SLP143 Eduardo Gomez – Bitcoin as a source of truth in Venezuela
Stephan Livera: Eduardo, welcome to the show.
Eduardo Gomez: Thank you so much for having me Stephan. It’s an honor to be here.
Stephan Livera: So, look, Eduardo, I know you’ve got an interesting story to tell us. Can you tell us a little bit about how you first got into all of this?
Eduardo Gomez: Sure. So, basically, I dipped my toes into technology back in 2012. That’s when I first heard about Bitcoin. I was a freshman in college. Basically, I was looking for something to maybe earn a side income. So, I started mining Bitcoin with my GPU. It was still a thing back then. A Bitcoin was worth around maybe anywhere between $6 to $12. My mom had had just gifted me a GPU, a good GPU, a good video card.
Eduardo Gomez: So, I started mining the thing. I installed my first Bitcoin wallet, which was Electrum, and it was a fun experience. Unfortunately, I stopped maybe one or two weeks into the mining thing, mostly because I was so afraid of burning my GPU that I had to stop, unfortunately. So, that’s why I’m not a millionaire right now. It’s pretty much because I was scared of burning my GPU. It’s always a fun story to tell.
Stephan Livera: Yeah. So, you grew up in Venezuela, right?
Eduardo Gomez: Yeah. I grew up in Venezuela. I was starting college. I was studying something very equivalent to computer science. So, that was my first experience with Bitcoin, my Bitcoin baptism, if you will. Then, yeah, I stopped mining the thing, and I pretty much forgot about it up until 2015.
Eduardo Gomez: In 2015, I was three years into college. I was looking for maybe an outlet because my country’s currency was evaluating at such a high rate, high pace. The country was entering economic turmoil. The oil, the price of oil was plummeting, and that’s when everything went downhill for Venezuelan citizens.
Eduardo Gomez: I mean, you could see the signs that the economy was going to turn bad back in 2012. Our country has went under a currency control regime since 2002. So, essentially, everyone was unable to purchase foreign currency, unable to purchase things like the dollar or the Euro or anything.
Eduardo Gomez: So, when you pair a currency or capital control restriction with a government that is increasingly spending more money that it can, basically running deficient dairy economic policies, the result is everyone loses because inflation goes up, the currency keeps evaluating in a higher rate. So, basically, everyone was getting poorer by the minute and it was a very sad thing to see.
Eduardo Gomez: My mom was a nurse, and she was working two jobs. Back in 2015, her wage was pretty much something like $20 per month working two jobs, which is insane, right? I really discovered Bitcoin because I was talking with a friend, and he said that he was hearing about Bitcoin. That’s when my mind click in, “Hey, yeah. I remember Bitcoin. I think I have some story now in a seed somewhere, in a wallet.
Eduardo Gomez: That’s when my mind clicked, and I started to look at the potential of this technology to solve many things in my life. That year, I started working freelance on the internet doing content creation, community management. I was using these platforms like Upwork, like Freelancer, which paid the work with PayPal, which was a very inefficient thing because first of all, getting a PayPal account in Venezuela was pretty much impossible. It was very hard because you need an international credit card to activate the PayPal account, which was unavailable in Venezuela because of the currency controller and capital controls restrictions.
Eduardo Gomez: So, basically, I purchased an activated PayPal account on the internet. I started working freelance on the internet full-time, and I was getting paid with PayPal, but the problem with that is that the rate, the exchange rate for PayPal dollars to the Venezuelan bolivar, which is the currency of my country, of my home country was really bad compared to what you could get if you sell Bitcoin into Venezuelan bolivar. It was a pretty nice Bitcoin exchange in Venezuela back then.
Eduardo Gomez: So, basically, Bitcoin was the solution to my problems because if I could get paid with Bitcoin, my situation will improve dramatically. So, that’s what I started looking to. I started working for a couple of Bitcoin news websites like the Merkle, Cointelegraph, et cetera, and I was working there full-time, wasn’t getting a nice income, and that’s when I started to realize the real benefits of Bitcoin as a currency, as a payment method, as everything. That’s pretty much my story back then.
Eduardo Gomez: In 2016, I started working full-time for Purse. Purse is a company that I work for right now. Still, I work for Purse. I work there as a manager of the customers who bought an apartment. We run a remote team of six individuals in the support team. Everyone is paid with Bitcoin. Everyone is remote in different countries.
Eduardo Gomez: So, working as a manager, I grew up into the role with Bitcoin in mind. Everything is circled around Bitcoin in my life for the past years. I think that’s a nice experience to have. I’m very lucky to have fun at job where I could get paid with Bitcoin directly.
Stephan Livera: I’d love to touch on the exchange rate point you mentioned earlier because I think this might be a common misconception amongst people in the Western world when they see some news article saying, “Oh, look. People are paying $30,000 for Bitcoin in Iran,” and really, that’s not right or it sort of is right, but, really, it’s a reflection of the official fiat currency rate being less, or sorry giving you less than the actual black market true price for that fiat money.
Stephan Livera: So, in this example, it’s that the government in Venezuela is giving you a bad exchange rates on Venezuelan bolivars to US dollars, for example. Could you outline a little bit on that exchange rate difference and what drives that?
Eduardo Gomez: Yeah, definitely. It’s like you’re saying. The regimes and governments that apply this harsh economic measure that really doesn’t benefit anyone. When they do this, when they restrict your ability to purchase any currency that you want, all sorts of shenanigans starts popping up in the economy.
Eduardo Gomez: First, in the micro economy, the day-to-day economy of people, and then that results in really bad macro economic problems. In Venezuela, the currency control restriction was put in place in 2002. During that year, people could still access the dollar, but that involved a very complicated financial transaction where you will have to purchase a stock that was quoted in bolivars, and then you bought the stock and you sell this stock quoted in dollars. So, that way you could use the stock to purchase dollars, essentially bypassing the currency control restriction.
Eduardo Gomez: That was the thing back in 2002-2003, but then the government shut that down completely. So, pretty much, the Forex market was closed down to Venezuelans. When governments do that, you start to see black markets arise because that’s inevitable. If you restrict the ability for people to purchase something, they will purchase anyway just with the black market. The thing about black market is that they’re not transparent. They’re opaque.
Eduardo Gomez: When a black market arises, you see all sorts of different quotes or different prices. Traditionally, people in Venezuela have the majority of the economic activity regarding currency exchange happen in the border between Venezuela and Colombia. That will be the economic center of this activity.
Eduardo Gomez: The exchange rate in Venezuela fluctuated significantly during the first years of the currency restriction. Things really started to kick in and worsened significantly in 2016 because that’s when the hyperinflation started to kick in. So, basically, what used to happen in Venezuela pre-2016 was that the country had inflation, but the currency devaluation was higher than inflation.
Eduardo Gomez: So, essentially, the country was getting cheaper for people with access to dollars because prices were not going up as fast as the exchange rate was going up. So, that was a thing back in 2016. Essentially, if you were getting paid with dollars, you were a king because your expenses in the country were very low.
Eduardo Gomez: When the hyperinflation started to kick in, that correlation reversed, and what happened was that the country was becoming increasingly expensive, more expensive for everyone regardless if you had dollars or bolivars. Of course, if you had dollars, you still maintained some sort of purchasing power, right? For the people with the national currency, pretty much their savings got destroyed.
Eduardo Gomez: Like my mom, she worked at public jobs as a nurse for something like 50 years. When she got her retirement check, for those 50 years of work, she received less than $5 for 50 years of work. So, basically, the social security system, it completely collapsed because the currency just wasn’t worth anything. So, after 2016, everyone got impacted by the economic reality of Venezuela, even people that were getting paid with dollars.
Stephan Livera: Yeah. That must be incredibly difficult. So, you’re living in Argentina now, were there a lot of people who wanted to leave and work in other countries, and send money back home?
Eduardo Gomez: Yeah. So, I came to Argentina in 2018. I moved here with some of my coworkers, the Purse team, support team. The company actually sponsored some of our flight tickets, which was pretty cool. We moved here to Argentina in search of a better future. We find a country that is, obviously, the economy is much better than Venezuela, but it still has some issues like people here, the governments here have applied some of the same tactics like currency control and capital controls to avoid people from purchasing dollars because here, the people in Argentina have experienced great economic catastrophes over the years. This is one of the countries that have defaulted the most in history.
Eduardo Gomez: People here are obsessed with the US dollar because they know that their own currency isn’t worth much, and governments here, usually, they like to spend more money than they can afford, which causes inflation and currency devaluation.
Eduardo Gomez: So, basically, what we find here was a country similar to Venezuela in how they run things in the matters of economics, but the population is much better prepared than in Venezuela. People here, they are very smart when it comes to micromanaging their finances, and they know that they cannot trust their own currency.
Eduardo Gomez: So, people are very, very intelligent about managing their network and their life savings. People got hit very badly in 2002, in 2001, sorry, because the government at the time, they, basically, if you had dollars in your bank account, they pretty much sold those dollars or took away the dollars that you have in your savings account and they gave you pesos, which is a national currency at a super bad exchange rate, essentially taking away most of your wealth.
Eduardo Gomez: So, that’s why that action, it sent waves across the nation, across everyone’s mindset when it comes to the government and when it comes to their money. People realized that they cannot trust the government, they cannot trust the banks. So, this country has a very big mindset when it comes to cash. They like to use cash not only because they avoid using banks, but also because they also avoid taxes by paying with cash. So, we find a very interesting country that has all sorts of rituals and customs when it comes to money.
Stephan Livera: Yeah. That’s fascinating stuff. I’d love to now jump more into the Venezuela-Colombian border aspect. So, you were saying that there’s a lot of interesting things going on there in terms of Bitcoin trading. Can you give us some insight into that?
Eduardo Gomez: Yes. So, I think it’s not only across the Venezuelan and Colombian border, but more across Latin America, but like the saying that all roads lead to Rome, in Latin America, all roads lead to Venezuela. The diaspora, the number of immigrants that left Venezuela is just so high. There are a few examples like this in history. You could compare it to the Syrian migration crisis.
Eduardo Gomez: In Latin America, nothing like this has ever occurred in history. Approximately five million Venezuelans have left the country. There are 200,000 Venezuelans in the US, a good chunk of them in Miami, in Doral, City of Doral in Miami. You have more than one million Venezuelans in Colombia, sorry, more than two million Venezuelans in Colombia, probably more. You have one million Venezuelans in Peru, and you have 200,000 Venezuelans here in Argentina, and also in Ecuador, there’s a good chunk of Venezuelans there.
Eduardo Gomez: So, basically, you have all these Venezuelan immigrants all across Latin America. They have family back in Venezuela, and their families, the minimum wage in Venezuela right now is $3 per month. That’s what you get, $3 for a month of work, which is insane. Prices in Venezuela, it’s not like you earn $3 and everything costs like a cent of a dollar. No. That’s not the case. You get paid $3 per month of work and everything costs the same as in the US because the industrial production in Venezuela is inexistent. It doesn’t exist and everything is imported, and they usually import it from the US, like the US, Turkey, and other places.
Eduardo Gomez: So, all these families in Venezuela, they have high expenses and low income. They have to depend on the people that left the country, their sons, their grandchildren, their brothers who left the country in search of greater hopes. So, basically, now you have all these people across Latin America and they have a need to send money to Venezuela.
Eduardo Gomez: Obviously, a ton of businesses and opportunities for these use case arise. Typically, people will have a person that they trust to send money to the country, and that has become a big business opportunity.
Eduardo Gomez: So, what I specifically meant in my tweet about this use case between Colombia and Venezuela is that there is a problem that the exchange rate in Venezuela is essentially opaque. The change are between the dollar and the Venezuelan bolivar because it’s a black market, and everyone has a different price, a different quote.
Eduardo Gomez: So, there are inefficiencies when it comes to selling dollars to purchase bolivars. Everyone will give you a different price. So, people in Venezuela have started to turn to Bitcoin as a source of truth when it comes to the exchange rate. So, if you go to Local Bitcoins Venezuela … So, Local Bitcoin is actually the main way, also in Colombia. Local Bitcoin has a huge trade volume there.
Eduardo Gomez: Usually, what people will do is you have all these individuals in the Venezuelan-Colombian border that their business is to exchange between currencies, between Colombian pesos and Venezuelan bolivars.
Eduardo Gomez: So, many people are doing this. What they do is they purchase your bolivars or, sorry, they purchase your pesos to send money to your family in Venezuela, Venezuelan bolivars. So, what they do is they use Local Bitcoin essentially as the backend for that trade. So, they will take the pesos to a person in Colombia and then they will initiate a Local Bitcoin trade to send money to the person in Venezuela.
Eduardo Gomez: Since Local Bitcoin usually has the best exchange rate, people are pretty much arbitraging that exchange rate because peer to peer trading is big in the Colombian-Venezuelan border, and there are a ton of different prices, different quotes. So, there is big opportunity to arbitrage the different exchange rates, to take advantage of the fact that Local Bitcoin system, the biggest trading volume, and that’s where the best exchange rate is.
Eduardo Gomez: So, it’s a very interesting thing about what is happening there. It’s not only in the Colombian-Venezuelan border. It’s also happening all across Latin America because if you want to send money to your family and relatives in Venezuela, you usually have to go through someone who you have to trust, and that someone obviously has a process to send money to Venezuela to fulfill the trade. Usually, they will find the best exchange rate through Local Bitcoin.
Eduardo Gomez: So, pretty much, my point here is that Local Bitcoin is being used as a backend for exchange or for sending money to Venezuela. It’s super crazy. It’s super weird, but it’s what’s happening.
Eduardo Gomez: There’s this guy, his name is Matt, I think.
Stephan Livera: Matt Ahlborg.
Eduardo Gomez: Yeah.
Stephan Livera: UsefulTulips, right?
Eduardo Gomez: Yeah, exactly. UsefulTulips. He did a research, a very interesting research on the Local Bitcoin Venezuela story here. He found out that there was a big blackout in Venezuela last year. That blackout left the country pretty much in a halt for two days, three days. What he found was that when that blackout hit, the Local Bitcoin trading volume not only increased in Venezuela, but all across Latin America, and also in Spain, which indicates, to some degree, that most of the Local Bitcoin trading volume that is happening across America is directed or is influenced by Venezuela.
Eduardo Gomez: I think that the most obvious explanation is that five million Venezuelans left the country, that they’re all across these countries, they have the need to send money to Venezuela. So, I think that’s the most obvious explanation. It’s crazy that this platform is being used for basically as a settle layer, if you will, for training activity back from or to Venezuela.
Stephan Livera: Got it. So, let me just walk that through in my head just to make sure I’ve understood you correctly. So, the diaspora of Venezuelans around elsewhere in South America and some in Spain, they are basically wanting to send money back home to their family in Venezuela, but the problem is they can’t directly send the Bitcoin or they can, but their family might not be able to directly spend it.
Stephan Livera: So, what you’re saying is they typically will use Local Bitcoin to buy some Bitcoin, send it to an intermediate person, and they may be, say, on the Venezuelan-Colombian border, and they will do that trade from Bitcoin back to the Venezuelan currency, and then be able to give it to the family. Have I understood you correctly there or can you just walk through the flow?
Eduardo Gomez: Yeah. That’s pretty much the process. So, it really varies between persons. So, in my use case, in my own personal experience, I know what Bitcoin is, I know what Local Bitcoin is, I know how to use a platform. Traditionally, what I do is I log into Local Bitcoin. I initiate a trade with someone on the Venezuelan bolivar BTC pair in the Venezuela market. I initiate a trade with someone who has the same bank account that I want to transfer my money to.
Eduardo Gomez: I initiate a trade with that person and I tell the person, “Hey, I need a bank transfer for one million Venezuelan bolivars to this bank account,” which can be my mom’s bank account my own bank account. That person will fulfill the trade. They will send proof that he did a trade. I can log in to my bank to check or my mom’s bank come to see if the money arrived, and I release the escrow. I release the Bitcoin to that person. That’s my flow. That’s my procedure because I know how to use it.
Eduardo Gomez: The thing about Local Bitcoin is Local Bitcoin is not so easy to use. It can be scary. Their interface is not very UX friendly or usable for normal people. So, that’s when the traders, that’s when the intermediaries, that’s when other companies are taking advantage of this that Local Bitcoin has the best rates, but not everyone can use it because not everyone has Bitcoin or not everyone knows how to navigate around the platform. So, they will fulfill the trade. They have the Bitcoin, and they will sell the Bitcoin in the platform, and they will charge in cash if you don’t know how to use the platform.
Eduardo Gomez: So, my point is that the Local Bitcoin platform is being used basically as a, I don’t know, transfer as a service or bank transfer as a service. That’s pretty much what I’m getting to. So, I think there’s definitely a big potential for people and companies to build businesses on top of this or build use cases or whatnot on top of this. So, I think that’s a bigger story that is unfolding right now.
Eduardo Gomez: One year, two years ago, the Bitcoin volume in Local Bitcoin Venezuela was, obviously, during the bubble in 2016, December 2016, that’s when we saw obviously the biggest trading volumes, right? The trading volume has started to pick up pace again. It’s slowly going up and it’s very steady.
Eduardo Gomez: We have heard reports that the platform, the Local Bitcoin platform is also being used more and more by businesses in Venezuela because they need to get money out of the country or back to their bank accounts in the US. The economy, the Venezuelan economy has dollarized completely.
Eduardo Gomez: My mom, who never touched a dollar bill, she’s now charging dollars for … She does some artisan work. She paints. She does all these sorts of different things. So, she sells her work and she gets paid with dollars in cash. She now can go to a supermarket in Venezuela, in my home city, my hometown, and she can spend dollars effortlessly, and everyone will accept it, which was unthinkable maybe two years ago because, legally speaking, it was a crime to sell things in dollars.
Eduardo Gomez: Everyone did it, but it was technically illegal. Now, everyone is doing it. The economy has dollarized completely. The dollar is being used by everybody. You will see kids going to a brick and mortar shop or the mom and pop store in the corner of the street, and they will pay store owner with dollars, which was crazy, which is crazy, right? The economy has switched completely to bolivars.
Stephan Livera: Yeah. That’s really interesting insight. I’m curious. Do you see or hear of any direct Bitcoin commerce like people just directly charging Bitcoin for things or is it that people … I understand most people would still want to use US dollar in that case.
Eduardo Gomez: So, I have heard reports. It’s actually a public news. It’s not a secret there. There is a big supermarket chain in Venezuela that started to accept cryptocurrencies. It’s a store called Traki. They decided to accept Bitcoin, all coins like Dash, and whatnot. There have been efforts by the company and people running Dash to market Venezuela as the main use case for their currency.
Eduardo Gomez: I don’t think they’re being honest with their marketing materials and promotions because the country in itself is not using … I mean, they’re using … The fact that many people or many stores are accepting Dash as a sign of growth, but eventually, if you go to the actual place and you try to pay with Dash or even sometimes with Bitcoin, the retail seller or the person, the cashier, she or he doesn’t know what you’re talking about. It’s the owner who has the knowledge about these cryptocurrencies and will charge you and take your crypto, but owner usually is not in the place.
Eduardo Gomez: So, I think that they were very dishonest with their whole promotional thing about Venezuela. I think Bitcoin in itself and all other cryptocurrencies, they’re not actively being used for payments in Venezuela. People are not going to their stores and the supermarkets and they’re paying with crypto. That’s not happening.
Eduardo Gomez: Maybe if a big store like Traki, the main one that I was talking about, maybe they receive a Bitcoin payment once per week. I don’t know. I don’t think that’s something that’s reaching a point of mainstream usage. I think that’s the case.
Eduardo Gomez: I think the bigger story and the biggest use case is sending money outside the country and the whole remittance business, the whole Forex trading activity that’s happening in the Venezuelan-Colombian border, I think that’s the main story here. I think their whole payments and businesses taking crypto directly, I don’t think that’s the case. I don’t think that people are paying with crypto in Venezuela.
Stephan Livera: Got it. The other question I had was around stablecoins because if the economy is dollarizing, someone might say, “Well, why not use stablecoins?”
Eduardo Gomez: Yeah. It’s definitely an interesting use case. People, especially here across Latin America, it’s easier to market or to sell a stablecoin to people instead of selling them on cryptocurrency. I think here in Argentina, I think that it could be the biggest market for a stablecoin. There are some attempts. There are some startups here that are working on that. There are a couple of Argentinians who work for their maker team, and they’re big promoters of that.
Eduardo Gomez: There’s a startup company called Celo, Celo. They’re building a stablecoin. They have a headquarters here in Argentina. I think there’s potential for it, but the problem is it’s still the same barrier of entry, the long learning curve because the stablecoin is just pretty much the same thing as the cryptocurrency. So, you still have the complications of teaching people how to use it.
Eduardo Gomez: Again, here, people here in Argentina, and I think you could say that all across Latin America, they don’t trust having dollars in their bank, in their bank accounts. They want to have the thing, the cash, the bills in their hands. So, I think beating that cultural rule or that mindset of people wishing to have the physical cash, it’s very hard. It’s a very hard problem to crack.
Eduardo Gomez: I think, if anything, the biggest selling point that you could use to attract people to the stablecoin thing is with the with DeFi with compound, the interest rates that you can get by lending your stablecoins. If you tell people, “Hey, there’s this digital dollar and you can keep your money outside the banking system and outside the hands of the government,” I think that’s a compelling point, but if you tell them that on top of that they can get, I don’t know, 4.5% annual interest rates on their deposits if they keep the money in a decentralized lending pool or compound or any other, I think that’s a more-
Stephan Livera: A more compelling case, right?
Eduardo Gomez: A more compelling case, yes, but still, it’s hard to market. It’s hard to explain people what that is. It’s very hard to explain their risks. So, eventually, I think the potential here is if you want to sell stablecoin, you have to also sell the lending in an annual interest rates that you can get with a stablecoin. I think that’s the biggest, the best thing that you can do. Yeah.
Stephan Livera: Yeah. One other point I was keen to ask you about around the border trade aspect of it. Are these in-person cash trades or are these more like bank transfer? I think you talked through a bank transfer example, and then the question is, is the government clamping down on that? Are police stopping it or does the government otherwise care that people are using it?
Eduardo Gomez: So, the majority of the volume, the transactions that take place via bank transfers, the banking system, the government has made attempts to clamp down on people’s bank accounts. During the last two to three years, they have increasingly blocked more and more bank accounts. People have had to go to the bank branch and explain to the manager why there is so much money entering or exiting their bank accounts.
Eduardo Gomez: My dad, actually, he had that experience. His bank account was limited. It was limited. If you try to send him a bank account transfer over a certain amount, and the limit was very low, mind you, the transfer would just simply bounce back. So, he had to go to the bank branch and explain, “My son, he’s living abroad. I live all on my own. I do not work. He needs to send me money.”
Eduardo Gomez: So, basically, he made a dramatic explanation to the branch manager to lift the limitation out of the account. He did. He did that, but many people are not that lucky. So, the government has tried to clamp down on bank accounts.
Eduardo Gomez: The problem is it’s like arms race. Many of the exchange houses and remittance businesses and money traders in the border and all across Latin America, what they’re doing is that they’re renting bank accounts in Venezuela. So, for anywhere between $40 to $150 per month, you can get a Venezuelan bank account. You can rent a Venezuelan bank account from someone else, and use it to do your bank transfers.
Eduardo Gomez: Typically, the business bank accounts, they’re more desirable because they have bigger transfer limits, right? So, these businesses in the Venezuelan-Colombian border, they’re using rented bank accounts to the their business. I think the normal population has had to get smart about this. They’re spreading out the bank transfer. So, instead of getting one big amount per month from their family and relatives outside of Minnesota, they’re sending several wires across a month.
Eduardo Gomez: It also makes sense because of the inflation, right? If you send money to Venezuela at the beginning of the month, by the end of the month, you will have lost maybe about 50% of your value. So, it doesn’t make sense to send one big chunk of money. Usually, on my personal experience, I send money to my mom once a week, sometimes biweekly. My girlfriend, she sends money to her mom in Venezuela once per week, sometimes twice per week to work around the inflation and currency devaluation. So, I think there are tactics to get around this.
Eduardo Gomez: Now, regarding the cash trades, peer-to-peer cash trading in the Venezuelan-Colombian border, it’s a risky business because of the criminality and insecurity that there is in the region. The border is a very hot zone. It’s where you have paramilitary elements, there are criminals, also, government-sponsored paramilitary personnel, but pretty much, the border is a bloodline of the country. Many of the important goods come from the border, and many government officials and many military personnel, they take bribes to let things in or outside the country.
Eduardo Gomez: So, it’s not a big problem because everyone’s getting their cut. The government officials and military personnel, they’re getting their cut. They take bribes in the border to allow money in or outside the country. There’s big chunks of cash. There are many parts of the border where there’s smuggling going on.
Eduardo Gomez: So, the government has taken a very lax approach to solve or tackle this problem. Usually, they permit it, they allow it, but the thing is that since they allow it and the military is in this business, there is also wars to allow certain smuggling to go on. There are many interests across this chess board. So, the border is a very dangerous place to be right now.
Eduardo Gomez: There is also this interesting case that there are many people leaving in the Venezuelan side of the border and they go to work to Colombia. Obviously, this is not an unusual, right? Maybe in the US-Mexico border you see this, too. People are living in Mexico, but they go to work in the US.
Eduardo Gomez: In Venezuela, it’s even bigger because the minimum wage is so low in Venezuela that everyone in the border that if they’re able to, they will work on Colombia because their wages will be bigger.
Stephan Livera: I’m also curious to know what is the impact of things like the Venezuelan Petro. Has that confused things for people? Do people just treat it like a pass through thing and they don’t spend too much time in the Petro, so to speak?
Eduardo Gomez: Yeah. You had touched a very interesting point that I was hoping you to mention. So, Petro, right now, you could see Petro as a government-sponsored cryptocurrency that really, it isn’t a cryptocurrency because it’s completely centralized. Even the Blockchain Explorer doesn’t work. It’s just a website. There are no other providers. There’s just one website that you can look up for Petro transactions. That website, if it works five hours per day, it’s a miracle. Usually, it’s down, that website. You cannot consult, you cannot do queries for certain blocks. Sometimes you search for a transaction, it doesn’t appear. It’s a complete mess.
Eduardo Gomez: So, this so-called cryptocurrency is run by a company that the government contracted. Nobody knows who this company is, what the employees are, who built this cryptocurrency. It’s a complete mystery. The only known thing, and that’s because it’s said in the white paper is that there are several master nodes. Probably this is like a Dash clone or something. There are some master nodes, and those master nodes, they’re all in the same place. They’re all controlled by the government. So, there is no transparency when it comes to this cryptocurrency.
Eduardo Gomez: The other thing is that the Petro is traded on a couple of local exchanges, but due to US sanctions and not only US sanctions, but also the potential risk of running these unknown cryptocurrency in your exchange, this cryptocurrency is not traded in big exchanges like Binance or Bittrex, and the usual suspects, if you will.
Eduardo Gomez: So, this crypto is pretty much an attempt by the government to get money because what they say is that one Petro is worth $60, which is probably the price of a barrel of oil. They say that to back this cryptocurrency, they have allocated a certain amount of oil reserves, but the oil reserves are in the ground, right? Venezuelan oil is extra heavy. It’s really hard to process. It’s very hard to extract.
Eduardo Gomez: So, basically, they’re saying, “Hey, we have the biggest oil reserves in the world, and we want to monetize that.” So, my friend Alejandro Machado said … Alejandro Machado is a guy who’s working with the project called the Open Monetary Initiative. They’re doing research on the different use cases for crypto in Venezuela.
Eduardo Gomez: What he said is that the government essentially is running an initial country offering because the government is trying to monetize, they’re trying to monetize resources that they cannot extract. It’s very hard to extract that oil. The oil output of the country has declined significantly in 2000. In the year 2000, Venezuela was producing three million barrels of oil per day. Today, they’re getting less than 700 barrels of oil, 700,000. So, the oil output has decreased significantly.
Eduardo Gomez: So, what’s the value, right? Where does the value come from? It isn’t worth anything. They’re also saying that they’re going to monetize their gold reserves and diamond reserves. Venezuela has several strategic mineral reserves. There is still the problem that it’s hard to extract. No one will invest in the country. No sane oil industry company will invest to extract oil in Venezuela.
Eduardo Gomez: So, the value preposition isn’t there, right? So, what the government is doing is that they’re trying to force down the Petro into people. There are many bureaucratic processes can be paid with Petro, at least that’s what they’re advertising. So, if you want to get a new passport, and by the way, the Venezuelan passport is the most expensive passport in the whole world. It costs $300 to get a new passport. Also, it’s very hard and almost impossible to get because they’re not printing the damn passport. So, pretty much, you have people stuck all across the world because they cannot move because they don’t have a Venezuelan passport.
Eduardo Gomez: So, they’re trying to force Petro down onto people. Recently, like less than one month ago, they pretty much air drop half a Petro onto everyone who was registered with Carnet de la patria. So, Carnet de la patria is like an ID. It’s like a card, a document ID that you have to sign up for. People will usually give you free money if you have that ID card. It’s called the Fatherland’s card or the Motherland’s card. I don’t know what’s the exact translation.
Eduardo Gomez: So, the Fatherland’s card, you have to get it if you want to get free money. Usually, the government will send monthly bonuses. They’re essentially airdropping fee fiat every month to everybody with no regards of consequence with the inflation and the currency devaluation and the relentless money printing that they’re doing.
Eduardo Gomez: So, they’re giving away free money and they’re trying to do the same with Petro. Recently, there are airdrop half a Petro every Fatherland’s card holder, and lands car holder, and there were these designated merchants that accept that Petro.
Eduardo Gomez: So, basically, long queues form in these businesses that were accepting Petro because everyone got a half a Petro for free. So, the biggest victims with this airdrop were the merchants because they got paid with half a Petro, but the government, two days, sorry, five days of their airdrop event, they stop their platform, their payment platform, and the Petro is pretty much on oil right now. People cannot sell their Petros.
Eduardo Gomez: So, basically, the merchants who receive Petros in exchange of goods, they cannot sell the Petros into the national currency. So, pretty much, they got left with no stock because they sold everything because everyone, there was an incentive to spend this Petro, and the merchants, they don’t have stock anymore, and they cannot sell the Petros.
Eduardo Gomez: So, this pretty much was a wealth transfer from the merchants and the store owner to people who got the airdrop of the Petro. I think that first experience was a revealing experience for everyone because I think it’s very obvious that it cannot work as a payment system because if the government is going to be airdropping Petro every now and then, there’s this huge demand to spend it, but there’s no purchasing demand. No one wants to purchase this thing.
Eduardo Gomez: So, that inevitably will lead to the Petro crashing in value, right? The sad thing is that the government says that the Petro is worth $60, but on the open market, in the couple of crypto exchanges that trade Petro in Venezuela, it’s worth approximately 50% to 60% less than the government advertises.
Stephan Livera: Firstly, it’s just that it’s not a real exchange rate, right? So, it’s just like that same problem that the government just gives itself a really nice exchange rate, but the true exchange rate is much less than that. The merchants have basically been left holding the shitcoin bags, right? They had to give goods and now they’re stuck with these bags that they can’t even unload, right? So, it’s a very unfortunate situation.
Stephan Livera: So, turning I guess back to more Bitcoin and Bitcoin apps and so on, have you seen any use of lightning as an example or things like Phoenix app, Phoenix wallet?
Eduardo Gomez: No, not recently. What I’ve heard is that there is a company in Colombia called Value. They have this really nice app for people to exchange pesos into Venezuelan bolivars. So, you sell your Colombian pesos via the app and you go to a storefront that will take the cash, and your family or relative will receive bolivars in less than an hour.
Eduardo Gomez: That was a very nice use case and although for the user, it’s nothing Bitcoin-related because they don’t see anything about Bitcoin, but on the backend, the company, they will use things like Bitcoin, Local Bitcoin, and any Bitcoin exchanges to fulfill the trade and to send money to the person in Venezuela. So, I think that’s very nice and interesting use case, right? You use Bitcoin on the backend, nobody has to know about it, and it fulfills a purpose.
Eduardo Gomez: Now, regarding the more Bitcoin-centric aspect of things, I haven’t heard of any innovations going on in the country regarding Bitcoin. I know that there’s, obviously there’s more. I’m more interested to purchase it, purchase Bitcoin just to protect your network, your wealth because the Venezuelan bolivar is just devaluating every day.
Eduardo Gomez: Apart from that, the innovation is pretty much clamped down because the country switched in a turmoil state that there’s no time left to think about innovation. People, programmers, professionals in the country, the few there, they’re still there because the majority, they just left the country. The few of them that are there, they just work for companies, and on the outside, they do freelance work for companies in the US or companies in Latin America. They get paid with dollars, and they don’t have time to think about solving the situation in the country.
Eduardo Gomez: Now, there are several wallets that you can use, of course. I think mobile wallets have real power to penetrate the market, especially privacy centered wallets like Samourai. You have a very interesting use case there because having a mobile wallet means that you can pay anybody that you encounter. Also, you have to think about the fact that Venezuela is a very insecure place, so your phone can be stolen at any time, and so you have to build products for that.
Eduardo Gomez: With Samourai wallet, you can do stuff like disable the wallet via some SMS. They have all these privacy features, and they think about the wallet from the aspect of an adversary, right? Also, you have the potential to build stuff that will allow people to purchase the currency, I mean, to purchase Bitcoin with the national currency. There’s the opportunity to build local exchanges. You have the opportunity to build maybe exchanges to have a better UI than what Local Bitcoin has.
Eduardo Gomez: So, I think there’s room for innovation, there’s room for products, but you have to think the most basic use cases because you cannot go too far because the economy is not in such a place to think about advanced use case. People don’t have enough money to be messing around with crypto. The fees are high, for sure. So, you have to think about that. So, there are many things that you have to think about when building products.
Eduardo Gomez: My friend, Alejandro, who has been working with the Open Monetary Initiative, they have released research on this and how to build products thinking about Venezuela. They have find out that if you want to build something, you have to think about the low bandwidth that you have. The internet connectivity is really bad, so you have to think about that. You have to think about the fact that phones, they run on all software. There’s all Android phones there. So, you have to build lightweight apps, apps that can run on low bandwidth.
Eduardo Gomez: So, there are all these prerequisites. So, it leaves very, very few room for innovation. It’s very complicated. I think that the main use case that we have to think about is just Bitcoin as a sort of value, and Bitcoin as a way to move money inside or outside the country. I think that’s the main use case.
Eduardo Gomez: I ramble a lot. Sorry about that, but, yes. I think it all comes down to getting money in or inside the country.
Stephan Livera: Yup. So, I presume then we are seeing more people who would like to HODL Bitcoin, right? Like you said, there’s more longer term savings. Alongside that, people considering things like key management, backups, and so on, is that something that you’re hearing advancing in terms of people learning how to use backups and longer term storage?
Eduardo Gomez: Not so much. There’s plenty of opportunities to think about that. I have heard about someone, that there was someone who told me in a conversation back … I attended Devcon 4 in Prague, and that was in 2018. I had to chance to speak about the Venezuelan situation with Alejandro, with my friend Alejandro. We did a presentation there. I believe, I want to believe that it made a good impact on people that attended the conference.
Eduardo Gomez: When we finished our presentation, a ton of people, they approached me and they say, “Hey, how can we build stuff for this country? What we can do?” There was this guy who presented me with the idea of maybe having physical cards or physical items that hold Bitcoin, and that you can give to someone else, that someone else can scan. The item will have, I don’t know, a private key built in that you can sweep, and scratchable cards was also a discussion that was brought up in that presentation.
Eduardo Gomez: So, because somewhat, people are used to, right? People are used to exchange physical things. They’re used to money on a day-to-day basis. It’s a physical thing. It’s bills that you touch, that you give to someone else. So, I think that there can be an opportunity to convert crypto in a physical thing. I think that’s a nice use case.
Eduardo Gomez: In terms of key management, that’s a very advanced topic. We have to think very deep about these issues. People, normal people, people, they get scared when they send a Bitcoin transaction. Sometimes I’m still a little bit scared when I send a Bitcoin transaction, right? It’s something you fill in your guts when you move a large portion of your wealth from one address to other address. When you send money to someone to pay for something and it’s a big payment, you still get some tingling sensation in your guts when you send that transaction.
Eduardo Gomez: When we reach a point where we don’t feel that tingling sensation in our stomachs, I think that’s the point where we can feel at ease, when we have built things, products, and services that will allow us to make Bitcoin payments or crypto payments without that awful negative feeling that you can lost everything if you’ve typed something wrong. It’s very hard to achieve. It’s very hard to get to a point like that.
Eduardo Gomez: For normal people, it’s very hard for them to grasp the concept that all that they have is in series of 12 wallets, and if they’ve lost those wallets, all their money is gone. I think that it’s a very hard problem to solve. If you want the absolute privacy, if you want to be in control of your wealth, it’s inevitable. You have to think about storing your own money. You have to think about securing your own private keys. You have to think about all of that.
Eduardo Gomez: So, either we build things to allow normal people to use crypto, but that will also corrupt the principles of Bitcoin, the principles of self-custody or we teach everyone to be a self-custodian. We teach everybody about the importance of storing their own Bitcoin. We teach everyone to be basically libertarian.
Eduardo Gomez: So, that’s pretty much it. You have to convince people to take up the responsibility of securing their own wealth, of securing their own money. I think we have to focus more on that because we have a couple of good solutions right now for wallets. You have big companies like Coinbase. Coinbase is a company that has received a lot of critics across the years.
Eduardo Gomez: Ever since I joined the space in 2012, everyone was always complaining about Coinbase. Coinbase is pretty much the enemy of every Bitcoin maximalists or people that is very focused on the self-custody because they’re this big US corporation, big company, they’re growing. Eventually, they will become, well, they already have, I believe, a multi billion dollar company, but it will get to the point that they’re too big to fail, and they will get to a point that will concentrate the majority of Bitcoin in circulation.
Eduardo Gomez: So, that company, Coinbase, they have simplified a lot of things for people, right? If you get too comfy, and they go bust, you will lose everything, but they have done a good job in terms of UX, in terms of ease of use, in terms of if you want to purchase Bitcoin. If you want to introduce Bitcoin to somebody in the US, the easiest solution for them to purchase the coin, the Bitcoin is through Coinbase among other. Of course, you have other providers.
Eduardo Gomez: So, I think that’s problem number one, right? Who do we trust? Do I trust myself or do I trust someone else to hold my coins? Of course, a preferred solution is to trust myself and do my own custody, but if I’m not careful, I can lose everything.
Eduardo Gomez: The second problem is how to get Bitcoin, how to purchase cryptocurrency. I’ve been in this space for a long time and in the span of seven years, not much has changed in terms of fiat on-ramps. If you want to purchase crypto, it’s still the same company. It’s still Kraken, it’s still Coinbase, it’s still Bitstamp running the show. Then you have the Casinos, Binance, the BitMEX. They’re essentially Casinos because they allow trading with just signing up with an email-password combination. They don’t have KYC. I mean they have KYC up to a certain point, at least Binance, but they’re just Casinos because they don’t have fiat on-ramps because if they have fiat on-ramps, then they have to reregulate it.
Eduardo Gomez: So, I think that’s a problem, the on-ramps. If you want to purchase crypto in Latin America, you have two main ways. If you are a newbie, you’re a rookie in this space, you will have to go through local exchange, that is the most trusted in your own country. Here in Argentina, you have Ripio, you have crypto market, you have Satoshi Tango, you have different exchanges, but the quotes and the prices that they give you are very bad.
Eduardo Gomez: So, if you want the best range, you have to go OTC with Local Bitcoin. Local Bitcoin usually has the best rate, but then you have to deal with the uncertainty that there’s a counterparty on Local Bitcoin. If you’re a newbie, the UX can be very scary. So, there are limited opportunities. There are limited fiat on-ramps, and the fiat on-ramps that exist and that people can trust, they have very bad prices. So, it’s going to be expensive to purchase crypto.
Eduardo Gomez: So, for me, that’s one of the most important problems to solve, the on-ramps. Of course, you have the long term problem of fungibility, which is a topic that I think will be big in the coming years. It’s still something that many people don’t pay attention to, I mean, the regular users. For them, a Bitcoin is a Bitcoin, but for other people that they think about the long term, they think about what’s happening right now with law enforcement, with the subpoenas are going on in the space, with the companies and the crypto, when they think about the dark net markets and how the Bitcoins that come from hacks, Bitcoin that come from drug dealing, that those Bitcoin are worth less than the Bitcoin, than ‘clean Bitcoin’, if you will, the ‘clean coins’.
Eduardo Gomez: So, you have products like Wasabi, which is a really nice wallet that I’m using that allows you to mix your coin to do your Bitcoin mixing. So, I think this year we can really think about that. There are innovations in the roadmap. Maybe in the next couple of years, it will take two to five years for Bitcoin to incorporate technology and features that will make mixing coins more easier and more cheaper.
Eduardo Gomez: So, the idea is to get to a point where one Bitcoin, when output is worth the same as any other output and I think that’s a big value proposition because a dollar is a dollar and you can have $2 bills and it doesn’t matter where they came from. It doesn’t matter if a $100 bill came from a murderer than a $100 bill that came from a farmer that they got their paycheck or they got paid in cash. It doesn’t matter what $100 came from. We want to get to that point. Even if some people think it’s amoral, I think, fungibility is the biggest next problem for Bitcoin that needs urgent solving.
Stephan Livera: Yes. I mean, there’s a few points that I can extract from there. So, in terms of building products that work for, let’s say, Venezuelans, part of the challenges, if you will, firstly, I guess the cost, so the cost of having a hardware wallet and then even the cost of having a more recent Android phone that can have the wallets that run all these different features and so on. So, there are a few of the, I guess, things to think about.
Stephan Livera: From a more Argentinian perspective, do you see day-to-day Bitcoin spending, lightning spending? Is it more used in certain cafes or things like that?
Eduardo Gomez: There a couple of places that accept Bitcoin. You have Bitcoin ATMs. My first experience with a Bitcoin ATM was here in Argentina. It was something that blew my mind, that I was exchanging Bitcoin to physical cash. It was an experience that I don’t know. It’s one of those first experiences that you cannot replicate. When I did that exchange and I used that ATM, I thought, “Well, how far have we come?”
Eduardo Gomez: There are places that accept Bitcoin here in Argentina, sure, but they’re very niche. If you go to Microcentro, Microcentro is downtown. Buenos Aires is where the big office space buildings are, where the main. There’s a lot of trading activity, trading desks. Basically, big businesses is in that place.
Eduardo Gomez: Then you have also the … There are individuals called cambistas, and they have cuevas. So, cambistas are people that exchange pesos into dollars and dollars into pesos, their national currency. Cuevas is, basically, a dark office where you go to sell your dollars or you go with your pesos to purchase dollars outside the banking system, which is technically illegal, but it’s allowed.
Eduardo Gomez: So, all these people down there that you can see physical stores that say, “Hey, we accept Bitcoin,” and you can see that Bitcoin accepted your payment. In my experience, when I went to those places, they haven’t still downloaded the lightning app and we usually would do normal Bitcoin transactions with normal wallets.
Eduardo Gomez: So, I think it’s still very early for the majority of Bitcoiners to catch up with lightning. There are some innovation taking place here in Argentina. Most of the people at rootstock. They are building their own side chain, and whatnot. They’re here from Argentina. I think they recently moved to Uruguay. They have an office there, but they’re from Argentina.
Eduardo Gomez: You have a dedicated Bitcoin space, which is called Bitcoin Space. It’s basically an office building with many startups. Some focus around Ethereum, some focus around Bitcoin. There’s monthly meetups. There’s a lot of community building effort taking place in Argentina. There’s the developers of the Muun wallet, which is has lightning enabled, I think.
Eduardo Gomez: So, I think there’s innovation taking place, but it’s still too early. It’s still very, very small as of now. We haven’t catch up with lightning usage yet. I haven’t seen anybody using it as of now, but there’s potential. There are very smart people working on that here, and I think we will get to that point.
Stephan Livera: Yeah. That’s great to hear. Yeah. There’s a lot of good tools and things being built out. So, I guess that’s pretty much most of the questions I had. Did you have anything else that you wanted to touch on before we finish up?
Eduardo Gomez: I think we covered everything. I think my final thoughts on this will be the technology. The technology is in a very good place for people to use it as it is. We have many people using Bitcoin for everything. I myself, I use it. If I can live off Bitcoin entirely, I think many other people can do it, too, and I think the technology as it is, is good enough to serve a purpose. I can buy flight tickets with Bitcoin. I can buy gift cards with Bitcoin. I work for a company that allows people to use Bitcoin for Amazon purchases.
Eduardo Gomez: We have decent Bitcoin exchanges. I think that we came a long way, definitely. We came a long way, but we still need to solve very basic fundamental problems to allow normal people to use the technology. I think we’ll get there. It’s going to take some more years of work, but we will, and there’s still the question. Will we see a big government actively trying to stop this technology? Will the economic uncertainties and geopolitical uncertainties that’s around our world today drastically affect Bitcoin?
Eduardo Gomez: I think we will. I think when you see a president actively sending not threats but implicit threats to the head of the federal reserve to print more money, I think those are wake up calls. Those are wake up calls.
Eduardo Gomez: I come from a country that destroy their own national currency in an effort to essentially maintain power and maintain control of the country for as long as they could. They achieved, so they destroyed the currency. They printed money relentlessly, and they’re still in power.
Eduardo Gomez: In Argentina, the same. The governments are putting currency control exchanges or ability to find economic freedom. Freedom is being restricted. So, we have to think about that in the long term. We have to think about our rights as citizens in our respective countries to access any currency that we want, to dispose of our money as we want.
Eduardo Gomez: Governments in Europe are banning cash. They’re clamping down on cash because they know that that’s a risk. That’s a risk because people can do with cash whatever they want. They want to pretty much restrict every venue for people to avoid taxes. In that process, they’re destroying our economic freedoms or our economic rights.
Eduardo Gomez: So, I think that’s something to think about in the future. I think that’s something to think about no matter what country are you in, no matter if you’re in Venezuela, third-world country, no matter if you’re in Spain, no matter if you’re in Finland or in Sweden or in the US. Populist governments are popping up. Cash is on a dead list. So, watch out, everyone. Buy Bitcoin. I think those are my closing thoughts.
Stephan Livera: Excellent. Lastly, just where can we find you online?
Eduardo Gomez: So, you can find me online on Twitter. My Twitter handle is @Codiox. That’s where I hang out the most. I usually share updates about what’s happening in Venezuela, what’s happening in Argentina. You can, also, if you use Purse product, feel free to reach me out. I’m their support manager there. Yeah.
Eduardo Gomez: I hope that crypto becomes more useful. That’s pretty much our motto in the company that we work for. We want to enable people to spend Bitcoin and actively use Bitcoin. You can live off Bitcoin right now. I think we need to encourage that more. We need people to use Bitcoin for their day-to-day lives. That way, we can increase the usage of this beautiful technology.
Stephan Livera: Excellent. Well, thank you very much for joining me, Eduardo.
Eduardo Gomez: Oh, thank you so much for this interview. I hope the listeners had a blast and had a good time listening to my ramblings and babbling. Share it: