South America is probably one of the regions with the most favorable conditions for the development of the bitcoin economy in general. Bitcoin mining is one of the aspects of the bitcoin economy that could find some of the most attractive incentives in the area. Nevertheless, many governments in the region have displayed varying levels of hostility towards bitcoin and its users. This makes it even dangerous for bitcoin enthusiasts to carry out their economic activity in some of the countries where, paradoxically, doing so can be so profitable.
So, how is it that an activity like bitcoin mining is flourishing in various countries in the area in any case? We caught up with an anonymous bitcoin miner that comes from one of the countries in which the community has been under pressure from the authorities, to learn more about the opportunities and dangers that they face in some of these places in South America.
Bitcoin Mining in South America: The Basics
Bitcoin Chaser: Why is it so profitable to engage in bitcoin mining in some countries in South America?
Anonymous Bitcoin Miner: South America has been regarded for many years as “No mans’ land”. The fact that these countries were not modernized by the internet yet, has made authorities unaware about or unable to control day to day general transactions. Statistically more than half of the population in these countries engage in the so called informal economy. Bitcoin mining is really new, governments don’t understand the technology behind it yet, but for a miner it is pretty easy to understand the production factors that go into bitcoin mining, namely electricity and internet connection. That is about it. In return, they receive an anonymous liquid asset with tremendous value in countries with weak currencies and authorities that are not trustworthy at all.
BC: How is it that bitcoin and other cryptocurrencies are gaining so much ground in some of the countries in South America?
ABM: Because of the average low utilities cost (not to say free), no tax and cheap labor costs, you have an incredible investment opportunity where operating expenses are paid in weak currencies but you are producing an asset with tremendous value pegged to more solid currencies.
Then, there is also the fact of declining confidence in South American governments such as Venezuela’s Hugo Chavez and Argentina’s Kirchners. There are two main reasons then, (i) currency controls established for years and (ii) utilities prices have been frozen by their respective governments for years; meanwhile, a black market for solid currencies has been flourishing.
These factors create what can be the ultimate business, one where there is unlimited upside and only a limited amount of investment for the equipment.
Criminalization of Bitcoin Miners and Other Members of the Community
BC: In some countries in South America, bitcoin is illegal – Ecuador and Bolivia. In others it has a shaky legal status at best and a shady reputation – Colombia. And in others, whether it is legal or not, doesn’t matter because authorities are actively indicting people on trumped up charges that are somehow related with bitcoin activity – Venezuela. Do you feel South American governments are particularly susceptible to bitcoin? Why?
ABM: What bitcoin sparked bothers every government in the world. The more open the country the more its government coexists with it. Looking first at the whole story, countries like Japan, Australia, South Korea, Switzerland, Estonia among others are adopting and embracing bitcoin, meanwhile Russia, Zimbabwe, Ecuador, Bolivia, Venezuela and others are persecuting bitcoin users and trying to stop it in any way possible. When you compare both groups of countries you know which are open societies and which are not.
In countries where mining and bitcoin in general are criminalized we see that the government is looking for more control instead of loosening its grip, and this is a big problem. Bitcoin poses a huge risk with its inherent characteristics. Therefore, it is easier to criminalize it than to understand and study its technology. Moreover, remember that one of the main ideas behind the technology is to eliminate corruption which is one of the main pillars of South American economies. Governments have forgotten that they are there for and because of the people which are the true owners of their own destiny.
Anonymous Bitcoin Miner Speaks About Mining Environment in South America
BC: Given the environment in which the bitcoin community operates in these countries, how challenging is it to get bitcoin mining equipment in the region?
ABM: Countries with so many controls have all the same problem: corruption. Because of this it has never been easier to get equipment into these countries without any trails whatsoever. Of course there are risks inherent to smuggling and contraband, but it is so regular and normal for people in these countries, that it is just a common practice; everyone knows it happens.
Hurdles for Miners
BC: Apart from the difficulty of getting bitcoin mining equipment, or the additional costs of purchasing it, which other hurdles do local bitcoin miners face and how do they overcome them?
ABM: From my personal experience the main difficulty is to stay hidden from the authorities which is easy if you are a small-time miner. As an anonymous bitcoin miner, I can say that if you want to get bigger, you need to give up anonymity and have the right government contacts. Then, there are other challenges unique to each country mainly electricity surges and power outages that damage the machines early on.
Anonymous Bitcoin Miner Speaks About Government Intervention in South America
BC: Why do you think that the governments who are hostile to the bitcoin community, haven’t cracked down on mining equipment imports?
ABM: These governments suffer from exceptionally high levels of corruption that spreads like cancer. It is nearly impossible to crack down on small scale mining equipment imports (big miners have government contacts). There is also the possibility of the government benefitting indirectly from mining operations. The people that are mining subsidize the economy with additional money inflows.
BC: On the news we see that certain governments in the region and certain countries are not doing well economically after the end of the commodity boom. Some governments are on the brink of collapse due to corruption and other excesses. What is the role that bitcoin is playing in these countries while they struggle economically?
ABM: The Venezuelan case is a perfect example of this. There are rumors of 100,000 miners that are currently surviving thanks to their bitcoin mining equipment, and it’s not only the miners, it is the miners’ families, friends and so on. With confidence I can say that one of the biggest reasons the country is still functioning is because of bitcoin. For these poor people bitcoin is the only way to survive and they choose to mine before starving despite the risk. Localbitcoins recently stated that Venezuela was one of its biggest markets in the world and that tells you the story behind the scenes.
Bitcoin Replacing National Currencies
BC: Is there any possible scenario in which bitcoin could replace a national currency in South America, and how likely is this scenario?
ABM: There is no possible scenario in which a South American government will adopt bitcoin or any other cryptocurrency for that matter. Nevertheless, it may very well become part of the economy, and the world economy for that matter.
The Future of Bitcoin and Cryptocurrency in South America
BC: Despite government efforts, bitcoin mining and the bitcoin economy are becoming more prominent in the region. How do you see the future of bitcoin and cryptocurrency in South America?
ABM: Bitcoin and mining are flourishing no doubt. Overall bitcoin will remain a safe haven asset that can be easily moved and transferred so it’ll be preferred over gold. Mining on the other hand will depend always on certain circumstances that for the foreseeable future will not change. Argentina for example, changed its government, increased power tariffs by 5000% and still the cost per kwh is .02 cents, so miners are still in business there.
The Next Big Thing
BC: What is the next big cryptocurrency project coming out of South America that we should keep our eyes on?
ABM: The only cryptocurrency project coming out from south America that I know of is so called Onix. Interesting enough there are unconfirmed rumors about a possible joint venture with the Venezuelan government. We will have to see what happens with this cryptocurrency, because information is currently hard to come by.