Bitcoin mining is a process that provides the computational power and security required to run this decentralized currency network. To start mining, anyone can purchase a special type of internet-connected computer that runs difficult computations at high speeds. Though it has almost nothing in common with mining for gold, the end result is the same: Participants are awarded with currency—in this case, newly minted bitcoins.
It's become a popular vocation in Venezuela in part because the country's economy is in such dire shape. Even computer scientists and skilled technical professionals can't reliably find work. Next year, the unemployment rate is expected to climb above 20 percent.
But the main factor driving Venezuelans to take up bitcoin mining is a price control put in place by the socialist government: Electricity is virtually free.
Bitcoin mining requires a lot of computer processing power, which in turn requires a lot of electricity. In most of the world, utility bills eat into the cost of mining. In places where energy prices are high, it can even be a losing proposition. But in Venezuela, the government has turned bitcoin mining into something akin to owning a home mint.
Price controls, of course, invariably lead to shortages, and the country's frequent electricity outages create constant headaches for bitcoin miners. But they've also come up with workarounds, such as locating their operations in industrial zones, where electricity service is generally uninterrupted.
Since bitcoin mining is a process, in effect, of converting the value of electricity into currency, Venezuelan miners are engaging in a form of arbitrage: They're buying an underpriced commodity and turning it into bitcoin to make a profit. The miners have turned socialism against itself.
In the process, they've gained access to a currency with far more purchasing power abroad than the government-issued bolivar, which trades for about one thirtieth of a penny on the black market. As the local saying goes, Venezuelan money is "no good for buying toilet paper or even wiping your ass."
Bitcoin's potential as an alternative to government-issued currency is still hotly debated outside of Venezuela. But in a country lacking food and basic health care, there's nothing theoretical about it. Bitcoin is helping to keep pantry shelves full and medicine cabinets stocked, making life tolerable—if not always easy—in the midst of a socialist hell.
Like many bitcoin users, Alberto, a bitcoin miner who makes $1,200 daily, imports food from the U.S. through Amazon's Prime Pantry service. This would be impossible with bolivars because almost no one outside of Venezuela accepts them as payment, and the growing scarcity of U.S. currency has made purchasing foreign goods with dollars increasingly difficult. Though the Seattle-based retail giant doesn't accept bitcoins itself, plenty of intermediary companies do. Alberto purchases Amazon gift cards through the cryptocurrency-friendly website eGifter, using software to mask the location of his computer, and then routes his orders through a Miami-based courier service.
Alejandro, a 25-year-old miner who lives in the state of Táchira, is helping to feed his family with groceries purchased from Walmart.com using a Neteller card, which is a prepaid credit card that allows users to deposit bitcoins and spend dollars. Every three weeks, he also loads up his card with bitcoins and crosses into Colombia to stock up on provisions.
Jesús, a 26-year-old living in the city of Barquisimeto, credits bitcoin with saving his business. He's the proprietor of a small cellphone and computer repair shop located in a mall. When his suppliers ran out of inventory because of trade restrictions, his store was on the verge of going under. Then a friend introduced him to bitcoin. Now, he orders $400 in supplies from Amazon in a good month, and his business has recovered. "I have access to tools and inventory," he says, "that are difficult to find or extremely expensive in Venezuela."
Ricardo, a 30-year-old photography teacher, is earning about $500 in monthly revenue with a rack of five mining computers hidden in a soundproofed room of his family's two-story house. His mother has chronic liver disease, and the medication she needs to stay alive is no longer sold in Venezuela. With bitcoins, he's able to purchase the drug from foreign suppliers. "Bitcoin," he says, "is our only hope nowadays to survive."
So, socialists prostrate an entire country with their idiot ideology, while capitalists save the agile through innovation and grit. Sounds good to me. Coinbase, anyone?