Venezuela’s Socialist Regime Is Mining Bitcoin In A Bunker To Generate Cash

At a military base outside Caracas, Venezuela, video footage from the state shows officers in green fats cutting a blue ribbon worn with a glossy balloon cluster. The men then open the doors of a narrow, illuminated bunker.

But the balloons did not inaugurate a new weapons factory or training facility. They signaled the opening of a new bitcoin mining farm.

Venezuela’s President Nicolás Maduro needs cash to maintain his grip on power after mixing through one of the worst economic implosions seen in recent modern history in the Western Hemisphere. Maduro’s last trench attempt to buoy Venezuela’s shrinking economy seems to be to dig deep for this digital asset and sell it for hard money.

Members of Venezuela’s army assemble specialized computers used to manufacture bitcoin, a digital asset that can be traded for hard currencies such as dollars and euros. Credit: 61 Venezuelan Army Brigada.

“In a strategic alliance with private capital, the Bolivian army established the first center for digital asset production at Tiue’s Fuerte facilities,” said a spokesman pictures published by state television in late November.

Venezuelan General Domingo Antonio Hernandez Larez details the project in a cramped conference room, then he and other officials like a few S9 AntMiners, a type of specialized computer used to mine bitcoin, the volatile cryptocurrency whose price is scrambling all-time highs of just under $ 20,000 a penny.

“This center of digital asset production will ensure the sufficiency of self-financing within the army,” explains a Venezuelan provincial television official. “These mining activities will be key to increasing revenue for the country.”

In 2014, the fall in oil prices shocked the then-elected Maduro and his government’s finances. The next five years of a decline in oil exports – Venezuela’s main economic engine – meant the government spent more than it did. Then in August 2017, the United States hit the government with tougher sanctions on top officials and state-run entities in response to what it claimed were authoritarian tactics and human rights abuses.

Raul Gallegos, director of Control Risks, a risk assessment firm, is concerned that a Venezuelan military thrust into crypto mining could be used to hide illegal activity.

“Who would want to buy this bitcoin from the army? People who want to launder money? ”Gallegos told VICE World News. “At the moment, with this system becoming increasingly criminal, this is one example of the types of businesses that the regime allows people to take part in and turn a blind eye to so they can get money extra and extra salary and engaging in criminal activity. that can be used against them later to arm them strongly. ”

U.S. sanctions mean that Maduro – who is accused of drug trafficking by the American government – and his inner circle can hardly use the global financial system. They cannot buy and sell using dollars. The local currency, the Bolivar, has been rendered all but useless by hyperinflation. Meanwhile, Venezuela’s opposition has declared Maduro a power usurper and recognized Juan Guaidó as Venezuela’s legitimate president in 2018, backed by an international coalition including the United States, Brazil and Colombia. Although the opposition’s campaign to dismantle Maduro has flown, they have successfully weakened Maduro financially.

In response, Maduro ordered the gold mining army in southern Venezuela. It also partly explains why his government continues to allow, and allegedly, profit from drug trafficking through its air routes, sea ports and its border with Colombia – often at the request of military officials. Still, the scramble for dollars is evident in Venezuela.

With the sanctions squeezing Maduro like never before, his cronies needed to improvise. And that’s where bitcoin mining comes into play.

What is ironic is that the Venezuelan military is allegedly used to cracking down on bitcoin miners. Three years ago army members were accused of plundering mining farms and stealing equipment, and at times even the bitcoin keys themselves from miners. They justified the move because crypto miners siphon too much electricity off the people’s grid.

Juan José Pinto, CEO of DoctorMiner, a private crypto miner in Venezuela, attributes the notorious 2018 blackouts to poor grid maintenance. The blackouts coincided with an increase in crypto mining.

“Now that the government has changed its priorities, crypto mining is officially going and they are trying to show what is happening. Now that it is accepted by the government, they are making it official, ”he said.

“The army is mining because of US sanctions. You are not allowed to access the dollar or any other international currency easily, but now with bitcoin mining the army can access hard currency very easily. And the coins you get through mining are coins that you can easily exchange. ”

There is another reason. Bitcoin miners love Venezuela because electricity is almost free. Miners convert electricity into bitcoin by solving a set of computational problems that validates the next block of transactions on the underlying cryptocurrency network. Cheap electricity is key to profitable crypto mining.

Instead of taking a goal originally on crypto mining, Pinto told VICE World News that the government is obsessed with creating its own crypto currency backed by oil reserves: the Petro. It launched in 2018, but failed. Fast forward to 2020 and Maduro has changed its tone. In September, the country introduced a series of laws and regulations that it hopes will save its sinking economy. Part of the alleged ‘antitrust law’ is a set of regulations for crypto mining.

This seems to be quite a page out of the Iran and China book on how to do business in the 21st century. One is limited by strict U.S. sanctions. The other has an abundance of cheap electricity. Iran and China have powerful crypto mining industries. For Iran, it’s a way to get around the sanctions against her. In fact, in early November, the Iranian government adopted a BTC for international transactions.

Venezuela’s economy was not always strange but it has always relied on one commodity: oil. Twenty years ago, a former paratrooper named Hugo Chávez was elected president of an anti-corruption platform. Its popular, socialist program grew increasingly aggressive when the charismatic Chávez began spending the country’s oil production bonanza on social programs and other vehicles that boosted its popularity. Oil always traded at high prices. The poor received free housing and education. Gasoline was free.

Then, Chávez died.

A woman walks past a mural with an image of recent Venezuelan president (1999-2013) Hugo Chavez in Caracas on August 22, 2018. Photo by FEDERICO STRE / AFP via Getty Images.

In 2013, his hand-picked successor replaced Maduro as president, and the following year the price of oil collapsed, triggering a slow fall into economic chaos. Venezuela’s economy has shrunk by 75 percent since December 2015. At the same time, the black market has grown by 18 percent of GDP in 2018 to 25 percent in 2020, estimates Asdrubal Oliveros, an economist at consultancy Caracas Ecoanalitica.

Venezuela’s economy has been marked by an extraordinary boom, and for the past 100 years that boom has been fueled by petroleum. Now, Pinto says private foreign investors are approaching him with an interest in setting up crypto mining farms in Venezuela.

“Venezuela’s crypto mining industry will get more structured. There will be more taxes. Electricians are charged for electricians, ”Pinto predicts.

“But it will stay competitive. If it can’t stay competitive, it will die – and the government doesn’t want to kill this. ”