Speaker 1: Late last year, a couple of weeks before Christmas, a
Speaker 1: man in Venezuela was on his way to a barbecue
Speaker 1: when he got a phone call from the cops. The
Speaker 1: police said they had just raided his office. They demanded
Speaker 1: he hand over fifteen thousand dollars or else they would
Speaker 1: take his most valuable possession, his computers at mine bitcoin.
Speaker 1: They blasted my door and found the machines and then
Speaker 1: uh disconnected all of them and put them in vans
Speaker 1: and then took them to their police officers. To protect
Speaker 1: his identity, we're concealing the real name of the man
Speaker 1: you just heard from for the purposes of today's show.
Speaker 1: Will call him David. David's home country, Venezuela, has been
Speaker 1: fighting one of the world's highest inflation rates. The local currency,
Speaker 1: the Believer, is now worth so little it's been used
Speaker 1: as confetti at soccer games. That's why some enterprising locals
Speaker 1: like David started mining bitcoin. They mind bitcoin and converted
Speaker 1: it to the most precious resource in Venezuela, US dollars.
Speaker 1: Access to those U S dollars was what put a
Speaker 1: bull side on David's back. The police received a tip
Speaker 1: that David had mining equipment. That was a good indication
Speaker 1: that he had the dollars that the officers and everyone
Speaker 1: else in the country wanted. Even if you're innocent, you're
Speaker 1: still gonna spend a month or two months in prison
Speaker 1: while everything clears out. Instead of risking jail time, David
Speaker 1: and his family through a few belongings in their suit
Speaker 1: pleases and made a dash for the Colombian border. I
Speaker 1: had cash money in my hand and and I just
Speaker 1: passed on my passport to the to the immigration officer
Speaker 1: in the in the border, and and hope for the best. Hi.
Speaker 1: I'm brat Stone and I'm Camila Russo. And this week
Speaker 1: on Decrypted, we'll see how Venezuela became an unlikely hub
Speaker 1: for mining bitcoin. Around the world, bitcoin has been viewed
Speaker 1: as a risky investment, but for some people in Venezuela
Speaker 1: with a currency and free folk, bitcoin became a financial lifeline.
Speaker 1: When the police came for David, Bitcoin mining in Venezuela
Speaker 1: was unregulated. The police used this lack of clarity to
Speaker 1: harass and threatened miners to make them hand over their money.
Speaker 1: The Venezuelan government legalized between mining and January, but miners,
Speaker 1: I've spoken to say they're still getting her asked stay
Speaker 1: with us. I'm from a small city and in the
Speaker 1: mid west of as well. David's hometown is vast, basic
Speaker 1: crossroads in the heart of the country. It's pretty pretty
Speaker 1: calm to grow up there because you can have a
Speaker 1: smooth family life where you can go to school and
Speaker 1: then go to go home for lunch. David says he
Speaker 1: grew up wanting to study the law and become a businessman.
Speaker 1: He ended up doing both. When David was still a teenager,
Speaker 1: Hugo Chavez became president, but he was almost ousted in
Speaker 1: two thousands and two hundreds of thousands of people protested.
Speaker 1: It was at one of those protests that David, is
Speaker 1: still a high school student, met his wife. It was
Speaker 1: January two thousand and three, two thousand and three, when
Speaker 1: the protests were being held in Plascas. We were protesting
Speaker 1: in our city, like and we met because she was
Speaker 1: with a friend of mine from school and I was
Speaker 1: with my cousin. After college, David and his wife lived
Speaker 1: in Europe for a few years. In twelve, they came
Speaker 1: back to Venezuela, believing the political situation was about to change.
Speaker 1: Elections were coming and David thought the opposition candidate and
Speaker 1: Brique Capriles, might win. He had many young fans who
Speaker 1: rarely behind him with cheerful campaign songs Venezuela and I thought,
Speaker 1: I my country was gonna get better and improve, and
Speaker 1: we're gonna I quit my job to start my business
Speaker 1: in Venezuela with my wife, and we did. But Hugo
Speaker 1: Chaves one and then a year later he died, leaving
Speaker 1: Venezuela with a big national deficit, a week Bolivard and
Speaker 1: food shortages. Nicolas Maduro became the new leader, but David
Speaker 1: and Isuel were already back in Venezuela trying their best
Speaker 1: to run a radiology business, and political tensions were rising again.
Speaker 1: And then afterwards it was all the downhill because the
Speaker 1: protests were like block away from our business, or two
Speaker 1: blocks away. President Maduro maintained the populist policies of Hugo Chavez,
Speaker 1: but a decline in the price of oil, Venezuela's main export,
Speaker 1: hit the country. Hard conditions got worse. Protests erupted again
Speaker 1: in early leaving many dead. They were happening right outside
Speaker 1: David's office. The tear gas entered to our our office
Speaker 1: every day for like the three consecutive months, so it
Speaker 1: was it was awful because people weren't working, and when
Speaker 1: they were working, if you work, you work half a
Speaker 1: day because half a day you protested. David felt politically
Speaker 1: aligned with the protesters and would close the office from
Speaker 1: major strikes, but it started to impact this business. We
Speaker 1: as a business um supported the strike and we closed
Speaker 1: most of the day, so we had to put money
Speaker 1: from our pockets to pay for salaries during the strikes.
Speaker 1: As David's business was faltering, he discovered another way to
Speaker 1: make money that's coming up next. By late two thousand
Speaker 1: fourteen and early two thousand fifteen, the economic situation in
Speaker 1: Venezuela was becoming critical. Now to the crisis in Venezuela
Speaker 1: which takes many forms economic, political, social, but perhaps nothing
Speaker 1: is more harmful day to day than shortages of medicine
Speaker 1: and food. Put simply, many Venezuelans are starving to death
Speaker 1: and their government often can't or won't do anything to
Speaker 1: help the value of the boulevard was in free fall,
Speaker 1: and David was desperate for a way to protect what
Speaker 1: remained of a savings. Many people were trying to bite
Speaker 1: dollars on the black market at a very unfavorable exchange rate.
Speaker 1: But then another option emerged, bitcoin mining. My younger brother
Speaker 1: was the one who first bought a couple of machines
Speaker 1: and like just out of curiosity, because a friend introduced
Speaker 1: him to the to this world. At first, David was skeptical.
Speaker 1: What I told my brother is I want to see
Speaker 1: you sell some currency and get us dollars for it
Speaker 1: before I risk a little dollars. I have to to
Speaker 1: buy machines or buy currency. Cautiously, David started setting up
Speaker 1: his own mining operation. Bitcoin is run by a network
Speaker 1: of computers competing the solved complicated math problems which verify
Speaker 1: transactions on the network. That's known as mining, and computers
Speaker 1: that solve those problems get rewarded in bitcoin. It gave
Speaker 1: David a way to pay for things that we're becoming
Speaker 1: harder to afford. I bought like three or four just
Speaker 1: to to pay for like I don't know, private insurance
Speaker 1: abroad and things that you couldn't easily pay with with
Speaker 1: the local currency. One of the largest costs and mining
Speaker 1: is the huge amount of electricity it requires, but in
Speaker 1: Venezuela power is heavily subsidized which makes cryptocurrency mining almost free.
Speaker 1: David just had to be able to buy the computers.
Speaker 1: People started buying these machines to pay for the luxuries
Speaker 1: they couldn't afford anymore with their regular jobs. At first
Speaker 1: it was a thing like it was an activity to
Speaker 1: pay for for a luxury, and after that it became
Speaker 1: a necessity because if you didn't mind, there was no
Speaker 1: way to acquire dollars or any other currency to to
Speaker 1: purchase the food or medicine that you couldn't find. Event
Speaker 1: as well, for a while they set up work for David.
Speaker 1: His mining operations slowly grew from the three computers he
Speaker 1: started with. I wouldn't say we rushed into the business
Speaker 1: like it was. We did it step by step and
Speaker 1: by reinvesting whatever we were earning. Eventually he had as
Speaker 1: many as twenty one computers mining bitcoin, and David could
Speaker 1: sell his bitcoin through online exchanges and get US dollars.
Speaker 1: It became his main source of income until last year.
Speaker 1: There were no regulations in Venezuela around cryptocurrency mining. It
Speaker 1: wasn't illegal, but it wasn't. It was just deregulated. So
Speaker 1: we didn't want to get it so much exposure with
Speaker 1: the economy in Venezuela, crushing. Bitcoin miners were becoming conspicuous
Speaker 1: for the money they had access to, even if it's legal,
Speaker 1: you're basically saying that you have a factory of currencies
Speaker 1: wherever you have the machines, and you're you have a
Speaker 1: machine that produces, produces a currency that that's easily traded
Speaker 1: for US dollars, and you're doing that in a country
Speaker 1: where the minimum wage is actually like like regular workers
Speaker 1: are earning four or five dollars a month. In fact,
Speaker 1: as of this taping, the minimum wage is now barely
Speaker 1: over a dollar a month. Yeah, and if you have
Speaker 1: a machine that produces a hundred and fifty or two hundred,
Speaker 1: you're producing what forty workers are doing in one month.
Speaker 1: David and his brother tried to keep their bitcoin mining quiet.
Speaker 1: The little machines we had, we put them into many
Speaker 1: offices we had rented or our own. But the police
Speaker 1: and military were starting the target bitcoin miners, demanding payoffs
Speaker 1: in bitcoin or dollars. Miners who refused to cooperate might
Speaker 1: be charged with petty crimes or have their minds stolen.
Speaker 1: In addition to David, I've spoken to three other miners
Speaker 1: in Venezuela who say they went through something similar, who
Speaker 1: always knew that in Venezuela you don't need to you
Speaker 1: don't need to be guilty or be committing a crime
Speaker 1: to go to prison, so you always had to take
Speaker 1: your precautions. Then last year the suppliers were Davide Ideology
Speaker 1: Office started having trouble procurring U S dollars. That meant
Speaker 1: they couldn't input materials from overseas. David says he was
Speaker 1: barely able to continue running his business onto US and
Speaker 1: seventeenth everything stopped completely. Like we we didn't read stock materials.
Speaker 1: We haven'try stark materials for more than a year and
Speaker 1: a half. You can say we held on for five
Speaker 1: years until we decided it was no longer profitable to
Speaker 1: keep it open with the hyperinflation that's currently there. As
Speaker 1: of last year, President Nicolas Maduro was so strapped for
Speaker 1: cash he stopped paying back international creditors and buying imports
Speaker 1: to stock hospitals and supermarket shelves. In early December, Maludo
Speaker 1: announced plans to issue the country's own cryptocurrency as a
Speaker 1: way of raising funds. The news came during a boom
Speaker 1: in bitcoin prices pet But despite the new seemingly crypto
Speaker 1: friendly climate, I've spoken to miners who say the police
Speaker 1: have continued to harass them. As soon as my Lutta
Speaker 1: started talking all cryptocurrencies. A couple of weeks later, all
Speaker 1: the cops in in town were hunting for the machines,
Speaker 1: like patrolling at night, trying to listen for the noise.
Speaker 1: And by the way, what David referring to here is
Speaker 1: the humming of the computers as a mine. Cryptocurrencies. Miners
Speaker 1: are also discovered because the high electricity consumption attracted attention
Speaker 1: because they knew the machine produced money, and they knew
Speaker 1: that taking away the machines from you would make you
Speaker 1: pay them a ransom. Camilla. It sounds really frightening, but
Speaker 1: I guess the police are just as desperate as everybody
Speaker 1: else for money that can retain its value. Yes, definitely.
Speaker 1: And then less than a month after President A. Lutta
Speaker 1: went on TV to talk about the Petro at tenant
Speaker 1: in David's office building, the same building where David had
Speaker 1: his bitcoin mind had a run in with the police.
Speaker 1: My neighbor he sold or he exported plastic chairs or
Speaker 1: something to Panama and to Colombia. And he also I
Speaker 1: think what I heard from police sources was that he
Speaker 1: was he was storing like four tons of sugar, which
Speaker 1: in Venezuela is also a crime, and he got a
Speaker 1: rate and and they threatened to throw him in jail
Speaker 1: for many years. Remember, Venezuela is dealing with the chronic
Speaker 1: shortage of supplies, so the government established tight controls to
Speaker 1: stop people from stockpiling essentials. Faced with the prospect of
Speaker 1: going to jail, David says his neighbor snitched on him.
Speaker 1: He ratted me out because he had heard the noise
Speaker 1: of the machines at some point. So he told the
Speaker 1: police that he that that he would deliver a bigger fish,
Speaker 1: so if they were lenient on his case. They blasted
Speaker 1: my door, a door that communicated both both of our places,
Speaker 1: and found the machines and then uh disconnected all of
Speaker 1: them and put them in vans and then took them
Speaker 1: to their police officers. I wasn't there, was actually far
Speaker 1: away from the office, but they they called me and
Speaker 1: they told him me they wanted fifteen thou dollars to
Speaker 1: not give it to the prosecutor's office. Keep in mind,
Speaker 1: dollars is an enormous amount of money. In Venezuela, the
Speaker 1: currency is almost worthless now. An ordinary person might live
Speaker 1: off two d dollars from a month or two. They
Speaker 1: also downloaded all of the pictures of my family that
Speaker 1: they had on the that I had on the computer
Speaker 1: that wasn't at the place. That night they called me
Speaker 1: to say that they had pictures of my family and
Speaker 1: that they knew where I went to school, what I did,
Speaker 1: and where I had all my businesses, so um that
Speaker 1: if I didn't deliver the fifteen in cash I they
Speaker 1: would go making raids in all of the places. The
Speaker 1: very same night, as a police rate, David decided to
Speaker 1: escape with his family. I think I was home, and
Speaker 1: I packed my bags and headed for the Colombian border
Speaker 1: because I had two small suns, so I just didn't
Speaker 1: want to take any chances. We just managed to put
Speaker 1: like the medicines for the kids and and whatever like
Speaker 1: was urgent for them. And I don't know the clothes
Speaker 1: we had on at firsthand, but we left pretty much
Speaker 1: everything and we just took whatever I fit in, like
Speaker 1: three three bags. Under cover of night, David and his
Speaker 1: family crossed into Colombia. From there, they flew to the
Speaker 1: US and made their way to Europe. President Maduro legalized
Speaker 1: bitcoin mining in late January, just weeks after David and
Speaker 1: his family fled the country. Miners kind of register through
Speaker 1: an official website to get authorization, but miners I've spoken
Speaker 1: to are worry about going through that process. They don't
Speaker 1: trust the authorities. The rules aren't clear, but they always
Speaker 1: hang on to something. They say that you haven't paid
Speaker 1: for your import duties, and if you paid for your
Speaker 1: import duties, then they say you're exceeding the electricity assignment
Speaker 1: that you were given. And if and if it's not that,
Speaker 1: they will say, uh, you are money laundering because you
Speaker 1: you cannot prove where you're using the money, or where
Speaker 1: the money came, or where the money is going. And
Speaker 1: by the way, we tried contacting the Superintendency of Cryptocurrencies
Speaker 1: in Venezuela to ask about these reports of bitcoin miners
Speaker 1: getting harassed, but we never heard back. Venezuela issued the
Speaker 1: Petro in February, and President Maduro claims it's raised five
Speaker 1: billion dollars from countries including China and Russia. That would
Speaker 1: make it the largest initial coin offering ever. The president
Speaker 1: said the Petro, which is meant to be backed by
Speaker 1: oil reserves, must become legal tender for all transactions involving
Speaker 1: government institutions, but few, if any exchanges outside of Venezuela
Speaker 1: have listed the Petro. US President Donald Trump banned all
Speaker 1: transactions with the Petro, so it's hard to say what
Speaker 1: demand has been like. Demand for bitcoin in Venezuela, on
Speaker 1: the other hand, continues to soar daily transactions climbed to
Speaker 1: a record one million dollars recently, although David thinks it
Speaker 1: won't be viable to mind cryptocurrency in Venezuela for much longer.
Speaker 1: The power supply in Venezuela has become increasingly unstable. Even
Speaker 1: the people who work at maintenance at the corporatelect that is,
Speaker 1: the national UH Electricity company. They're all migrating also, And
Speaker 1: when when when the technicians, everyone, everyone capable leaves UH,
Speaker 1: the electrical grid will decline. So, Cammilla, do you have
Speaker 1: any sympathy for the government's position here because they are
Speaker 1: subsidizing electricity use and here are the bitcoin miners taking
Speaker 1: advantage of that. I think it's easy to have sympathy
Speaker 1: here for everyone involved, since in the end, everyone is
Speaker 1: being affected by this enormous economic crisis that Venezuela is
Speaker 1: going through. But still, I think the real victims here
Speaker 1: are bitcoin miners. I mean they were able to find
Speaker 1: a way to get by in a country that's basically
Speaker 1: it's become really hard to live in um and that's
Speaker 1: because of the government's own actions. So yeah, I think
Speaker 1: the victims here are the bitcoin miners, right, and here
Speaker 1: they are now getting harassed by authorities. What are the
Speaker 1: worst stories you've heard in terms of miners encounters with police. Well,
Speaker 1: besides David's story, which is pretty dramatic, you know, he
Speaker 1: had to just leave the country, leave everything he owned behind.
Speaker 1: I talked to one miner who had to spend a
Speaker 1: couple of nights in jail, got beat up by the cops.
Speaker 1: I know another miner who was threatened, was physically threatened
Speaker 1: by by the police, and just you know, other stories
Speaker 1: of people living in permanent paranoia, you know, feeling that
Speaker 1: they're being followed, not knowing where whereon when the police
Speaker 1: and the military might show up. The situation in Venezuela
Speaker 1: is is clearly unique. But do you think there are
Speaker 1: any lessons for other members of the bitcoin community or
Speaker 1: other miners around the world and what's happened here. Yes,
Speaker 1: I think this is an extreme case, but it does
Speaker 1: speak to the lack of regulation that there is in
Speaker 1: the broader cryptocurrency and bitcoin mining community around the world.
Speaker 1: I mean, there isn't a clear regulation everywhere. We've seen
Speaker 1: in other countries that have become large hubs for cryptocurrency mining,
Speaker 1: such in China, where you know, officials and authorities you know,
Speaker 1: decided to crack down on bitcoin miners. Miners had to
Speaker 1: move elsewhere, So you get this kind of unstable environment
Speaker 1: and regulatory framework everywhere in the world. Right Yeah, miners
Speaker 1: are drawing on this public resource electricity, and as bitcoin
Speaker 1: mining requires more of it, it does make sense that
Speaker 1: governments around the world will have to react. Calla tell
Speaker 1: us what David is up to right now and how
Speaker 1: it's doing today. David is in Europe building new life.
Speaker 1: He's still able to practice law and hopes to get
Speaker 1: a job with a legal firm. Until then, he's acting
Speaker 1: as a translator for Venezuelans applying for visas to leave
Speaker 1: the country. His wife is registering as a dentist so
Speaker 1: she can start practicing, and his two kids are adjusting
Speaker 1: to their new life. David hopes that one day he'll
Speaker 1: be able to return to Venezuela, but he thinks it
Speaker 1: will take years for the economy to recover. And I
Speaker 1: hear there's one thing that hasn't changed. David's still in
Speaker 1: the business of cryptocurrency mining. I do, I have. I
Speaker 1: have some machines in Canada. It's not as profitable as
Speaker 1: in Venezuela because we pay for electricity pretty much. It's
Speaker 1: cheaper than than most of places, but it's it's still
Speaker 1: a big chunk of the of the mining operation. The
Speaker 1: plans were always there. We just rushed them when everything
Speaker 1: happened in Venezuela, like we were going to do it.
Speaker 1: Uh just not just for the for the legal or
Speaker 1: not legal environment, but because like the electricity is way stabler. Wait,
Speaker 1: it's way more stable and um and you you don't
Speaker 1: have to be worried that if if the machines are
Speaker 1: going to still be there when you wake up. And
Speaker 1: that's it for this week's Decrypted. Thanks for listening. Let
Speaker 1: us know what you thought of today's show. You can
Speaker 1: email us at Decrypted at Bloomberg dot net or reach
Speaker 1: out to me on Twitter. I'm at Kami Uso and
Speaker 1: I'm at brad Stone. If you haven't already, subscribe to
Speaker 1: our show wherever you get your podcast and gave us
Speaker 1: a rating and a review. They really help us reach
Speaker 1: new listeners. This episode was produced by Pia ga Pari,
Speaker 1: Magnus Henrickson and Listening. Francesca Leivi is the head of
Speaker 1: Bloomberg Podcast. We'll see you next week.