Venezuela is the leading market for crypto adoption in the world today. There are now over a thousand locations accepting cryptocurrency payments, hundreds of thousands of wallets downloaded by Venezuelans, dozens of teams working on education and adoption activities, and a network of crypto companies and organizations focused on the Venezuela market.
During last December, the largest pharmacy chain in Venezuela shared their ongoing process to add crypto payments to their options, and Burger King started accepting crypto payments. This progress is indicative of how cryptocurrency payments are progressing toward the mainstream in Venezuela.
While a thousand merchants represent less than 1% of total stores in the country, this is a level of adoption and usage not seen anywhere else. That is why Venezuela is so relevant for evaluating the global state of cryptocurrency usage and what will come next for the space.
During the time I have been involved and studying cryptocurrency use and adoption, I have identified four stages that progressively expand the use cases for crypto. These stages are correlated to the health of the local currency, where troubled economies create stronger incentives for ordinary people to search for alternative finance options to protect their assets and solve payment problems. This creates an entry point for cryptocurrency.
Below is the four-stage progression in the use and adoption of cryptocurrencies:
- Trading and speculation: Especially in developed markets, people first view cryptocurrencies as a speculative investment. Seen in all financial markets, “stable” or not, investors take a chance to increase wealth by “hodling” cryptocurrencies and speculating on them.
- Bitcoin as a capital controls safe haven: Troubled economies create incentives that drive peer to peer Bitcoin trading. This can be correlated to crises in Greece in 2015, Argentina in 2014 and 2019, and Venezuela since 2015. This use case seems to thrive in gray systems, where OTCs, wealthy individuals and companies drive high-volume transactions.
- Crypto as peer-to-peer electronic cash Once tech-savvy people in distorted economies use Bitcoin for the first time to safeguard money, they understand the benefits of decentralized digital cash, and some feel interested in using it directly for transactions. A digital cash ecosystem emerges when a sufficient number of users try to use it for everyday transactions, resulting in exposure outside of their initial groups of influence, awareness and more growth.
- Killer app usage This is further down the line, and I have not personally seen a compelling solution for a use case that will drive crypto adoption the way social media did for the internet. We can reach this, once more developers, investors and business people are introduced to the capital control and peer-to-peer digital cash stages of crypto usage.
Crypto in Venezuela: A Unique Ecosystem
In Venezuela, the stages of capital control and digital cash from the adoption cycle have grown constantly for the past couple of years. And while the capital control use case gets most of the attention due to LocalBitcoin’s high volume records, the peer-to-peer use case has steadily grown and is creating a unique and very interesting ecosystem not seen anywhere else in the world, which supports the claim of Venezuela having the most extensive crypto ecosystem globally.
Some of the components that make Venezuela’s ecosystem unique, and the most advanced crypto region in the world include:
- Mining in Venezuela has existed since the 2010’s given the low energy costs. Many are small operations; but there are records of larger ones on social media. Venezuela was one of only two LatAm countries listed on the coinshares mining report.
- Wallet usage growth Such as Uphold naming the country one of its most important regions with around five hundred thousands signups; Dash wallets grew over 400% in 2019, and the growing interest of wallets to expand in Venezuela.
- Headline integrations such as XPayCash adding Farmarket pharmacy chain as part of its 100 stores network; or Cryptobuyer, a LatAm Based firm adding Burger King, as well as the largest retailer in the country.
- Small merchant adoption keeps growing, including almost a thousand places to spend Dash nationwide, 300+ places to pay with Bitcoin, plus the many unrecorded people and places that are using crypto, as a way to resolve infrastructure payment limitations.
- Peer-to-peer trading platforms shattering records in volume, such as LocalBitcoin last month, or Localcrypto sharing Venezuela as the country with the largest amount of trades globally.
- Fiat-to-Crypto options on the rise, such as locally developed platforms like Cryptobuyer, Cryptoway, Basichange, and government-licensed firms such as Veinte, Amberes, and others which are installing ATMs to complement online platforms.
- Global crypto leaders working Venezuela initiatives such as GiveCrypto, Binance meetups around the country, BitcoinCash House, crypto meetups happening through Venezuela, dozens of Dash initiatives, as well as a handful of locally developed crypto projects.
- A wide offer of academic programs, and crypto media journalists based in the country.
As crypto operates on the internet, not all of the ecosystem needs to be located inside of Venezuela, so some components grow internally and the remaining elements operate outside of the country as part of a global system, but solving for Venezuelan opportunities.
Crypto usage on retail can reach 10% of all stores within Venezuela, moving 25 Million dollars annually by the end of 2020
When cryptocurrency acceptance reaches 10% of merchants in the country, this market will transact at the rate of 25 million USD annually; estimated using 2018’s merchant activity valued at 4.9 Billion USD by the central bank, and crypto volumes in these stores to grow to 5% of volume, from today’s sub percent levels.
This volume will result as merchant acceptance and consumer understanding grow, and it will be pushed forward by at least three important enablers:
- Large chains of retailers and points of sale companies including Crypto as an additional payment method.
- Government using Petro as a method of paying wages, which pushes large amounts of people to learn how to make cryptocurrency payments, as cash out liquidity is scarce.
- Migrant Venezuelans understanding cost savings and convenience of crypto remittances.
The top 5 pharmacy and supermarket chains in the country will add up over 1000 stores in total, immediately doubling merchant adoption, further validating the technology, and influencing the decisions of more stores to accept Crypto payments. Once this happens, I anticipate the amount of merchants that accept cryptocurrencies to increase three to five times the current state and heavily push forward the crypto ecosystem.
By evaluating previous payment methods deployments, we have seen a network effect kick in at around the 15% threshold of merchant acceptance, which leads to greater awareness and use of crypto payments. As more consumers discover the convenience, no limitations, and low cost of cryptocurrencies that settle securely in seconds, users will understand and share how crypto is a viable option for larger numbers of people, and this further feeds the network effect.
Once the previous two developments happen, Venezuela will be firmly into the third stage of crypto adoption; A stage where single digits percent of the population are using crypto as peer-to-peer electronic Cash within the most forward looking ten percent of the merchant base .
In a country where infrastructure needs to be supplemented, payment systems are not efficient, and the local currency has lost usability as a medium of exchange, cryptocurrency usage will follow and we might easily pass the 10% adoption threshold in the country.
The remaining obstacles to Mainstream Adoption
Having large segments of the Venezuelan population using cryptocurrency in their everyday lives is possible, but many issues need to be solved or developed before that can happen.
Here are some of the most pressing components that need to be put in place, and why we think those are solvable:
Regulation needs to provide legality on cryptocurrency usage: A law permitting transactions in international currency was implemented in 2019 which opened up payments in dollars and crypto. As a next step, the accounting aspect has moved forward with a crypto accounting decree so larger firms can include crypto into their books. Now, multinationals need to learn how to deal with the complex Venezuelan situation, especially sanctions.
Easy-to-use crypto products, and liquidity is required: Cryptographic addresses are not good UX. Plastic cards, tap-and-go products, and solutions are needed. There is a clear payments problem, and tech needs to adapt to the users. Exchanges need to learn best practices to build liquidity and enable good experiences, which need to be properly marketed.
Education, education, education: The opportunity to welcome large numbers of people to crypto will require education on multiple topics. How to acquire, store and transact in crypto is of high importance, just like teaching users how to be their own bank, turn fiat into crypto, change it into a different currency and deal with volatility. It is also key to teach people how to detect and avoid scams for all of us who want this ecosystem to thrive in the long term.
New players are needed The Venezuelan economy was ranked the 7th largest economy in the region, and was worth 310 billion USD in 2019 according to the IMF. This makes the Venezuelan economy bigger than Panama or Ecuador, so despite current problems, the opportunity is there to drive real usage in a country for the first time in history.
The upside is also huge, as the country has been the third-largest economy in Latin America. So entering the country, while not easy, can be an opportunity for entrepreneurs interested in developing and implementing products in a country that will recover and keep the best solutions.
This is a great opportunity for technologists and organizations to develop products and services aimed to solve local issues from within. Venezuela is a fertile ground to target hackathons, help developers and others who wish to enable technological solutions from the ground up, and cryptocurrencies can have a great fit in this state of the economy.
Brace yourselves for a crypto-filled 2020, when cryptocurrencies will help Venezuelans solve some of their current problems, and open doors of opportunity for the times ahead, as this ecosystem will continue to grow and interact to create a unique network where local, and international talent; in addition to capital and opportunity are meeting to solve the need for better money.