civil servants as part of their salaries, while the authorities required businesses to adopt them.

But the country's businesses were not enthusiastic about using petrodollars, and those who received tokens but had nowhere to spend them turned to local currency trading platforms to trade them - and, those that were able to trade them were small platforms. Although the government has set a price of $60, it actually trades for as little as $8.

By the end of 2020, the Venezuelan government had largely abandoned the failed petrodollars and turned to state power to mine bitcoin again.

Petrodollars

Image source: Internet

In addition to Venezuela, Iran, which is also in dire straits and also has cheap electricity rates, has used bitcoin to circumvent U.S. sanctions.

In October 2020, Iran legislated cryptocurrency to allow the central bank to use cryptocurrency to pay for imports. This bill stipulates that all miners in Iran can only sell bitcoins to the Iranian central bank and cannot trade them privately.

"The production of (official) cryptocurrencies starts with the military, which will be unstoppable revenue and will defeat the American colonialist blockade of our country." Venezuelan state television commented.

In the footage broadcast by this TV station, Venezuelan soldiers, wearing green tunics, sit in front of heavily wired computer desks, patiently debugging machines. In their view, this should be yet another new war to save the country.


Post time: Jan-13-2021