Crypto News Updates

EARN IT: The US Anti-Encryption Bill That Threatens Private Speech Online

There’s a new bill in the works to fight against child sexual abuse material (CSAM) and other risky services on the internet — but it could come at a cost to online privacy. 

Eliminating Abusive or Rampant Neglect of Interactive Technologies (EARN IT) was proposed by the Senate Judiciary Committee and sponsored by senators from both sides of the aisle such as Lindsey Graham (R-SC) and Richard Blumenthal (D-CT). The bill is also supported by the National Center for Missing and Exploited Children and the National Center on Sexual Exploitation

However, this bill is problematic for both freedom of speech and privacy online according to Riana Pfefferkorn, associate director of Surveillance and Cybersecurity at the Center for Internet and Society. 

“This bill is trying to convert your anger at Big Tech into law enforcement’s long-desired dream of banning strong encryption,” argued Pfefferkorn in a blog post. Pfefferkorn’s detailed explanation says EARN IT appears less like a legitimate way to prevent the spread of child exploitation content and more like a covert attempt to ban end-to-end encryption, without having to ban it outright.

At the end of January 2020, a draft of the proposal was leaked and met with similar apprehension not only by Big tech juggernauts (Facebook, Google, etc.) but also their sometimes opposing counterparts, freedom of speech advocates. 

“We’re concerned the EARN IT Act may be used to roll back encryption, which protects everyone’s safety from hackers and criminals, and may limit the ability of American companies to provide the private and secure services that people expect,” Facebook spokesperson Thomas Richards said in a statement to the Washington Post.

Clearly, the issue could not be more sensitive. Patrick A. Trueman, president and CEO of the National Center on Sexual Exploitation, recently voiced this opinion, apparently advocating for EARN IT. 

“Right now, Big Tech has no incentive to prevent predators from grooming, recruiting, and trafficking children online and as a result countless children have fallen victim to child abusers on platforms like Instagram, Snapchat, and TikTok,” said Trueman.

Section 230: The Most Important Law Protecting Freedom of Speech Online

While everyone who has publicly condemned EARN IT has also stated a universal commitment to child safety online and in the real world, many say the bill’s far-reaching approach to content moderation could do more harm than good by essentially eliminating private conversations across the internet, particularly on social media platforms and messaging apps.

To fully comprehend what EARN IT proposes, one needs to understand the importance of two bills passed in the ’90s. These laid the groundwork for how privacy and free speech are supposed to operate for U.S. citizens.

First, Section 230 of the Communications Decency Act (CDA), passed in 1996, allows for the continued development of the internet as a free market and universal good for free speech. Section 230 says that online platforms or providers of interactive computer services mostly cannot be held responsible for the things their users say or do on their platforms. It uses the term “mostly” instead of “always” because platforms are still liable for exceptions that violate intellectual and federal criminal law. Essentially, this means if someone is defamed for being a fraud, that person can sue their defamer, but they cannot sue the platform for providing the space for free speech. 

Second, the Communications Assistance for Law Enforcement Act (CALEA), passed in 1994, requires telecom providers to make their networks “wiretappable” for law enforcement. However, it also ensured a “carve-out” for encrypted messages and information services where websites, email, social media, messaging apps and cloud storage fall out of CALEA’s jurisdiction. 

The purpose of these carve-outs was to reach a compromise between the competing interests of network security providers, privacy advocates, civil liberties, technological growth and law enforcement. In combination, Section 230 and CALEA prevent regulation from suffocating growth and development of the U.S. information economy.

Weakening Protections

Since the ’90s, more regulation has passed to undo Section 230. “Section 230 has been amended since it was passed: SESTA/FOSTA, enacted in 2018, pierces providers’ immunity from civil and state-law claims about sex trafficking,” wrote Pfefferkorn. SESTA/FOSTA is currently being challenged in federal court being unconstitutional and doing more harm than good.

There is also already a regulatory reporting scheme for online providers combatting CSAM. Also, Section 230 does not keep federal prosecutors from holding providers accountable for CSAM on their services.

While the current reporting scheme’s success is questionable, there is reasonable evidence to believe that EARN IT is an attempt to regulate communication on the internet more broadly. 

“The so-called EARN IT bill will strip Section 230 protections away from any website that doesn’t follow a list of ‘best practices,’ meaning those sites can be sued into bankruptcy,” writes Joe Mullin, a policy analyst with the Electronic Freedom Foundation. 

Mullin is referring to how EARN IT would target CSAM. It proposes to do this by creating a federal commission to develop a list of best practices for preventing CSAM that online platform providers would have to follow or else lose their immunity under Section 230 — meaning they could be sued into bankruptcy. This commission would largely be made up of law enforcement and allied groups such as the National Center for Missing and Exploited Children (NCMEC).

According to Mullin, “The ‘best practices’ list will be created by a government commission, headed by Attorney General Barr, who has made it very clear he would like to ban encryption and guarantee law enforcement ‘legal access’ to any digital message.” 

Although the word “encryption” does not appear anywhere in the EARN IT bill, Mullin is suspicious of how the federal commission might design best practices. For instance, in an earlier draft of the bill, the NCMEC Vice-President stated that online services should be made to screen all messages using screening technology approved by themselves and law enforcement, report what they find in messages to the NCMEC and be held legally responsible for the content of the messages sent by others.

In short, the commission could quietly give backdoor access to all U.S. hosted information services, undoing encrypted messages altogether. 

Centralized Control and “Techlash”

Mullin, Pfefferkorn and other outspoken critics of EARN IT all agree that the bill’s proposed execution is opening the door for the elimination of encryption: the fact that it is never explicitly addressed is especially concerning.. 

According to Mullin, it’s also possible that the current draft of EARN IT will be amended to undo the damage it could do to online privacy. “Could be as straightforward as putting a clause in[,] saying the bill doesn’t apply to encryption,” he writes.

However, until some amendment occurs, critics are wary of a federal commission consisting of fewer than twenty people, according to the latest reports, who would be making large-scale privacy and security decisions for the entire U.S. population. 

Such a potentially big power grab would seem a bit ridiculous, but Pfefferkorn also acknowledged that EARN IT rides on a wave of resentment or “techlash” the U.S. population has begun to harbor against many internet-based companies. This animosity is directed toward both U.S. tech juggernauts, whose business models run off of surveillance capitalism and online free speech platforms which, for the average person, can feel like the “concentrated font of human venality every time we open our phones,” according to Pfefferkorn.

Private Messaging: A Prerequisite to Democracy

In general, free speech on social media platforms is already a nuanced and complicated topic. Even under Section 230, social media platforms can still censor content when they deem it inappropriate internally. For example, Twitter has a keyword blacklist and the protocol for how it works can change on a dime. 

For Nozomi Hayase, social psychologist and writer, surveillance of encrypted messaging is a movement toward forfeiting democracy. By Hayase’s reasoning, privacy is a prerequisite for a kind of solitude that allows people to think and act independently and is, therefore, essential to a functioning democratic society. 

“Democracy requires sovereign individuals who are able to communicate with one another freely. This freedom comes with great responsibility,” said Hayase, who recognized EARN IT as the newest installment of a dangerous trend toward online censorship. “If we really want to have a truly democratic society, we have to accept the fact that it is the duty of each person to develop his or her own moral capacity to determine what is right and wrong, instead of depending on an external authority to tell us what we should or should not do.”

Currently, EARN IT has been referred to the Senate Judiciary Committee. Citizens can contact their congressmen directly or take action through the Electronic Frontier Foundation’s website.

The post EARN IT: The US Anti-Encryption Bill That Threatens Private Speech Online appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

Crypto News Updates

India Lifts Crypto Ban, South Korea Imposes New Rules and the US Remains Stagnant

The latest cryptocurrency regulations in Asia are wins for Bitcoin adoption but come at the cost of privacy. South Korea is tightening cryptocurrency regulations while India will likely lift its 2018 ban giving cryptocurrency companies bank accounts. 

Meanwhile, an American lawmaker has proposed a new bill that follows suit but is not expected to pass.

India — Central Bank Overruled

India’s supreme court has overruled the Reserve Bank of India (RBI)’s 2018 ban that prevented banks within the country from working with cryptocurrency-related businesses. Sunny Ray, the global head of business development for cryptocurrency exchange Kraken and previous founder of the first regulated cryptocurrency exchange in India, described the significance in a blog post.

“This is an incredibly emotional moment for India,” Ray wrote. “Satoshi created Bitcoin because he felt that central banks were inefficient. The fact that the crypto industry just battled, and won, against the central bank located in the second-most populous country in the world is a massive achievement. We fought for 1.5 billion people to have the right to access crypto.”

Ray’s comments are not overblown. The Indian Supreme Court’s 180-page ruling boils down to a limit on the RBI’s power, by acknowledging how disproportionate the ban is for dealing with the often purported risks of cryptocurrency — enabling money laundering and terrorist financing. The court acknowledged that rather than prevent these risks, outright prohibition could have even exacerbated the problem by driving illicit activity underground. Though legislation will take time, reversing the ban means the Indian government will regulate cryptocurrency businesses with AML/CFT controls. 

Although it’s easy to imagine what the RBI’s real intentions for such a disproportionate ban actually were, this overruling is a win for Bitcoin adoption and a limit on consumer privacy.

Despite the overrule, India’s central bank is now seeking a review. Meanwhile, cryptocurrency businesses inside and outside India are moving quickly. For example, Kraken stated, “The future is bright for crypto in India, we’re going to be there every step of the way.”

South Korea — FATF Guidelines Become Law

South Korea’s latest significant cryptocurrency regulation announcement is less palpable. Where there was previously no law, only guidelines, its new bill provides a framework for regulating cryptocurrency to the Financial Action Task Force’s (FATF) AML standards. 

The announcement is both a win for legal certainty and an imposition of heavier requirements for cryptocurrency businesses in the country. In short, the bill will necessitate more alphabet soup compliance accreditation for cryptocurrency businesses through the real-name verification system to hold a bank account within the country as well as certification via the information security management system (ISMS) from the Korean Internet Security Agency (KISA).

We spoke with Joyce Yang, CEO of Global Coin Research, to break it down. 

“[People] could already trade cryptocurrency with over 30 exchanges in Korea prior to the amendment passing, but with the amendment, the permitted and licensed exchanges actually goes down to just five to seven exchanges,” Yang said. 

This number will probably increase as unaccredited exchanges have until September 2021 to meet the requirements. However, Yang is also hopeful that this new law will ultimately bring in more institutional money to Korean exchanges which, according to Yang, has plateaued as a retail market for the last six months.

U.S. — Regulatory Action Lacks Political Backing

These regulatory movements in Asia are without a doubt being followed closely in the West. Yang pointed out that U.S. Securities and Exchange Commission (SEC) Commissioner Hester Pierce has frequently visited Asian countries such as Singapore, expressing the need to accelerate cryptocurrency regulation guidelines within the United States. However, she is also less sure something will be moved forward in the short term due to the coronavirus. 

Valid concerns still circulate in the American Bitcoin ecosystem about staying relevant. Most recently, this conversation has shifted to the “Crypto-currency Act of 2020,” proposed by U.S. Rep. Paul Gosar. This act would create a “Federal Digital Asset Regulator” and divide cryptocurrency regulations according to their classification as currency (stablecoins), commodities (Bitcoin), security (Tezos) and privacy coins (Monero, Zcash). However, Jerry Brito, executive director of advocacy group Coin Center, does not believe the bill has legs. 

When assessing how important a cryptocurrency bill proposal is in the U.S., Brito underlined the importance of political reputation and clout. In his estimation, Gosar doesn’t appear to have enough.

The post India Lifts Crypto Ban, South Korea Imposes New Rules and the US Remains Stagnant appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

Crypto News Updates

How Propaganda Art Can Spread the Message of Bitcoin

Lucho Poletti is brainwashing us all into buying bitcoin! Seriously, this visual artist and self-described “propagandist” considers it his job to create art that propagates the message of the orange coin. 

Poletti twists the bright words and bold colors of mid-20th century brand adverts, American war posters and pop culture to address the control systems in our world and how we can break free from them through a decentralized, immutable currency system.

TLDR; Poletti makes Bitcoin propaganda art.

Playing With Stigma 

Even though the word “propaganda” is old, it has caught a lot of flak since World Wars I and II, so much that during peacetime, the disputable father of propaganda, Edward Bernays, rebranded the term to “public relations.” 

Self-described propagandist Lucho Poletti is on a mission to evangelize Bitcoin through his art.
Anonymous Leader #2: “PR Man” by Lucho Poletti

The term “propaganda” describes information used to influence an audience and further an agenda. It has been correctly stigmatized for often presenting selective facts or loaded language to manipulate an emotional response from its audience. This tendency can have really effective and nefarious outcomes when launched at scale as information campaigns by nation states against an enemy. Such propaganda can dumb down complex sociopolitical issues and radicalize whole societies into believing something that might be untrue.

The power of propaganda is still stigmatized today for good reason. Something can be completely false yet disseminated through the internet at a global scale, pushed by search engine algorithms and botnets. The resulting environment has given rise to a post-truth world where news can be faked and truth seems completely subjective.

It’s in this climate that it is now both edgy and eye-raisingly self-aware to brand art as propaganda. In this relatively post-truth world that we live in, everything can feel like propaganda. Poletti is playing with this. And if everyone is biased, potentially, the most honest thing someone can do is be upfront about how their agenda creates a bias. 

Self-described propagandist Lucho Poletti is on a mission to evangelize Bitcoin through his art.
“The Creation and Destruction of Global Money Systems” by Lucho Poletti

“On the outside, people who aren’t interested in Bitcoin won’t get it,” Poletti told Bitcoin Magazine. “It’s glorifying Bitcoin and putting down paper money.”

Mixing Art, Finance and Sovereignty

Self-described propagandist Lucho Poletti is on a mission to evangelize Bitcoin through his art.
“Surprise on the Yellow Brick Road” by Lucho Poletti

As a kid, Poletti identified with art and was encouraged by friends and family to take drawing classes. However, having grown up in a conventional section of Florida, he also confronted and recognized the financial hardships associated with making a living by creating art. 

“It isn’t an easy decision to become a full-time artist. Entrepreneurship is tough and selling your creativity is even more so,” said Poletti. “Freedom is a function of how much money a person has.” 

This kernel of truth makes his work — propagating a message for a newer, more free money — that much more interesting. It is also informed by his past.

In college, Poletti studied finance, eventually earning his master’s degree. After subsequent years of toil as a financial engineer and analyst, he fell down the Bitcoin rabbit hole in 2013. Despite it not being his life passion, Poletti’s background in finance drove him to learn everything he could about how this new, alternative money system actually worked.

Simultaneously, Poletti was still focusing on art, creating pieces that told truth about large-scale societal problems such as how big brands, mainstream media and institutional banks in the financial system manipulate public opinion. Though he felt this work conveyed the thorny truth, he was also aware that it was incomplete because it did not provide an answer other than that the world was brainwashed. By first learning about it, then believing in it, Bitcoin provided that answer.

Self-described propagandist Lucho Poletti is on a mission to evangelize Bitcoin through his art.
“Dr. Satoshi’s Orange Pill” by Lucho Poletti

After the bitcoin price peak in 2018, Poletti earned enough money to quit his analyst job and pursue art full-time. He lumps his current work into one of two buckets: art for the “masses” that teaches people about the problems with central banking and the benefits of Bitcoin (such as “Dr. Satoshi’s Orange Pill,” which has been translated into 10 different languages) and art for Bitcoiners who have already “drank the Kool-Aid” and enjoy it as a symbolic testament to the more optimistic and free future they see coming over the horizon.

“Making Bitcoin art is the best use of my talent,” said Poletti, who now lives in Mexico, where the cost of living is substantially lower than in Florida. “I’m doing what I love and I’m doing it about something I really care about.”

Poletti’s full array of Bitcoin propaganda art is available for sale in print, clothing and merchandise on his website. Although he accepts fiat and other cryptocurrencies, Poletti lives off of bitcoin and that’s mostly what he’s paid in. He cashes out his bitcoin for pesos when he needs to.

The post How Propaganda Art Can Spread the Message of Bitcoin appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

Crypto News Updates

Amir Taaki on Bitcoin and Building Dissident Technology in 2020

Amir Taaki was one of Bitcoin’s first-ever dedicated developers and perhaps the one most infamously focused on maintaining privacy and freedom from authority. 

In 2014, Forbes listed Taaki on its “30 Under 30” list of technology stars for creating Dark Wallet, the first privacy-focused Bitcoin wallet to include a CoinJoin mixer. That same year, Taaki received even more notoriety as Dark Wallet was twice named in the Financial Action Task Force’s (FATF) report on the potential money-laundering and terrorist-financing risks posed by cryptocurrencies. 

In 2015, Taaki traveled to Rojava, Syria, to serve with the YPG Military, a component of the Syrian Democratic Forces fighting the Islamic State of Iraq and Syria (ISIS). After months of fighting on the front, he spent more than a year working with Rojava’s economics committee.

Taaki also created Libbitcoin and Bitcoin’s BIP proposal system as well as DarkMarket, the prototype for what eventually became OpenBazaar, an open-source protocol for e-commerce. Outside of his development work, Taaki also founded the anarchist group UnSystem, which included Cody Wilson, creator of a 3D-printable gun, and Mihai Alisie, co-founder of Bitcoin Magazine and Ethereum. 

Now, Taaki has returned as a contributor to multiple projects, many of which have not yet been revealed to the public. Although he is not ready to completely reveal his hand, the dissident technologist expressed a strong appreciation for the people in the crypto community, as well as a loss of confidence in its leadership and overarching direction. 

Technology, Open to All

For Taaki, what became a lifelong dedication to building technology free from authoritarian intervention started with an interest in what draws many people to Bitcoin: the promise of open-source development for breaking from authority.

“I happened to be 16 when I discovered the open-source movement, which, for me, was absolutely incredible that there are people around the world who build this technology … which plays a foundational role in our infrastructure and our internet,” Taaki told Bitcoin Magazine. “I kind of decided, I’m going to devote my life to make this dream happen. And it was something that captured my mind for the next decade.”

From his open-source involvement, Taaki found other technologists who were deeply concerned with politics. Of the many ideologies he was exposed to, he found anarchy especially interesting. It led him to ask questions about the nature of society and hierarchy and how a richer and more sophisticated society could be created. He saw Bitcoin as an unstoppable force to this end.

“[At] my first talk about Bitcoin in Amsterdam, it was the EPCA conference … I said, look guys, this is a radical technology. Now we’re here, you can’t stop us,” Taaki recalled. “This is what we’re going to do for you.”

Sometimes, his strong anti-middleman stance put him in direct conflict with other early Bitcoin developers — another group he saw as a roadblock to free and open development as he defined it.

“Gavin Andressen reached out to me and said, ‘I didn’t really like how you were talking at the conference. I think you should stop talking about Bitcoin publicly,’” Taaki said. “Gavin preceded to put up roadblocks for me to participate in developing Bitcoin — to sideline me from Bitcoin. Every time I tried to commit code to the Bitcoin Core project, it was blocked and I realized it was impossible for me to work with those people. That’s why I started working on Libbitcoin, to rewrite Bitcoin source code to have alternative implementation.”

Taaki’s work on the BIP review system was originally intended to establish some standardization for implementations and public review of changes to the code. But he now sees the system as a hindrance on development in Bitcoin that favors the status quo over technological progress.

“The problem is that the culture we initiated in those early days has completely overtaken the mindspace of Bitcoin,” explained Taaki. “That was not the original intent. Originally, the intent was to have Bitcoin be a conservative against changes. But it wasn’t to stop any kind of progress from happening inside of Bitcoin. It’s very poorly engineered. It’s very inefficient. The developments in cryptography that are happening now are going to lead to a system that’s eventually going to supersede Bitcoin.”

Looking back at the Bitcoin community he had been a part of in the early 2010s, Taaki sees distance between the philosophies that first drew him to the technology and the philosophical camps that have been established today.

“What we’ve seen happen since then is that those simplistic ideologies, which initially converged around Bitcoin, haven’t really been able to guide us,” he said. “And so we’ve seen a diversification from these ideologies … There’s this weird, regressive or reactionary Bitcoin culture … and it’s opposed to any kind of change or progress or development or advancement.”

Taaki also noted concerns about the cryptocurrency space he had been a part of years ago now being “co-opted” by outsiders — business- or authority-focused groups who want to take technology out of the hands of the idealistic cypherpunks who worked with Satoshi to usher in the era.

“We’re in this very strange place inside of crypto culture where we’re facing significant challenges to the technology, of it being co-opted by external actors, by actors who don’t necessarily have a philosophical vision or goal we originally had in mind,” he said. “Maybe I’m talking about people like ConsenSys, or maybe I’m talking about central bank digital currencies or Facebook … Bottom line: The only way that we’re going to overcome these challenges is by having coherent analysis, a system of organization and some kind of narrative so that we can develop something that’s coordinated.”

The Reality of Dissident Tech in Syria

After leading the technological development and ideological conversation around Bitcoin for nearly five years, Taaki traveled to Rojava, an autonomous region in Northern Syria where forces were trying to build and defend a direct democracy based on Libertarian, socialist and anarchist principles that promoted decentralization, gender equality, environmental sustainability as well as religious, political and cultural tolerance and diversity.

Despite seeking a technology development role, Taaki spent his first year in Rojava serving on the front lines of a war with ISIS.

“It was mad,” Taaki explained. “I was literally shipped to war, handed a kalashnikov as we were driving to the frontlines and told, ‘Don’t worry, if you’re not dead in two weeks, you’ll know everything there is to know about fighting in a war.’ It was a mad time. It was chaos, but I managed to get out of that position after a few months.”

Taaki returned to Syria in 2019, this time in a role reviewing technical projects for the region.

“I was looking at open-source solutions, like how to build a mobile phone network,” he said. “I also looked at how we could deploy cryptocurrencies. The so-called leaders I reached out to were very limited in their thinking and did not offer much support … There’s so much to consider and if your goal is to create the infrastructure for five million people, it’s so different from making individual accounts for an app-based marketplace you can download.”

If this seems like an opportunity for one of Bitcoin’s most prominent developers to implement the technology in a region that could clearly benefit from it, Taaki emphasized that it wasn’t.

“The reality is if any administration in the world were to say that they wanted to deploy Bitcoin in a region of their country, there is no group that has the software infrastructure ready to set up a reliable financial network,” Taaki explained. “For example, if in Hong Kong, there’s a guy who has Bitcoin, he can extend a line of credit to Syria, and he can cash out to a local pool of dollars. Or people in Syria who have assets like oil can issue futures or upper-finance instruments on that asset so that they can get investment to build their infrastructure. There’s a really great application of this technology, but we’re just not thinking on that level.”

Taaki lists oft-lauded use cases in places like Venezuela, Cyprus and Iran as distractions that keep the Bitcoin community from truly preparing the technology to help distressed places around the world before they are too far gone.

“Those were lost opportunities,” he said. “It’s sad, that’s our failure as a community. And those future opportunities should be what we choose to face and engage in our market so we can develop better technology. But we’re not doing that right now. Instead, it’s a bunch of technologists playing around with blockchain technology. I see no practical basis in reality to what we’re doing right now.”

Building the Dissident Future

In addition to his work promoting a freer society in Syria, Taaki is establishing an academy in Barcelona that incubates new technology projects and offers training in cryptocurrency development. He’s also working on Nym, which he described as an alternative to Tor. Of course, his mission to strengthen the privacy and freedom from authority inherent in technologies like Bitcoin is an ongoing focus as well.

“I’m also working on anonymization of cryptocurrencies and products,” Taaki said. “The same same technology I am building out will be a platform or a library that we can use to build other products like decentralized exchanges, marketplaces and also a generalized platform for issuing anonymous smart contracts and other financial instruments … A lot of people are asking for a new release of Dark Wallet, but I’m not going to release a bad product. CoinJoin is broken but I will develop something that’s better.”

Ultimately, Taaki’s is a working life dedicated to strengthening tools in the hands of dissidents — those who seek to communicate and transact without interference from political authorities, who hope to establish a better and freer society.

“The legacy of the civilization that we live in is a state-based civilization based off of a hierarchical system of control and specialization of labor, which leads to all of the modern problems we have,” Taaki said. “We want to create a different kind of society, which is free, where people have liberty and the natural wealth of people’s creative energies is developed and nurtured. The emerging field of cryptography offers us a power that we can use to create new financial instruments and networks that can be used as a tool to stop state power and control, and create space where marginalized communities can operate outside of state control.”

An expanded version of this conversation will be released on the Bitcoin Magazine Podcast.

The post Amir Taaki on Bitcoin and Building Dissident Technology in 2020 appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

Crypto News Updates

Despite Utility, Bitcoin Cannot Fix Venezuela

There are some misconceptions about how frequently Bitcoin is being used in Venezuela and the problems it can solve there. 

In issue number 18 of Bitcoin Magazine, published in January 2014, Cathy Reisenwitz wrote one of, if not the, first accounts arguing why Venezuelans could benefit from Bitcoin — an article titled “Grounded Venezuelans May Want to Escape to Bitcoin.” The original cryptocurrency, Reisenwitz stated, could provide an escape hatch from what was then escalating economic oppression under the regime of President Nicolás Maduro. To that end, she also wrote that several things could hamper a Venezuelan escape to Bitcoin, including limited internet access, price volatility and a lack of liquidity.

Read Cathy Reisenwitz’s “Grounded Venezuelans May Want to Escape to Bitcoin.”

Marked by hyperinflation, escalating starvation, disease, crime and massive emigration, Venezuela’s economic crisis has bulged magnitudes higher since 2014. During the same time, countless reports have indicated that Bitcoin adoption has grown remarkably within the country. According to data on weekly bitcoin volume from LocalBitcoins, 2019 saw the highest bitcoin exchange volume for the bolívar on record.

However, it’s inaccurate to conclude that Bitcoin can save Venezuela. That would exaggerate what sound money can do for a country in socioeconomic and political freefall. 

To revisit an issue that has been on the minds of Bitcoiners since at least 2014, and to gain a more accurate picture of what Bitcoin means for Venezuela, we spoke with Peter McCormack, host of the “What Bitcoin Did” podcast, who conducted some firsthand reporting there recently.

The Reality of Bitcoin Adoption in Venezuela

Bitcoin Magazine first reported Venezuela’s potential for adoption in 2014. As its economy has grown worse, it’s clear Bitcoin can’t fix everything.
Image Credit: Peter McCormack

We cover Venezuela as a place where Bitcoin adoption can improve the economic troubles of its people. Where do you think Bitcoin adoption stands today in the country?

Don’t get me wrong, there are use cases for Bitcoin in Venezuela. Another cryptocurrency being touted as a use case for Venezuelans is Dash. I was very critical of Dash; the CEO wrote me an open letter and he came up with a number of arguments for why Dash is useful to Venezuelans. His general analysis was correct — it has low friction and divisibility — the Venezuelan bolívar does not. Also, that crypto is really for the middle and upper class. 

What he failed to understand is that the vast majority of the country is poor, and the people who have access to the tools to use Bitcoin are the ones that need the least help. The perception is that Bitcoin can help all of Venezuela; it really can’t.

How does that change the use case for cryptocurrency?

I think any cryptocurrency comes with added friction and risk for these people, which the dollar does not. The bolívar doesn’t really have friction as a medium of exchange because everyone in the country accepts it. When I went to the slums, it became painfully clear that these people aren’t going to download a bitcoin wallet and back up their private keys, right? They only want to find out how they’re going to eat that day, and it might be because they’ve earned a couple of dollars or [are] getting food donated through a humanitarian project. This is the reality of the actual lives that people are living. 

I admit, I have been a hypocrite. I used to believe Bitcoin was great for Venezuela. It can help some people, but right now Venezuelans need infrastructure, and the biggest problem they have is the Maduro regime. Bitcoin is not going to get rid of the government. They’ve got guns. It’s naive to think a currency can remove a dictator backed by an army. 

A Firsthand Look

Bitcoin Magazine first reported Venezuela’s potential for adoption in 2014. As its economy has grown worse, it’s clear Bitcoin can’t fix everything.
Image Credit: Peter McCormack

You recently traveled to Venezuela. Was it difficult getting in? 

So I am learning how to make a documentary film. I chose a few places in South and Central America because there’s so much happening there. Venezuela was the weirdest spot. We left most of our equipment in Bogotá, Colombia, because if you turn up with a portable recording studio, then it’s pretty obvious you are a journalist. The Venezuelan government isn’t a fan of media coverage, so we just took an iPhone and a DSLR camera each. My producer said he was a photographer. I just said I was a tourist and worked in marketing. We went through separately like we didn’t know each other. We got grilled pretty brutally on the way through immigration in Caracas. It was, you know, “What are you doing here? Why are you here? What do you want? Blah, blah, blah.”

Were people accepting bitcoin in Caracas?

Yeah, so, they are. When you get into Venezuela there are a few places that accept bitcoin. Those who can accept bitcoin know it’s better than accepting the bolívar. I posted a punchy title on Twitter saying Bitcoin can’t save Venezuela, because it can’t. It is being used, but a lot less than people think. 

On the border in Cúcuta, the NGOs accept bitcoin as donation, but that’s just because it’s a form of money and they desperately need money. For example, if someone offered them a bunch of Dentacoins, they would take Dentacoins or potato coins or whatever because they can just convert it to dollars and then use that money. I was told inside that there are some people who use bitcoin for remittance. That is limited, but there are some people doing it. 

Like the places that accept bitcoin, there are also educated users who use bitcoin as a way to avoid the bolívar’s hyperinflation. But again, they’re educated Bitcoiners all on the wealthier side — that is to say, the upper and middle class in Caracas. All the poor people are lucky to live on a few dollars a month. Also, in the other Venezuelan provinces, there are regular blackouts where there is no power.

Can you share more about how the country’s economic disparity affects Bitcoin use cases?

First off, common sense indicates it’s useless for them because it’s a volatile asset. If you’re earning $5 a month, you don’t want to buy bitcoin and then the price drops and you’ve lost 10 percent of your living income when you’re already in a pretty poor spot. Controversially, the dollar or even perhaps a stablecoin is a much better medium of exchange for these people right now.

Second, Bitcoin is also technically complicated and there’s a lot of crime in the slums. If anyone has bitcoin on their phone, anyone can just put a gun to their head and demand they hand over their bitcoin. People say the same thing can happen with dollars, but that’s their day-to-day living money. The level of OPSEC they need for money has to be both more simple and way above what people in the West need. 

Third, bitcoin is not universally accepted in Venezuela while the bolívar and the dollar are. Everybody accepts bolívars and most people will take the dollar. It doesn’t matter whether you’re in the east part of the city, which is quite wealthy, at a restaurant or in the west part of the city, where everyone is very poor. Everyone will take bolívars. The problem with the dollar is that if you buy something under a dollar, which happens a lot, there’s no way to get change unless you get it in bolívars. 

How Venezuelans Are Thinking About Money

Bitcoin Magazine first reported Venezuela’s potential for adoption in 2014. As its economy has grown worse, it’s clear Bitcoin can’t fix everything.
Image Credit: Peter McCormack

Did you meet any Venezuelans using bitcoin as a store of value?

The problem with the store of value use case is that these people have no culture of financial savings. Everything they earn, they have to spend just to survive. We haven’t even gotten mass adoption in the West. I think people need to be more realistic. But for those who can buy bitcoin with the bolívar and then convert it back to the bolívar when they need to buy something, it can save them from the bolívar’s 10 percent weekly inflation. My impression of how many people are actually doing that was very low. 

How does money break out in terms of physical notes versus digital payments?

People want U.S. dollars. It’s the best currency in Venezuela right now because everyone will accept it and it holds its value over the bolívar. And it’s physical. If you’re in a store or a restaurant, Visa and Mastercard are accepted. In the slums, it’s going to be all cash. However, they do have payment apps like Venmo, which the majority of the population uses now because it’s just realized it’s too costly to keep printing notes. That’s how most people are paying each other person-to-person.

When thinking about Bitcoin and a place like Venezuela, a common misconception seems to be that general economic need and disparity warrant a need for Bitcoin adoption in that place. It turns out to be more complicated. What qualifies a place to be good for Bitcoin adoption?

It depends on what kind of adoption you are talking about. If it’s for speculation, then I think it’s typically Western countries. If it’s an actual medium of exchange use case, a place where Bitcoin adoption can take off necessitates a government currency that is inflating or hyperinflating, so South America and probably Africa.

Venezuela’s economic disparity is too great, but in general, South America is a great region for Bitcoin adoption and I’ve seen it. Many of these countries show that classic swing from left to right governments. A lot of those countries have been living under an unstable monetary policy, yet many are fairly developed: Uruguay, Chile, Colombia and Brazil. It’s a similar situation in Central America, though I’ve only traveled through Mexico and El Salvador. 

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Source: Bitcoin magazine