Role of Bitcoin Dollar in Venezuelan Dollarization

Alexander Salazar
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Role of Bitcoin Dollar in Venezuelan Dollarization

The crisis that Venezuela is undergoing is complex and, in many respects, contradictory. The political crisis has been a constant for many years, but the country has been suffering an economic crisis at its most acute level for a little less than 5 years. Venezuelans have experienced a two-decade-long period of self-destruction and in recent years hyperinflation has added a touch of grace.

The production apparatus is in ashes, but the Government continues to print money, which has led to a dramatic increase in prices. Inflation reaches more than 50% monthly, since the bolivar (VES), the official currency, is worth almost nothing. Of course, Bitcoin plays an extremely important role in all this, but not exactly as many bitcoiners abroad believe.

Venezuela has never been a particularly productive country but was fortunate to be blessed with oil. The export of this non-renewable resource, especially during the postwar period, provided considerable material wealth. However, the country never developed the economic, institutional, social and cultural maturity necessary to overcome the revenue-based model, since it did not invest in building a strong productive apparatus.

Incidence of Oil Price

The price of oil is relatively low in international markets, which especially affects Venezuela for several reasons. It should be noted that Venezuelan oil requires high refining costs because it is extremely heavy. Besides, it has a limited customer base, since there is an infrastructure adapted to that particular type of oil that is difficult to build elsewhere. On the other hand, Venezuela produces very little oil due to inefficiency and lack of investment.

Hugo Chávez´s Government was very fortunate to begin with extremely high oil prices. The political crisis during said former Venezuelan President his mandate led many businessmen to take their money out of the country. Then, to prevent the flight of capital, exchange control was imposed; that is, the purchase of US dollars was restricted.

Due to the collapse of oil prices, the model implemented by Chavez could not be sustained. Without oil money, the massive public expenditure of the current Venezuelan Government has created an amazing hyperinflationary environment. The price of the US dollar rises in the black market almost every day and the population uses that currency as a reference to set prices. In recent months, current US dollar bills have been used more as a medium of exchange for reasons of convenience.

Bitcoin as an Alternative

It is a fact that, as a consequence of the low electricity cost in Venezuela, mining has become relatively popular in certain groups. However, not all Venezuelans seek refuge against inflation in Bitcoin. This theory arises from the volume data recorded on the LocalBitcoins platform. A minority does buy Bitcoin to invest, but Venezuelans’ natural refuge against inflation remains the US dollar. Large numbers in LocalBitcoins are achieved because Bitcoin is used as a bridge to obtain US dollars within the black market, which is commonly called the Bitcoin dollar.

Far from what can be believed, the exchange control rather the crisis is Bitcoin’s best friend in Venezuela. Bitcoin is self-control and freedom beyond monetary stability, so it is natural to use it to cross borders.

By Alexander Salazar

Blockchain Platform Adopted by CaixaBank for Foreign Trade

Alexander Salazar
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Blockchain Platform Adopted by CaixaBank for Foreign Trade

The bank joined we.trade, a solution for executing and financing transactions. The service is already active and is aimed at business customers in Europe.

It was reported that the Spanish bank CaixaBank has added a Hyperledger Fabric solution for executing and financing international trade transactions to its portfolio of business services. The institution joined the blockchain consortium behind we.trade, a platform created in July 2018 to increase the security and traceability of its customers’ commercial operations.

The bank released a statement indicating that the platform was designed to encourage foreign trade among European small and medium companies, follow up on agreements in real-time and generate smart contracts that link the commercial operation to financing and compliance with the conditions established.

CaixaBank highlighted the fact that this platform has been developed by a consortium of 15 European financial institutions and allows importers and exporters, from a single point of connection and in a collaborative manner, to conduct their commercial operations in a digital format simple and intuitively.

They explained that this is a solution in which only customers previously verified and corroborated by the banks that comprise the consortium can participate, which reduces the risk of non-payment. They also said that the system can generate smart contracts in which the conditions of the operation are established.

For example, two companies want to conduct a transaction for the acquisition of raw materials, but they do not know each other. The seller might prefer to pay immediately, but the buyer would be willing to pay only after the arrival of the raw material. Being verified on the platform, both parties could use this solution to perform the transaction and establish the terms of the exchange.

Once the trade is agreed upon, the seller issues a payment request that is submitted to the buyer, who keeps the funds, which are then automatically released to the seller upon receiving the raw material. Then the information is recorded on the network and the participants can establish new business among them or towards other companies.

Joint Project

The we.trade project is a banking alliance that seeks to establish new commercial networks in Europe, using distributed ledger technology (DLT) or blockchain. The consortium was established in 2018 with the participation of nine European banks: Deutsche Bank (Germany), HSBC (UK), KBC (Belgium), Natixis (France), Société Générale (France), Nordea (Finland), Rabobank (Netherlands), Santander (Spain), and UniCredit (Italy). Currently, there are a total of 15 banks involved in the project.

The website of each bank also informs that the financial institution has a node dedicated to bringing the decentralized database to life. It is also highlighted that only the seller, the buyer, and the latter’s bank have access to the information of the transaction to execute the payment. The seller’s bank does not have access to the information unless a banking service is requested as a payment commitment or invoice discounts.

The platform is based on Hyperledger Fabric, a type of business framework on modular architecture blockchain created by Hyperledger, a Linux Foundation organization that is comprised of Blockchain, ConsenSys, R3, Hitachi, IBM, Intel and banks such as JP Morgan, among other companies.

By Alexander Salazar

Argentines Use Cryptocurrencies to Do International Trade, According to Bitex CMO

Alexander Salazar
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Argentines Use Cryptocurrencies to Do International Trade, According to Bitex CMO

Latin America is currently experiencing difficult situations, with different characteristics according to each country, but with some points in common. Argentina has one of the highest inflation rates worldwide, a heavy tax burden and very strong exchange restrictions. In that regard, Manuel Beaudroit, CMO of Bitex, explained how Bitcoin and other cryptocurrencies are raising interest as an alternative to fiat currencies.

The executive believes that where there is a crisis, there is an opportunity. The fact that people cannot access the dollar has led them to start buying Bitcoin as a security and use it as an international payment method.

He explained that each market in Latin America has its characteristics. For example, he said that Bitex is in four markets, of which Argentina and Chile are the busiest, followed by Paraguay and Uruguay.

He also reflected that, besides the regulatory front, there is a socio-economic front, which has to do with the activity. He highlighted that all this social revolt means that there is a greater interest in cryptocurrencies, as a way of diversifying sovereign risk. In Argentina, with capital control, people are seeking alternatives to the dollar and they find very specific use in Bitcoin.

Besides, he stressed the noticeable interest of companies in blockchain technology and cryptocurrencies. Among them are those companies having problems to import or export, or those automatically liquidated by exports, which begin to turn to this type of crypto asset to make payments and collections, even at the risk of breaking a regulation.

Regarding the effect of the exchange restrictions on Bitex, he stated that Argentina had a bi-monetary economic system, using US dollars and pesos, until a few months ago. The tight exchange controls dropped the possibility of trading in dollars in Argentina; that is, only pesos are accepted. At first, the community felt uncomfortable but, as the underlying reasons are explained, the truth is that then the volume of pesos rose dramatically. People prefer to sell their dollars, buy pesos and then buy bitcoins with those pesos.

Experiences and Opinions of Different Exchanges

Last year, one of the subjects that aroused the most interest among experts was “How to surf the Latin American crisis as an exchange.” It was revealed that the Latin American scenario for the various exchanges differs in their regulations and/or their political/economic situations.

One of the most prominent things that they discussed was that the crypto ecosystem has a lot of camaraderies, and they were even able to see some particular situations. Pablo González, from Bitso, indicated that the value proposition offered by Bitcoin and other cryptocurrencies are international transfers and the issue of remittances, which already shows a reality of use cases.

One of the ideas that emerged was that if the crypto industry joins, an alternate network can be created as an alternative to banks. However, the CMO of Bitex considered that there was no need to be an alternative to banks, but to have banking partners.

Beaudroit added that his goal is to connect the world with Bitcoin. He believes that it is necessary that the group, twin and gradually infect people in the financial system.

By Alexander Salazar

Central Bank of China Advances on the Creation of the Digital Yuan

Maria Rodríguez
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Central Bank of China Advances on the Creation of the Digital Yuan

The Central Bank of China issued some comments referring to progress without any setback on the creation of the Digital Yuan, a cryptocurrency backed by the Chinese government.

The People’s Bank of China (PBoC), which is the highest financial institution in the Asian country, said in a statement that it is “progressing smoothly” in creating the digital currency that will be used by the country and will be supported and certified by the government.

The declaration on the progress of the Central Bank on the crypto assets was offered during a working conference, which was held in Beijing, on January 2 and 3, 2020, according to a press report published last January 5th.

Extensive Preparation for the Creation of the Chinese Digital Currency

As is known, the Chinese government has spent more than five years investing in the research and creation of a new digital currency supported by the Central Bank. After half a decade of previous work, the first pilot test of the digital currency that the Chinese government hopes to launch shortly was developed last December.

The data offered by the authorities indicate that unlike a conventional cryptocurrency of private and decentralized origin, this digital asset will have the status of legal tender. The Digital Currency of the Central Bank (CBDC) will have the support of 100% of all the reserves of the public commercial institutions that are listed on the institution. This refers to having a total weight character over all the commercial activities of the country.

This was certified by the financial institution itself, which has been constantly updating its information on the progress of the new Digital Yuan. About the support that the new digital currency will have, the PBoC certified that it has all the support of the institution, thus it was confirmed during the conference aimed at the “study and application of the spirit” in the Fourth Plenary Session of the 19th Central Committee of the Communist Party of China, held last October 2019.

In this way, the conference was developed with the statements of Yi Gang, who is the president of the People’s Bank of China. He detailed the challenges and the main tasks of the institution to continue its progress in the construction of “Socialism with Chinese characteristics” by 2020.

According to projections of the Central Bank for the current year 2020, directed by the Central Committee of the Party and the State Council, it is planned to make “Anti-Cyclical Adjustments” in monetary policy. In this way, they will seek to focus on the liberation of the Chinese economy and focus on avoiding financial risks for the future.

China and the Global Blockchain ​​Industry

The impact of the blockchain strategy that the Chinese state develops for its assets in the rest of the decentralized protocols that make life on some aspects within the Chinese economy and its surroundings is not yet clear. So many analysts are evaluating the movements that Beijing has on its policies. In this way, they try to determine its growth by evaluating censorship, international strategy, regulation and control, and its operation within its economic environment.

To get an idea about the complexity of China’s financial policies in these terms, it can be cited an interview conducted by a news web portal to Wulf A. Kaal. He is an expert with a Ph.D. in technology consulting.

Kaal recalled the words and opinions of Joe Lubin, who is co-founder of Ethereum.

“We could discuss what decentralized means in the case of China. If we agree that decentralized, it would mean at least a sample resistant to autonomous and anonymous censorship. It is difficult to see the Chinese government facilitating that”, he explained.

By María Rodríguez

IBM Develops a Blockchain Application to Track Coffee Beans

Maria Rodríguez
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IBM Develops a Blockchain Application to Track Coffee Beans

The application uses blockchain technology to track and verify the supply chain of coffee beans.

During the Consumer Electronics Show (CES), an annual event related to global technology development, and held in the city of Las Vegas at the beginning of 2020, the IBM Company showed an application that would use blockchain technology to facilitate the traceability of coffee supply chain and; therefore, certify the places of origin of each bean.

The project was not developed only by the tech giant IBM, as it had the important participation of Farmer Connect, which is an organization dedicated to improving the processes of sustainability and growth of supply chains and distribution of agricultural products.

The application called “Thank My Farmer”, which was created thanks to this collaboration between IBM and the agricultural organization, will allow users to know the origin of the coffee bean they consume; thus, carrying more detailed information about the product and its way to the consumer.

IBM developed a whole system based on blockchain technology, an intense chain of movements and digital operations which turns out to be constant. The result assumes that all the information involved cannot be altered or modified, helping to make more transparent monitoring of coffee beans. IBM promoted the initiative using its outstanding development in Blockchain as a foundation.

The Operation of “Thank My Farmer”

According to data provided by David Behrends, Founder and President of the Farmer Connect agricultural organization, the tool will work as a current application for smartphones, where through it users can scan the QR code directly from the product packaging, thus allowing the deployment of an interactive map that will guide the user on the path the coffee bean had.

In this sense, Paul Chang, who is the director of blockchain technology at IBM, said that this application will not only give consumers information about the product they consume but will also provide traders, retailers, wholesalers and farmers with a follow-up of coffee that will be updated in real-time. Providing a copy of all transaction data made by each participant in the network.

Chang decided to clarify that the operation of the application will be in charge of the company, which said it will work as the IBM blockchain network. Besides, he highlights that currently, more than 200 suppliers such as Carrefour and Walmart use their application systems that give life to the “Food Trust” platform. 

“We took the assets of the Food Trust network and put them in a dedicated environment for Farmer Connect to address the coffee industry supply chain. As a result, Farmer Connect does not have to worry about scalability, security, and robustness of the network since Food Trust has already demonstrated everything”, he explained.

Customers could obtain, in this way, all the necessary information to be sure that the product they will consume is suitable for consumption. In this way, they would feel more confident about the quality of the product.

By María Rodríguez

Ethereum Accelerated Its Processing Time by 25 %

Maria Rodríguez
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Ethereum Accelerated Its Processing Time by 25 %

Before the fork, it took approximately 17 seconds to complete each block. Now, the duration is only 12.69 seconds.

Recent reports about the Ethereum platform revealed that after the Muir Glacier fork in Ethereum the processing time per block was reduced by 25 %. According to statistics, the duration of the process went from 17 seconds to 12.69 seconds.

As Bitcoin and cryptocurrency watchers said about Bitcoin, this could be “the year of Ethereum” too. This, despite the “bad year” that Ethereum had in 2019. Now, everything indicates that they are determined that 2020 is their year.

Representatives of Ethereum do not want to waste time to improve the performance of the cryptocurrency.

The success was noted as soon as the new update was carried out. After the Muir Glacier occurred on January 2, Ethereum customers began to see the difference. The most important of the new differences was the reduction in processing time per block.

Before the fork, it took approximately 17 seconds to complete each block. But, after Muir Glacier, this time was reduced by 25 %, making the processing last only 12.69 seconds.

Multiple Benefits

The Muir Glacier fork, the last fork of Ethereum, not only helps reduce time, but it is also likely that Ethereum’s supply will grow by approximately 25 %.

The total amount of tokens removed after the fork increased from 10,000 Ethereum (ETH) to 12,000 ETH. Experts expect the issuance to be established around 13,500 ETH.

Inflation Could Influence

Despite the positive aspects such as the acceleration of the processes of Ethereum, and although all seem good news, there are still a few factors that should be taken into account. One of these aspects is the inflation rate.

Some experts talked about this aspect, according to what they think, the inflation rate is expected to be a set at around 5 % per year.

However, it is believed that inflation will increase again in the summer of 2020, as long as the hybrid PoS is launched. They say that after this, the inflation rate will stabilize in mid-2021.

A Hard Road for Ethereum

Currently, Ethereum is enjoying a small victory in its history. But with this success, and now the acceleration of the processes, it takes another step towards Serenity, the update that, in theory, should change the future of the cryptocurrency.

However, the history of this digital currency has been full of stumbling blocks and delays.

According to local news, it is assumed that the cryptocurrency had to change to PoS several years ago. Muir Glacier is working as a tool to encourage investors to bet on ETH. In this way, the speed with which Ethereum develops is encouraged to increase.

For now, the transaction from PoW to PoW (Proof of Work to Proof of Work) is a complex situation. Maybe it is normal for Ethereum, as a pioneer in the area, to have some delays and problems. But, despite this, the developers are confident that they will eventually achieve their goal.

By María Rodríguez

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