WBD019 Audio Transcription
How Venezuelans are Using Bitcoin to Counter the Effects of Hyperinflation with Alejandro Machado
Interview date: Friday 1st June
Note: the following is a transcription of my interview with Alejandro Machado. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
In this interview, I met with Alejandro Machado to discuss the recent history of Venezuela, government corruption, failed socialist policies and the increase in Bitcoin adoption to counter hyperinflation.
“If a developed nation has 3-4% inflation per year, you have that number in your head, but you can’t imagine having 7,000% inflation.”
— Alejandro Machado
Interview Transcription
Peter McCormack: Morning, Alejandro. Welcome to London.
Alejandro Machado: Thank you.
Peter McCormack: When did you land?
Alejandro Machado: I landed the day before yesterday.
Peter McCormack: Nice to finally meet you. How long have we been talking now?
Alejandro Machado: I think about a month or two, a couple of months.
Peter McCormack: Was it the petrodollar conversation we crossed paths?
Alejandro Machado: Yes, we were on Twitter; I usually find people that I want to meet on Twitter. I think it was maybe in February or March where it all exploded, because they had the petro launch and it was a shit show basically. So, that's maybe when we connected.
Peter McCormack: People should know that you are from Venezuela.
Alejandro Machado: I'm from Venezuela, I was born and raised. Lived most of my life there; that's my story.
Peter McCormack: Okay, great. You know my podcast; you know I originally started out with traders and I'm finding more interesting conversations to talk about. Obviously, we're in this rampant crypto bull market for the last few years, a lot of speculation; but there's a lot of questions about is anyone actually really using crypto and Bitcoin? But Venezuela is a great example where it is, so I think this is going to be a really interesting conversation.
I think we should start if you could give a bit about your background and tell us what life was like growing up in Venezuela. Then I think we should talk about Venezuela now, so people understand the difference.
Alejandro Machado: Absolutely. I think you're spot on, I think Venezuela is a place where cryptocurrencies are actually being used, not only for speculation but for other purposes, so I think it's definitely spot on.
I was born in 1990. Venezuela was a place where everything was problematic. Let's say it was always run by elites, it was a very unequal place and it had lots of problems like all countries do, but we had manageable problems; we had problems like Colombia does now, for example. It's great to establish a parallel between the Colombia of today and the Venezuela of 1990, because we are very similar culturally and Colombians were coming in to Venezuela back when it was bad; there was rampant crime and Pablo Escobar and all that.
It was a more stable country. In the 1950s and 1960s, we had one of the most stable currencies on the whole continent. We were actually a country where people would emigrate to; it was a prosperous country. My grandparents are from Spain, from one side of the family, and they fled the Spanish Civil War aftermath to come to Venezuela and to work from scratch. My grandpa was a carpenter and he just started from scratch in Venezuela. He made it good, he was able to buy a house, he was able to have a normal, middle-class family life and it was a country where people would go to.
So, in the 1990s when I was born, that decade was relatively stable economically, things were looking up. My dad had a stable job; we had a very peaceful, middle-class existence for a while. But that all started to change in 1998.
Peter McCormack: When Hugo Chávez was elected?
Alejandro Machado: Yes, because he painted himself as the saviour, the messiah. He had been involved in a coup in 1992, so he was always a military man; you could tell if you looked closely enough, he looked authoritarian and then militaristic, but he also had such charisma that many people overlooked that; they overlooked his more authoritarian character.
So, he painted himself as someone who was a middle-way candidate and in the beginning, and this is important, he didn't paint himself as a socialist or communist or whatever. He said that Cuba was a dictatorship and that he didn't want to establish socialism in Venezuela; he wanted to have more private companies come in and make profits and so on.
He really deceived everyone when he was saying those things. I don't know if intentionally, if he had real plans to actually be a middle-way candidate, or he was from the start comprised. Some people say that he was trained by the Castros in Cuba; I don't know, and you get into conspiracy theory territory there. But the fact is that Cubans nowadays have a lot of say on what goes on in Venezuela today, and that's not something that is only conspiracy theory. It's something that is very difficult to research and to talk about in serious settings, but it is something that is real right now.
Chávez led the infiltration of Cuban mindset and Soviet-style central planning into Venezuela and that has been his main contribution, if you want to say, in a way to society. We have shifted from a system where it was maybe more aligned with US and the West to a system where we want to be super independent from everything. I think the tenet, or the core value of the Maduro government and Chávez beforehand, is that they want to show that Venezuela can make it on its own and they want to show that there is another way of doing things different from the US and the West.
So, they're not a fan of trading with other nations that they think are colonialist or capitalist; all those things are bad words for them, so it's not fair game. They wanted to be trading with people in countries like Bolivia and the rest of South America, which I don't think is inherently bad, but I think they are closing off to a lot of opportunities to work together with societies that are way more advanced and we have closed off those avenues, and that's just really sad.
Peter McCormack: So in 1999, the Venezuelan Constitution was changed.
Alejandro Machado: Yeah, he changed the Venezuelan Constitution because he wanted to change the name of a bunch of things. When you control the names, when you change the setting, I think you have an advantage that most people don't recognise, because I think we humans care deeply about how things are named. It's all part of the story, right, so he established the myth.
One of the things he changed with the new Constitution was the name of the republic. He said, "Now we're going to be called the Bolivarian Republic of Venezuela", and he established a relationship between him and the long-time hero of Venezuela, which is Simón Bolívar. Simón Bolívar was the guy who, let's say, liberated Venezuela from the Spaniards; that's the myth they teach in school over and over again. But when you go to higher education and you find out that the war between Spain and Venezuela wasn't very clear cut, it was more like a revolt by the Venezuelan elite that wanted to seize power because they just happened to be born in Venezuela, and they couldn't hold power because Spain required the people who were going to rule Venezuela to have been born in Spain.
So, Simón Bolívar was a guy who was sore because he'd been born in Venezuela and he just wanted to rule. You could see that like lots of people now say that he was a democrat and he had high ideals and they compare him to the founding fathers of the US, but I think that's not a fair comparison because he wanted things like hereditary senate for him and his pals. If you analyse his doctrine, I think you will see that he didn't have such liberal values as people claim he did.
So, to recap, Chávez and now Maduro, they are putting themselves in that setting where, even though I have all these criticisms of Bolívar and I think that's not a mainstream position in Venezuela, people adore Bolívar, people really care for Bolívar because we are hammered ever since growing up in first grade at school. You have to study the history of Venezuela and they really touch on the fact that Bolívar was the one who liberated us and these are the heroes of the fatherland and so on. What he did was very important, because he established a direct relationship between himself and Bolívar.
Peter McCormack: Hence the Bolivarian Revolution?
Alejandro Machado: Exactly. So, he co-opted the name of Bolívar and Bolivarianism is kind of a bad word nowadays, because if you associate with Bolívar or the Bolivarian Revolution, you automatically are associating with the Chavista regime. I'm not a big fan of Bolívar, as you can tell, but I think lumping together those things has been able to serve Chávez and his cronies very well, because it's something that definitely most Venezuelans believe in. It's a myth, it's a foundational myth for our society that Bolívar was inherently good and he liberated us from the Spaniards.
So, Chávez established a relationship with him and now it's equivalent to say that Chávez is the next or the new Bolívar; that's what he wanted to do. And he accomplished that, because he was a very charismatic man.
Peter McCormack: But he only accomplished it for a period of time.
Alejandro Machado: Yes, that's a tricky subject because most people, if you were to poll people in Venezuela today, they will still endorse Chávez and his policies, because he died at just the right time when he didn't have to face the consequences of what he did.
Peter McCormack: The consequences, yeah. Talk about the changes he implemented, the socialist changes that he implemented in Venezuela at the time.
Alejandro Machado: This is funny. Chávez started asking the central bank for a little billion; it's a famous phrase. He said, "millardito"; it literally means a little billion. The central bank said, "Okay, we'll do it". He directly asked the central bank to print money to finance his revolution, because he had a higher purpose in mind. So, of course, the central bank would grant him that because the whole country was ideologically aligned with him, the majority of people had voted for him.
So in that time, around 1998/99, my family wasn't a part of this, because they always saw that he was coming from a military background, an authoritarian background, they had bad feelings about this.
Peter McCormack: When did you leave Venezuela by the way, for context?
Alejandro Machado: 2015.
Peter McCormack: Okay, so actually not too long ago.
Alejandro Machado: No.
Peter McCormack: Wow, okay. Sorry, carry on.
Alejandro Machado: Yes, so Chávez … where were we?
Peter McCormack: Sorry, the socialist policies that he implemented.
Alejandro Machado: Yes, one of the first things, and I think a lot of bitcoiners and a lot of crypto people will critique this because they're against central banks printing money without a reason for it, Chávez just -- in the West and the First World, there's the principle that the central bank and the government aren't the same and they shouldn't be the same, because if there's a government that wants to control institutions, they could just ask the central bank for money and the central bank will just print it.
I think that was a very bad precedent that was set. I don't know if that was the start of the slippery slope and the whole socialist collapse, but I think it's certainly a good thing to discuss, that Chávez really leaned on that capacity of the state to be able to just print currency out of thin air or for a while. It wasn't just like one little billion of bolivars; he actually printed more.
Peter McCormack: Again, for context, what was the exchange rate at that point to the US dollar?
Alejandro Machado: Wow.
Peter McCormack: Would you know?
Alejandro Machado: I have very little idea of what it was.
Peter McCormack: I can research that and add it to the show notes.
Alejandro Machado: The problem is, when you're researching it, the bolivar has changed denominations many times. They have reconverted the bolivar; they have slashed zeroes out of the bolivar a lot of times. Back then, I really don't know.
Peter McCormack: But it was a lot of money.
Alejandro Machado: The bolivar was a stable currency if you compared it to other currencies in Latin America. We certainly had problems with inflation, because Latin America as a whole has had problems with inflation, but it wasn't a worthless currency like it is now, certainly. Yeah, it was a lot of money that they printed and they said that they wanted to use it for good; they said they wanted to use it for social programs and so on, but that created a really bad precedent for financing whatever Chávez had in mind.
So, he became the mastermind of the Venezuelan plan, the central planner of everything and maybe you could say that he had some good ideas, but he had a lot of other bad ideas. So, that's where we start.
Peter McCormack: I guess a lot of socialists and socialist policies come from good intention?
Alejandro Machado: Yes, or at least they claim to come from good intentions.
Peter McCormack: Yes, they claim to. So, what are the things that Chávez started to put in place then, what are the changes that really started to affect the economy in Venezuela?
Alejandro Machado: What Chávez aimed to do, at least in theory, was to reduce poverty. I think that was his stated goal, but obviously he failed massively at it. Right now, if you look at when Chávez came to power, I think poverty, and I'm not really sure about these numbers, but was at a point where maybe 38% of Venezuelans were in poverty. Now, it's way more than that; now it's maybe 90%.
Basically, what he did doesn't work of course, but his stated goal was to reduce it, and for a while he was or he appeared to be successful, because the oil prices in Venezuela and everywhere in the market they were going up. So, he just had the very good fortune to come to power in a time where oil was very valuable and he could do a lot with the money that we had.
Peter McCormack: What kind of things was he doing?
Alejandro Machado: This is also very difficult to research and a very touchy subject, but I think if we want to start this discussion the first thing to recognise is that most of the money that he managed, the money that was coming into Venezuela, because of the huge oil prices we had a boom really. I think what we have to understand is that most of the money probably today sits in offshore bank accounts for government cronies. Do you remember the Swiss Leaks in I think 2016?
Peter McCormack: Yeah.
Alejandro Machado: If you look at the bank account of that one specific Swiss bank, you'll see if you look by nationality, I think most people who hold accounts in that bank are US, second China and third, Venezuela.
Peter McCormack: Wow.
Alejandro Machado: Venezuela is a small country and it's not a very rich country, especially by today's standards. So, why do Venezuelan citizens that are very probably tied to the government have huge balances in this just one Swiss bank account? That starts you to unravel the story about how they funnelled most of the money that came from the oil wealth for their personal profit. I think it was something like $11 billion, or something like that, which is a lot of money objectively speaking; but also in Venezuela, that can solve a lot of problems. If you look at the international reserves of Venezuela, it's only $10 billion, so it's a significant number.
I think going back a little bit, the Chávez government, first of all you have to recognise that they were better at corruption in that I mean they were more blatant about it, they just didn't care; corruption was just a part of their game. This is an open secret in Venezuela; everyone knows that Chávez and his cronies were corrupt. Some people say that Chávez himself wasn't corrupt. That doesn't really matter that much, because he enabled the whole network of corruption that came with him. So, that's the first thing we have to understand.
If you look a little bit into that network of corruption, they justified it by financing some things that were needed in the Venezuelan state. So, they established some social programs that were very ineffective and they weren't run by academics, so no one knows the number of how. If you're running a poverty-reducing scheme, you'd better measure it and know how it's running. If you're running a scheme that aims to reduce illiteracy, then you'd better also have numbers for that.
But then the Chavista government never cared to have numbers for that and they just wanted to be able to claim that they had social programs and programs for the poor to target poverty, and that was it. So, as long as they were able to claim that and funnel most of the money to their offshore bank accounts, that was fine. That was the state of affairs for most of the time I was growing up and most of the time up until Maduro came to power in 2013 when Chávez died and everything precipitated.
Peter McCormack: Because you were a child at that time, but transitioning to adulthood, also obviously your parents were there and working; when did you yourself start to notice a real change in society and you've obviously talked to your parents about it; when did it start to really impact for them?
Alejandro Machado: Yeah, I think that's a good question. I have a half Venezuelan, half Spanish heritage. My grandparents moved from Spain fleeing the Civil War to Venezuela in the 1960s and I've always had that mixed heritage. My Venezuelan side of the family has been the closest one, the one you'll always meet, you'll always go together to events and we are very tight.
I don't think the subject of leaving Venezuela or discussing how bad things were was on the table until maybe 2011, 2012. That wasn't readily apparent to most people in Venezuela until I think institutions had reached a point where it was very clear that Chávez controlled them and it was very clear that we were very subject to oil prices. 2011 was still a year of relatively good oil prices for Venezuela, but you could see, if you looked beyond immediate prosperity --
Peter McCormack: Sorry, I'm reading here $22.5 billion of public funds have been transferred from Venezuela to foreign accounts.
Alejandro Machado: Yeah, well that's probably a conservative estimate.
Peter McCormack: Apologies, I interrupted. So, the problem seems to be split between corruption and policy.
Alejandro Machado: Yes, and the problem is that they justify their corruption, or they do this locally, and this doesn't make much sense to most people because in the West, it's unthinkable to justify corruption. But I think that in Venezuela, people are willing to overlook corruption if there are social programs in place that appear to be working.
That's what really put us over the edge, because Chávez had programs that were social in nature; he was looking to expand education and the reach of the healthcare system and so on. I say he was looking; I don't know if he had those intentions or really never had those intentions, but at least from the outside and to lefties everywhere in the globe, he had that initiative to try to take what other Venezuelan governments had done in the past, because Chávez wanted to claim that he was the first Venezuelan president who had a sense for the poor.
That's not true because we have had the poor for many, many years. For example, the oil industry has been nationalised since 1970 and if you only read Venezuelan propaganda, you would think that it was Master Chávez who did it. We've had social programs for a long time, and we've had social programs that were much more effective than Chavista social programs. The thing is that he created a very good story to stand behind to say that Chávez is the person that really cares about the poor. It was just mostly rhetoric, but it worked for him.
Peter McCormack: So, when the oil prices started to slide from $120 a barrel down to $30, $40?
Alejandro Machado: It was crazy, yes. That slide was insane and the Venezuelan state had grown to a …
Peter McCormack: Do you know what percentage of the economy was reliant upon it?
Alejandro Machado: Yeah, I have a number; we will have to doublecheck this.
Peter McCormack: We'll put it in the show notes.
Alejandro Machado: I think about a third of Venezuelans were working for the state in 2014, when the collapse started happening. This is insane. Can you imagine a country of 30 million people where a third of the population works for the state?
Peter McCormack: That's unreal.
Alejandro Machado: That's really a very bad signal, because if a state is that large, what is it really doing? I think there could be a way to justify it, but what other state has that size? We know of no precedent to that.
Peter McCormack: North Korea, 100%?
Alejandro Machado: Maybe, yeah.
Peter McCormack: So, oil prices slide.
Alejandro Machado: Slide, yeah.
Peter McCormack: Less income for the government and I'm guessing we get to a point here where they can't pay the staff. When did the capitulation start? What started to happen? From everything I've read, under Chávez there was currency devaluation, hyperinflation, shortages of basics.
Alejandro Machado: We didn't reach the point of hyperinflation in Chávez years.
Peter McCormack: No, okay.
Alejandro Machado: We only reached that recently, I think last year. But it was a long time coming. We knew where this would lead and the main thing, I think, was Chávez had a lot of policies that signalled where things were going: unscrupulous printing of money was one thing, the very strong dependence on oil and the fact that he only cared about the oil output of things. The oil industry was paramount and still is in our economy; he didn't care for diversifying the economy in any way.
He had some maybe fake attempts at producing our own food, having food sovereignty and so on and because that was very political and it sold as a story, "Oh yeah, we now have…", it's like a place where you have the hands but vertically because it takes up less space. He wanted to start this movement, it's a very hipster thing, where everyone in the cities should farm and should have their own very small parcel of land where he produces his own food and so on.
It sounds very appealing and the hipsters nowadays, they use that; but if you get real to the numbers, it's impossible to feed a society based on just producing food in the city; you absolutely need the countryside and you absolutely need to be more efficient in the way you actually produce food. Yeah, there were lots of programs like that, that looked great on paper, but they had no chance of working.
Peter McCormack: So Chávez dies, good timing for him really, because did he get to die a hero still in a number of people's eyes?
Alejandro Machado: Yes, I think so.
Peter McCormack: Okay, so a new election.
Alejandro Machado: Yes.
Peter McCormack: And in comes Nicolás Maduro; a close election, right?
Alejandro Machado: Yes, and I would say that election was cheated, that was a cheat because it was very close.
Peter McCormack: That was against Henrique Capriles?
Alejandro Machado: Henrique Capriles, yes.
Peter McCormack: Sorry, my Spanish accent is not so good.
Alejandro Machado: That's okay.
Peter McCormack: You suspect it was a fraudulent election?
Alejandro Machado: Yes, I suspect so.
Peter McCormack: Why is that?
Alejandro Machado: There are troves of evidence for electoral abuse; there's evidence of people standing behind the voters when they were voting for candidates, so there was coerced voting.
Peter McCormack: What was Maduro's relationship with Chávez?
Alejandro Machado: He was very close to Chávez in a very personal way, I think, and there were a lot of people like that. The government is full of characters that fit that bill, but I think Maduro, what distinguished him is that he was also very close to the Cubans.
Peter McCormack: Right.
Alejandro Machado: He was the appointed successor to Chávez only because, and this is my opinion but I think I share it with most Venezuelans that I know, Chávez wanted to ensure that Cuba still got the oil wealth, part of the oil wealth that Venezuela produced. Cuba had a really hard time when they were coming out of the special period after the Soviet Union collapsed. Cuba is an island and it doesn't produce what it needs to feeds its population. All societies that are communist or not engaged in the global economy, they are struggling; they were struggling in the 1990s certainly. They needed an outsider to fund them, they just needed someone to be able to provide what they don't have, and Venezuela fitted that bill.
Chávez took care really early on in his presidency to cater to them. I think it was because he hated the US and he hated everything that the West represents; he wanted to boycott everything and he just wanted to help out countries like Cuba and Bolivia that were traditionally poor and that he felt were being ostracised by the establishment, by the establishment of nations. That's debatable, that's always a point where things get ideological.
The lefties of the world will tell you that it's the US's fault that Cuba has been struggling for so long; and the right wings, they'll say that it's only because they don't have a sensible capitalist society that they're struggling. I lean more towards the latter. I think there's good arguments to be put in place for both, but it's certainly the case that Cuba needed Venezuela and they needed outside funding. That tells you a great deal about how, if you are dependent on other people and other countries to fund your own state, that tells you you're not sustainable on your own and you are probably not going down a good path.
Peter McCormack: We talked about this; South America, Central America seemed to have a history of socialism and Marxist policies which it can't seem to move away from.
Alejandro Machado: Yeah, that has a lot to do with Cuba, because there is a romanticism that Cuba is a society where things aren't that bad. I think Cuba has never been painted as an example of this is what we should aim for.
Peter McCormack: But the media portrayal --
Alejandro Machado: If you're far away from Cuba, you can have a lot of propaganda saying that Cuba is great; there's lots of sources that say that, for example, the Cuban medicine and the Cuban way of life is preferable. They say people live more humane lives there and so on; I really don't believe that's the case. I think that they are oppressed and they can't stand for freedom, they can't speak against their government freely, they can't access -- sure, the medical care is free, but is it really that good? I really highly doubt that.
Peter McCormack: It doesn't help, I guess, with any historical media representation of Castro and Guevara are revolutionary heroes.
Alejandro Machado: Right. That's part of the whole story. I think Chávez wanted to be …
Peter McCormack: One of those.
Alejandro Machado: One of those and he succeeded; at least in Venezuela, I think he's still seen as one of those. Let's go back to Maduro; he came to power and he was the successor of Chávez basically because he could guarantee that Cuba had their interests in Venezuela satisfied.
Peter McCormack: Under what policies was he coming in under, just a natural succession to Chávez or did he have his own policies?
Alejandro Machado: The Chavistas had such a personal movement, it was such a personality cult that they had to ride on the success of Chávez to actually position Maduro as someone who was, in their view of the world, was desirable for the country. So, virtually nobody knew Maduro before Chávez died and the government played their cards really well, I think, because they positioned him and actually said these words, "The son of Chávez". They tried to link him directly with Chávez and his policies and say, "I'm the heir of Chávez and I'm the one who's going to ensure that the comandante, the commanders orders will be executed".
It started to have hints of authoritarianism back then and what Maduro did was he consolidated the power in Venezuela. Since he had a lot less charisma than Chávez did, I think that's why he had to turn into an authoritarian, because Chávez could do what he pleased partly because of the oil prices and partly because he was very charismatic; he was liked by the people, very, very much liked.
Peter McCormack: In the five years since he came to power --
Alejandro Machado: It's been five years since he came into power?
Peter McCormack: 2013, yeah.
Alejandro Machado: Oh my god, yeah.
Peter McCormack: 2013.
Alejandro Machado: Wow.
Peter McCormack: 14 April 2013.
Alejandro Machado: Yes, that's right.
Peter McCormack: Five years, pretty much a complete breakdown in Venezuelan society.
Alejandro Machado: Absolutely, absolutely.
Peter McCormack: You do have hyperinflation.
Alejandro Machado: Yes.
Peter McCormack: You have mass poverty.
Alejandro Machado: What Maduro has done is he's just continued, doubled down on the Chavista policies.
Peter McCormack: You left in 2015.
Alejandro Machado: Yes.
Peter McCormack: What was the trigger for you to leave?
Alejandro Machado: I think unsafety; that was the main reason.
Peter McCormack: Okay.
Alejandro Machado: A lot of people cite the economic situation. For me, I was …
Peter McCormack: Where in Venezuela were you?
Alejandro Machado: In Caracas.
Peter McCormack: You were in Caracas, okay.
Alejandro Machado: I was born in Caracas, the capital city; I was raised in Valencia, it's a city near Caracas, but then I did my undergrad degree in Caracas. I've been in the central region for Venezuela most of my life.
Peter McCormack: Did you go to Valencia in Spain when you were there?
Alejandro Machado: I've been to Valencia in Spain, yeah.
Peter McCormack: It's a really beautiful town.
Alejandro Machado: Yes, yes.
Peter McCormack: Talk about from 2013 to 2015.
Alejandro Machado: The breakdown.
Peter McCormack: Yeah, the breakdown. Regionally what were you seeing and then the trigger for you leaving being safety. Talk about what's actually daily life.
Alejandro Machado: Venezuela has always been a dangerous country; I won't deny that. I think that when you're going to college you want to open up and you want to party at night and you want to do things. In Venezuela, it's very difficult to do so because you always have this -- of course your parents care a great deal about you and they're trying to get you exposed to little danger. It's just very dangerous to objectively go out at night in Caracas; if you're very rich, you can have an armoured car and all that shebang; but if you are in normal, middle-class existence, obviously you don't have access to that.
When you're going out at night it's very dangerous; the threat model you have there is you have to watch out for people trying to kidnap. Kidnappers are rampant, they're everywhere. If you're at a party and you're leaving and it's dark outside, you will probably face lots of people who want to either kidnap you or rob you. I think part of it is the parents care so much about you and they maybe exaggerate the risk a lot, but I think it's objectively like that. If you look at the murder rate in Caracas, it's very high and especially compared to the region. Latin America is one of the most violent places in the world and Caracas is certainly one of the highest in that list. Okay, so that's one reason.
Economics-wise, if you're working for a local company and you're earning wages in bolivars and the company has to deal with the local economy and so on, it was already starting to break down because the government was printing a lot of money and the bolivar just broke down its store of value a long time ago. It also was breaking down as a means of exchange, I think around 2015 or so, because if you had a reasonably demanded or sought-after job like software engineering or designer, it was easier to set your rate in dollars; this is where we get to also unit of account. If you wanted to provide your services, the bolivar just wasn't a good way to say, "Hey, I want to earn this much bolivars a month", because every month the number would change a little bit.
This wasn't like hyperinflation; the definition for hyperinflation, economic definition, is 50% inflation every month.
Peter McCormack: Right, okay.
Alejandro Machado: Back in 2015 when I left, it wasn't quite like that, but it was high enough that you could notice a difference month to month. You could notice definitely that you were spending more and more and more money every month. So obviously, if you had a sought-after position, you would negotiate with your employer so you got your rate in dollars or denominated at least. You could be transferred in bolivars, because back then it was easier.
Peter McCormack: Would it be a case that you would exchange money into dollars to protect it at the time, or you could spend it quickly?
Alejandro Machado: Absolutely, absolutely. The problem is that Chávez instituted a policy back in the day in 2003, I think, where you could not exchange between bolivars and dollars. We've had an exchange ban for over 15 years.
Peter McCormack: Was there any way to circumvent that, like a black market?
Alejandro Machado: There is a black market, yes. It's very inefficient and so typically what you had to do, or what you had to do before Bitcoin came around or became mainstream, at least, was to find another person who wanted to buy dollars from you; you had to do all the market-making things. Then you'd need two pairs of accounts; you'd need maybe two accounts in the US or in Europe or wherever and you'd need two accounts in Venezuela. You'd say, "Okay, I want to sell you this much bolivars, what's the rate you can give me?" Then it was a long process, but you could circumvent the forex exchange ban that way.
Peter McCormack: Could you spend dollars?
Alejandro Machado: How so?
Peter McCormack: Say you're paid in Venezuelan currency but you changed it to dollars, were people buying and selling with dollars from each other knowing it was a more stable currency?
Alejandro Machado: I think it's hard to say. Maybe nowadays they are, because it's just very difficult to denominate anything in bolivars.
Peter McCormack: What's inflation at right now?
Alejandro Machado: I have no idea; it's way over the 50% per month threshold, I think maybe 7,000% per year. If you put into yearly -- these numbers are really difficult to analyse, because 7,000% for a person doesn't mean anything. If a developed nation has 3% or 4% inflation a year, you have that number in your head, but you just can't imagine having 7,000% inflation. That's just something that doesn't cross your mind.
Peter McCormack: This is probably a really good point then to make the transition and talk about Bitcoin.
Alejandro Machado: Absolutely.
Peter McCormack: But I think we should come back and touch on, I find it all fascinating, the election that's coming up.
Alejandro Machado: Yeah.
Peter McCormack: But the history of Bitcoin is steeped in liberalism and yet it has now become part of the financial system; we have financial derivatives, we have potential ETFs coming, we have futures, it's part of the economy now.
Alejandro Machado: Right.
Peter McCormack: But nobody really is spending it in western nations, it's not needed by western nations; I don't need Bitcoin. I mean I can use it and I do and it's an efficient way to pay my mining contracts out in Washington; it's a very efficient way to send money, but I don't need Bitcoin. But actually, Bitcoin is needed in Venezuela, right, and it is being used.
Can you tell me, and I think it would be good for people listening to know your first exposure to crypto, when you became aware of the thing, and then start talking about the integration of Bitcoin within Venezuelan society; the things it started to solve.
Alejandro Machado: My first exposure to crypto was probably very early 2010/11. Like most people, I dismissed it, "Oh, this is just a joke as a currency", and I didn't have a lot of interest for economics or finance back then; I was just a programmer and I just wasn't really interested in it. Yeah, maybe I bought a little bit and sold a little bit; it wasn't like betting on the success or failure of Bitcoin at all, I saw it as maybe a fun experiment.
As time went by, I forgot about it, I was working at other things, I worked in machine learning, I worked with user experience designs; that's what I've been mostly working in. I think I've found a space; I think I've found my niche where I want to come together, coming between the users and the technology, because I don't really enjoy spending my whole day just coding things; I also enjoy making them accessible to people and understanding how people think and how users actually use their products. So, I'm in the usability game, I did a Master's in Human and Computer Interaction and now I've discovered crypto and I got back into it again, I want to make it accessible for everybody; that's going to be my mission now.
So to recap, I dismissed it at first like most everybody does and, as time went by, I had a few friends that connected me back to it. For example, I read The Sovereign Individual last year or in 2016 maybe, I follow Balaji Srinivasan and the great minds of cryptocurrency like Naval Ravikant. I was on Twitter and the space seemed alluring, but I never really took the plunge up until last year.
Last year, I think as a product of me, I was visiting San Francisco for a few weeks and this is back in October last year, so it's very recent, and I had a friend of mine tell me about a dinner with Balaji and friends and I got from that that Balaji's such a smart guy I wanted to listen to him and talk with him. I think that was the time. I had learned about cryptocurrency very little by little. I hadn't fallen into the rabbit hole that most people fall into yet.
But then I made the connection with Venezuela, and I think it was Balaji who really got me to see that angle, that this thing is like a toy for us, "For First World nations or citizens, for First World citizens, it's something that uses speculation, it's a fun thing we play with, it's a new finance game that we're playing. But I think for you guys, for Venezuelans, this could actually change the game, because you've had exchange bans on your currency for over 15 years, so it's actually frowned upon and it's not allowed to exchange money and to really transact with other individuals. So, if you have a way to bypass that without anyone being able to censor you, that's a very powerful thing; don't you realise that?"
Obviously, he didn't say those words directly, but I think that was the message that got to me, this is something very important; it's a technology that could change potentially whole economies. I think that's how I got into it. Again, this is very recent, so I'm just getting started in the crypto game, I've read papers now, I've read research and I try to keep up with the latest set of affairs.
Peter McCormack: You're also a writer.
Alejandro Machado: I write, I write for Caracas Chronicles. I write about the situation in Venezuela and what I know about it, especially the interaction between technology and the technological world and what Venezuela is going through. I've written about the petro, for example.
Peter McCormack: We're going to come to that.
Alejandro Machado: Yeah, we're going to come to that, but I've written about things that have that interaction between technology development and Venezuela.
Peter McCormack: Let's talk about how crypto and Bitcoin is being used in Venezuela right now. I think there are two areas: there's mining, but there's also use of a store of value and medium of exchange. We'll come to mining second; let's talk about how Venezuelans are using Bitcoin on a daily basis.
Alejandro Machado: Yeah, I have a good story for you. I have a friend who bought Bitcoin at $17,000, when it was at $17,000 per Bitcoin, but obviously what he had was bolivars. So, he bought some and obviously he didn't buy whole Bitcoins because he didn't have the money to do that, but he bought some; I don't know how much exactly, maybe $20 or $40, something very small, but at that price. He said, "I'm just going to buy it", because I recommended, "Yeah, Bitcoin, you could use it as store of value"; I was a maximalist back then, trying to get everyone that I knew involved in the movement.
When he did that, looking back it might seem like a bad business decision because it's now back at $10,000, so you might think that he lost money. But actually if you take into account that he bought it with bolivars, he's actually gained money from it. So, if you have a currency, a native currency that you buy something that's worth $17,000 and now it's worth much less and you've still lost less money than you would have lost just by keeping the money in your local currency, that is a currency that really, really doesn't work.
Some say that Bitcoin can't or doesn't work like a store of value. I can't decide that argument because it's so volatile and it was at $17,000 last year and now it's back at $10,000.
Peter McCormack: That obviously depends where you're from.
Alejandro Machado: Yeah, it depends where you're from. If you look at it, if your mark of reference is the Venezuela bolivar, I think no matter what you do, if you have something that you can trade for Venezuelan bolivars that is still very volatile, but you know that it's not going to drop its value by more than 50% every month, you should absolutely trade for it.
Peter McCormack: So, are there onboarding exchanges in Venezuela where you can buy Bitcoin with bolivarian dollars?
Alejandro Machado: Yes, bolivars. Yes, there are some; there is one called Cryptobuyer, there is Colibit. LocalBitcoins I think is the primary one.
Peter McCormack: Is there a premium, a high premium charged?
Alejandro Machado: That varies so much. I want to say yes, I think there is.
Peter McCormack: I know in Zimbabwe when Bitcoin was $8,000, and in Zimbabwe you paid about $12,000 for Bitcoin.
Alejandro Machado: I don't think the premium is quite that large.
Peter McCormack: No, but I'm assuming because the buyer's got a risk accepting the deflationary currency, yeah hyperinflation currency for what is essentially a deflationary currency, so I guess there's a risk there. Did you read the Cady Voge article?
Alejandro Machado: What is it?
Peter McCormack: Cady Voge wrote an article about Bitcoin in Venezuela. One example she had was one young man who was going to the cinema and he has his Bitcoin, and before he buys something he transfers it back into bolivars to buy cinema tickets to go in, but keeps pretty much all of his money in Bitcoin.
Alejandro Machado: All of his value in Bitcoin, which is a very smart thing to do.
Peter McCormack: How much exposure is there; is it still niche in Venezuela?
Alejandro Machado: I think it's fair to say that it's niche everywhere. The usability bar isn't quite there yet for most people to take into it.
Peter McCormack: It's wallets and private keys and it's just too much.
Alejandro Machado: That is too much right now, but I think we're getting close to the point where if you have an application like WhatsApp, because everyone in Venezuela uses WhatsApp and it's no problem. That's, for example, one of the reasons why I'm bullish and I'm excited about Toshi, Coinbase's wallet app that has an integrated messenger. I think, if people can learn how to use something that is very simple that runs on their phones, and most people in Venezuela I think have access to a phone, then this could go very, very mainstream if you look at feasibility.
But I think right now, yes it is a niche, something of a niche product. Most people don't have the technology and sophistication to use it, but the people that do I think have a very clear advantage over the ones who don't, because Bitcoin is just a much better store of value than the bolivar. If you compare it to the dollar, maybe it's not such a good store of value right now, but it is compared to any currency that loses 50% of its value every month.
Peter McCormack: It might even have been one of your articles, but I read that Bitcoin is being used by medicine, it's being used by food. People are actually using Bitcoin to pay staff now.
Alejandro Machado: Yes, it's a way to first circumvent the blockage that the government has with foreign currency, because it's a currency that you can freely exchange for dollars and you can't say the same thing about bolivars. It also fulfils the function of store of value, it obviously is more stable than the bolivar. I feel weird saying this, because the dollar and the pound and everything is way more stable than Bitcoin, obviously; you see that in the charts. But the bolivar is just so, so damned bad that Bitcoin did see it in that way. Even with high volatility, you can say Bitcoin is more of a currency than the bolivar. That's enough for the tech-savvy, intelligent people to start using it and, like the guy in the cinema, just keep most of his savings there.
I have friends who are doctors and friends who are journalists, because sometimes they write for Caracas Chronicles so we have voluntary contributions from around the world. We earn a few dollars every month and we distribute them to the writers depending on how many pieces they write and so on. Part of their salary is denominated in dollars, but then it's paid in bolivars because that's the local currency and that's what they actually need to buy food and live in Venezuela.
But I found that many of my friends who write for Caracas Chronicles, for example, and are doctors or economists and are smart enough, they are switching to a model where they keep most of what they earn either in dollars in some -- because most people don't have access to a bank account in the US or anything like that but they have virtual accounts in services like Airtm or GetLoci or Uphold.com; these virtual wallets that hold dollars. They have part of their savings there, but they also have part of their savings in Bitcoin because they know that it's also a currency they can use as a store of value and as an intermediary between bolivars and dollars and other currencies.
Peter McCormack: Could you ever foresee reaching a point where Bitcoin or crypto becomes a national currency in Venezuela? Could it be the first example, outside of the petro dollar; could you see Bitcoin taking over?
Alejandro Machado: Yes, I think so. I think it's possible that if we lower the usability bar enough, it is a reality that many, many people in Venezuela have access to a mobile phone and they could have access to advanced technologies like this; it's not unfeasible.
Peter McCormack: I've read about from the background of a Bitcoin maximalist, the hyperbitcoinisation. It feels like what's happening in Venezuela is the very early stage of that.
Alejandro Machado: Yes, I would agree with that. I think there's a trickier case for countries that are stable, because people mostly prefer fiat. If you're honest and you look at it really closely, I think you'll find that most people that live in societies like the UK or the US or Europe, they really prefer the national currencies because they work for them. I think it's in a country where money has stopped working that you could really have that shift between where you totally abandon fiat, and you go for something that is actually …
Peter McCormack: You can trust.
Alejandro Machado: Yeah, that you can trust because most people won't understand how it works obviously, but they will know and I think, over time, they will learn that the value of the currency can't be artificially manipulated by the government. I think most people aren't aware of that; they're not aware of the incredible influence that the government has on the value of the bolivar, because they don't know or they can't comprehend or they haven't had the chance to study the fact that every time the government prints money, they are becoming poor.
I think it's going to be like coming as an intuition; so, if they see Bitcoin as holding its value for some time, I think they'll say, "Well, this is obviously a preferable currency. What am I doing just holding my bolivars when I can just bypass all of this and transfer and interact with other people economically just using this other currency, which I also don't know how it works, but whatever?" I think they'll find that it intuitively just works better for them.
With the breakdown of the bolivar, we have witnessed a return to the barter system, and it's partly because there's also a cash scarcity in Venezuela, so the government is printing money but "they're not really printing it" like the bills; they're doing some sort of quantitative easing where they're just copy-pasting the bolivars. So, most of the money that is actually being created in Venezuela right now is digital, and I think it has a historic low value right now, maybe 3% or something like that. Only 3% of the bolivars that exist are in cash, in physical form; the rest are just digital.
The government's pushing that strategy because it's cheaper for them; if they want to keep that model of printing and printing and printing, it's obviously cheaper for them to print digitally than print physically. But I think what they're achieving is, and I think this is a good thing, they're trying to get people acquainted with the concept of digital money. So, they might start their financial interactions with others in digital with the bolivar, because there's a digital bolivar and the transfers back and forth between people and the bolivars are very, very common; cash is very scarce and it's difficult to conduct transactions in it. But that sets the stage, and a very interesting stage, for other currencies to come in and Bitcoin, in particular.
Peter McCormack: Is cash scarce because they can't print new denominations quickly enough?
Alejandro Machado: Partly, yes.
Peter McCormack: I've seen ridiculous pictures on Twitter where people are taking bags full of money to buy things.
Alejandro Machado: Yeah. There's a premium for using debit and credit, or you could see it the other way round, it's easier to see it the other way round; there is a discount for using cash. In some cities you can pay for the exact same good half of what it's worth if you pay in cash.
Peter McCormack: Wow!
Alejandro Machado: This is insane.
Peter McCormack: We're going to come to the Petro dollar, but I also want to touch on mining because mining has been something which has become a profitable way to earn income in Venezuela, but also comes with risk. I think I've read two things that people are wanting to rob people of their mining equipment. I've also read that the government is using heat-detecting equipment to detect where mining equipment is, to confiscate. But also the Venezuelan government is also mining itself. What are you aware of, of the state of mining in Venezuela?
Alejandro Machado: I have a few friends who are mining now and I've become friends with other people, friends from high school, friends from life and I can say that the mining scene in Venezuela is very… Nothing in Venezuela is normal anymore, but I think in Venezuela it's a challenge, a specific challenge to mine and there is that you have to include in your list of things to do, besides getting the equipment, getting it up and running and so on, you have to include the possibility of being extorted; that's something that's completely normal by now. I've had friends who --
Peter McCormack: Extorted by?
Alejandro Machado: By government and it might not be central government, that Maduro dictates they must go and seize mining equipment. I don't think it quite works like that. I think it's more of a…
Peter McCormack: Just corruption.
Alejandro Machado: Yes, just corruption and more of if you are a police officer, you have access to the database of electricity use in Venezuela and you can detect that there's some abnormal use in this apartment building. You probably are not going to notify your superiors about it, you're just going to go and check it out and you're just going to try to get some money out of it, because we've come to a point where police officers, normal and regular people are noticing that mining is just making money out of thin air. That's the mental model that they have for it.
So, they just go, if you have authority, if you have guns and if you have the possibility to use force, you go to a place where you think that people are mining, as a police officer, as an authority of any sort and then you kindly demand payment and you say, "Oh, I see that you're mining here. I have some guns and why don't you give me part of your profits because I have guns?" That's become normal.
Peter McCormack: Wow!
Alejandro Machado: That's become something that unless you run a really small operation, if you can mask your electricity use behind running air conditioning or whatever, if you do that you're fine, probably no one's going to notice that you're doing it. But if you give an indication, and the problem is they also control, the government controls the electrical system and there's a lot of people that have access to that database.
If you have a huge mining farm, a huge mining rig in rural Venezuela where you might be outside a city and you might have more space to put your rigs and likely to be more comfortable just having your operation there, absolutely; you absolutely need to be in bed with government in some fashion. Once they realise what you're doing and once they realise that your profits are bigger than the majority of what the Venezuelan population is producing, and the minimum wage right now is $3 a month, so if you have a mining operation that exceeds that, the incentive is to find you and to demand payment from you.
Peter McCormack: But the government is mining itself, right?
Alejandro Machado: Yes, that has changed very recently. They used to do that in a very unofficial fashion and I think the central government decided that they wanted a cut, they didn't want to corrupt the police force to take the whole cake from the mining earnings, etc. The central government wanted a cut of it and so they said, "Okay, we're just going to regulate it, we're going to say that if you are mining, you have to register in the central registry. If not, if you don't register it, we're going to extort you and if you do, we're going to tax you", so you really have no choice.
Peter McCormack: Right, okay.
Alejandro Machado: And to answer your question, they have become aware that you can make money out of thin air, and for the Venezuelan government that's always been a very appealing proposition. They have, after all, been making money out of thin air from the oilfields, basically out of thin air. This isn't just pumping oil out of the ground and selling it; for them it's what they are used to doing. This is like a new iteration of it.
Peter McCormack: A digital version.
Alejandro Machado: A digital version, yes.
Peter McCormack: Right, okay. So, let's talk about the petro, the crypto petro.
Alejandro Machado: Yes.
Peter McCormack: Let's talk about when it launched, which was what we could call a clusterfuck --
Alejandro Machado: That's a very appropriate term!
Peter McCormack: -- what happened, what the intentions were and what you understand about the current state of the petro.
Alejandro Machado: Since the government realised that they can make money out of thin air with mining, ICOs were a big thing last year and that fact didn't escape the government. They are always trying to find new ways of financing, because ever since they were cut off from the mainstream financial system when sanctions were enacted and so on, Venezuela was forbidden to take on more debt on financial markets and they were looking for a way out. So, the petro really appealed, or the possibility of issuing a coin and running and ICO really appealed to them, because it's an easy way to or they thought it would be an easy way to raise funds.
Peter McCormack: Much-needed funds.
Alejandro Machado: Much-needed funds and to basically stay in power because I don't want to say that they're needed funds; they're most likely not going to fund development using that. It's just money that they need to keep themselves in power because they have costs, they have very real costs. If the government runs out of money today, the government will fall today, because it runs, everything runs on incentives. The military people that surround Madero, they have to eat and they have to have an apartment in Miami; they care about these things. Like everyone else, I think they are self-interested.
Peter McCormack: The petro is backed by oil?
Alejandro Machado: That's what they say.
Peter McCormack: That's what they say.
Alejandro Machado: Yeah.
Peter McCormack: One barrel for every petro.
Alejandro Machado: That's also what they say.
Peter McCormack: Essentially around $60.
Alejandro Machado: This is a very interesting thing. If you go to cog-lo.com, there's a list of cognitive biases that people fall into and this is a very interesting example of anchoring, because once you have the price for something -- you know an iPhone now costs $1,000 and Apple has successfully done that. You now think the iPhone X is $1,000, so they'll keep selling you iPhones for $1,000 even though a few year ago it's $600. So, they have successfully established a new pricing point.
The government is doing the same with the petro; they're saying that a barrel of oil is roughly $60, so we will sell this cryptocurrency for $60 each. They say it basically represents a barrel of oil, but in no way it does. If you read the whitepaper closely and I think Vitalik also critiqued this on Twitter, you'll find that what they promised to do is give you the bolivar-denominated value of a barrel of oil at the rate that they fix in exchange for your petro. They guarantee that it has is that the government will give you bolivars which they can print freely and they can use a rate that they want; there's absolutely no guarantee that this in any way resembles the price or the actual value of a barrel of oil.
Peter McCormack: Was it launched on NEM, the NEM protocol?
Alejandro Machado: That's right, yes.
Peter McCormack: Are we aware that any were actually purchased from the ICO?
Alejandro Machado: Well, I know only anecdotal evidence for it.
Peter McCormack: There was a claim --
Alejandro Machado: I registered on the platform and it's a joke because you have to put in your password, they ask for specific things, like you have to put in your passport or ID card and so on. I just wanted to see how mediocre they were when they built their platform, and I uploaded a blank image as my passport and they granted me access. So, that gives you an idea of what kind of KYC they're doing; this is just non-KYC at all.
Peter McCormack: Didn't they claim billions were sold?
Alejandro Machado: They claimed that they sold $3 billion or something. I know obviously that number is bogus and talking about numbers doesn't make much sense, because we have no idea how much they really sold. What we do know about numbers is that as of today, last time I checked and actually I checked a week or so ago, but I think as we speak the state of the blockchain, if you look at the NEM blockchain, the petros are mostly concentrated in four or five different addresses.
So, they seem not to have been distributed yet, even though they are really close to the ICO because they said, "We've gathered this much and we have to start selling them". But they're still taking payments from people, so when they started this ICO, they started taking euros, roubles, they had this Russian bank account where they received fiat money, and they also had crypto accounts and a system where you log into their platform, they give you a unique address that you have to transfer to, so you can transfer ether or Bitcoin or whatever, and then you register your NEM address and supposedly they're going to transfer you money, petros not money.
Peter McCormack: This hasn't happened yet.
Alejandro Machado: This, as far as I know, hasn't happened yet. On Twitter, there's a guy that I was able to verify that he had transferred about $7,000 to one of the addresses that he was given by the system. He hasn't gotten anything yet; he's obviously very pissed and he doesn't want to be identified or anything. But I could verify that this guy, he showed me screenshots of the whole interface that the government has for the ICO, and he actually appeared to transfer that money. If you look on the blockchain, the transfer in ether exists, so this guy actually seemed to have spent a lot of money on this and he just hasn't gotten anything back.
Peter McCormack: Wow.
Alejandro Machado: Yes.
Peter McCormack: I also read, hasn't Maduro made an offer to India that they could buy oil at a 30% discount if they used the petro?
Alejandro Machado: Yeah, I think that was last week.
Peter McCormack: What do you think's going to happen with the petro then?
Alejandro Machado: First, they have to distribute the petros that they sold. I think they are definitely going to do that; it is a scam, but it's a scam where at least they're going to get the tokens out. I don't see why they wouldn't do it, because the tokens are worthless anyway; it cost the government $30 to print 100 million petros, which is what they printed or issued. It would be foolish of them not to actually distribute them, so it will come down to the government claims to be accepting petros sometime in the future.
But what they really need is dollars, what they really need is Bitcoin or ether, whatever is a form of sound money to you, they need that to finance themselves; if they pay their goons in petro and the petro can't buy you anything else, it won't work and they know it.
Peter McCormack: Aren't they trying to integrate the petro as a form of payment within Venezuela? I've read about the Youth Bank and I've also read about a hotel that's going to be accepting it.
Alejandro Machado: That's probably a government-run hotel, yeah.
Peter McCormack: But they're attempting to at least try and make it some form of medium of exchange. You're sceptical?
Alejandro Machado: Yes, I am very sceptical. Of course they're going to try to do these things, because they want to show the utility of the petro, but I think it's a money-losing game. For every hotel room that they book that they accept petros for instead of dollars, and for every oil industry supply that they accept in petros instead of dollars and so on, it's just money that they already collected, because the petro has already been sold then.
Let's be very optimistic and assume that they have raised $3 billion in petro; $3 billion for a state is almost nothing, it buys them almost no time. So, are they really going to accept this new currency that they created that isn't bringing them any fresh money besides the $3 billion that they supposedly raised?
If you have the ability to charge in Bitcoin or to charge in dollars for your services, if your services are really valuable to people, first there's very few people that actually hold petros, so who's going to be able to pay you first? That's the first problem that they have to face. Second, the petro isn't inherently worth anything; it's just worth whatever they say it is and if they keep accepting it, it's going to be a system where they actually pre-collected all of the money, so they actually limited the economy.
Having the very, very optimistic case or the case that the petro raised $3 billion, then okay the petro is a $3 billion economy and so are they able to grow from there, are they able to use that to raise more money? I don't see it like that, I see they fell for this. I think someone very clear talked to them about the idea of running the ICO.
Peter McCormack: It's an idea, yeah.
Alejandro Machado: It's probably a bunch of Russians who wanted to make a killing on this, so obviously they're doing fine because they probably have a cut of all the petros that are sold. Yeah, it's great for them; they probably made $2 million. But for a state, I think this is going to be disastrous.
Peter McCormack: Well, the National Assembly, the Venezuelan National Assembly, called it an illegal debt issuance.
Alejandro Machado: Yes, and it is; everywhere in liberal democracies, it's up to parliament to decide when to go into debt because they represent the people, right?
Peter McCormack: Right.
Alejandro Machado: In this case, the government raised whatever they raised in future claims of oilfields that have not been developed. This is a joke, because the oilfields that are supposedly backing the petro have no development whatsoever, they're just fields that you wouldn't know that have oil unless you really, really knew about it; there's absolutely no oilfield there. I think you need an investment of $5 billion to $10 billion to actually start developing those fields, so it's a promise to potential investors that they have a claim on Venezuelan oil, but it's clearly not. It's something that the Venezuelan government made up to just put the value of the petro in something, and whatever money they raised, they limited it to the money that they were able to collect.
Peter McCormack: We're fast approaching my longest-ever interview, by the way; we've flown through this. Conscious of the time, I've got to go and get a plane.
Alejandro Machado: Yes, of course.
Peter McCormack: I think we should definitely do this again.
Alejandro Machado: Yeah, I'd love that.
Peter McCormack: I do want to close out on a couple of things. You've got an election coming up soon.
Alejandro Machado: We do.
Peter McCormack: I think it's important we close the circle on the political situation.
Alejandro Machado: Okay.
Peter McCormack: What I think would be interesting to share, because you have an election that's been delayed.
Alejandro Machado: Yes, it's been anticipated also. It wasn't supposed to happen now.
Peter McCormack: But 20 May it's been pencilled in for, apparently.
Alejandro Machado: Yeah, yeah.
Peter McCormack: Yet the leading opposition candidates have been barred from voting.
Alejandro Machado: Yes.
Peter McCormack: Just explain the current situation, how you think this is going to play out. Then also it would be good to know, do you want to go back to Venezuela? Do you have a goal to go back and live there?
Alejandro Machado: Yes.
Peter McCormack: Can you close that circle for us?
Alejandro Machado: Absolutely. So, there's going to be an election on 20 May, and I say "election" the same way I would say North Korean or Cuban election; you know how they go.
Peter McCormack: Right.
Alejandro Machado: They are staged and I think it's not even fair to say that they are cheat elections anymore, because they're just run by a single-party state, they can do whatever they want with it. They don't have to independently verify anything, and not even the UN has signed up for an observation mission this time; no one actually believes in this election.
Peter McCormack: The opposition is the Democratic Unity Coalition, right?
Alejandro Machado: Yeah.
Peter McCormack: And, they're boycotting it?
Alejandro Machado: They are boycotting it. I am not sure politically that's the best idea; maybe it would be good to try and participate in some way.
Peter McCormack: And prove?
Alejandro Machado: And prove that it is a sham.
Peter McCormack: Yeah.
Alejandro Machado: But they feel, and this is not my position, but I think their position is very clear that they think that by only participating in it, they are validating that the election can be real and that's why they chose to boycott it.
Peter McCormack: Right, okay.
Alejandro Machado: I don't anticipate things changing dramatically in Venezuela after the election. It might happen, I just …
Peter McCormack: Do you get a vote?
Alejandro Machado: Well no, because I'm outside and if you're Venezuelan you're assigned to a voting centre that you go to, in my case it's my hometown of Valencia. I would have to go back there and vote and I could, I could go and vote if I really wanted to. Then I have a series of problems there, because I need to renew my passport. My passport expired very recently and I have a Spanish passport too because my grandparents are Spanish, so that's what I use to move around the world because my other passport has expired, and there's currently no passports issued in Venezuela right now.
So, if I were to go back to Venezuela, to leave the country, and you need to leave on your Venezuelan passport, they don't allow you to leave on other passports, so I would need to renew it and I would need to actually buy a passport on the black market and that costs $4,000 or something like that. So, I obviously don't want to give $4,000 to the Venezuelan establishment, so yeah I'm not going there to vote.
Peter McCormack: The Venezuelan establishment is running the black market?
Alejandro Machado: Of passports? Absolutely. They control the passport issuing.
Peter McCormack: There's an election, you're not going to vote.
Alejandro Machado: No.
Peter McCormack: It's essentially going to be a worthless sham election.
Alejandro Machado: Yes, it's going to be a ceremony to give Maduro another crown for another six years.
Peter McCormack: What will finally force change?
Alejandro Machado: Money.
Peter McCormack: The lack of money?
Alejandro Machado: Lack of money, yes absolutely.
Peter McCormack: Complete and utter collapse.
Alejandro Machado: Yes, because as I said the government has a cost; they are running on fumes right now and they have a lot of expenses because they have to buy out virtually -- they have been good at downsizing the government so they have to pay less money to fewer people, but there has to be a time when that stops working because you need, I don't know how many people, maybe you need 100. Let's say you need 100, you can run the Venezuelan state on only 100 people.
What happens when you have less money than what you need to pay those 100 people? Maybe some of them might be in the military, some of them might be in the executives, some of them might be lobbying for China and Russia and whatever; what happens if you just can't pay them anymore? You have to recount. The thing is that they've been really skilled at this game where they kick the can down the road and do it over and over again because they have a lot to lose. If they leave government any day, they will have to face charges on --
Peter McCormack: Corruption.
Alejandro Machado: -- crimes against humanity, corruption, lots of things that of course they just don't want to admit to and they would very much like to flip it under the rug. So, for them the cost is huge and that's why they're doing everything in their power to stay. I wish I had a prediction as to how much longer it's going to take. I think it's just going to take as much as money allows and since the petro was such a disaster, I think that is a very good signal that they are running on fumes and they're just out of options right now.
Peter McCormack: You would like to go and live back in Venezuela?
Alejandro Machado: Absolutely, yes. I would like to go back and rebuild it and be a force for change, a new economic reality. Working in the Bitcoin and crypto space, I would like to infuse some energy there. If things break down enough, I think we can become the first state or territory where there's no official currency anymore and cryptocurrencies are the law of the land. That would be very exciting to experience.
Peter McCormack: I think it would be amazing. I think the issue I've always had with that is the instability; it has to peg to something.
Alejandro Machado: Sure.
Peter McCormack: You have to peg a crypto to something. So, if you peg it to the bolivar, then obviously it's a great investment, but I almost feel like you some form of stablecoin but then I'm not a fan of stablecoins. So, until we have some stability, I can't see that happening, but I think it would be a great thing.
Alejandro Machado: The thing is you don't really have to choose. When you have money that doesn't work, you can take -- Bitcoin is preferable to barter, absolutely. So, it doesn't matter that you have dollars, if you were to make the dollar the national currency of Venezuela, which is one proposal that is flying around with economists and so on. Ecuador did it and lots of people, many countries in Latin America have done it at certain points in their history, to try to peg their currency to the dollar just outright.
Peter McCormack: And it's worked.
Alejandro Machado: It has worked.
Peter McCormack: Relatively.
Alejandro Machado: Relatively, yeah. It has brought more fiscal responsibility for sure because they cannot print dollars. So, it is in a way a --
Peter McCormack: Like you can't print Bitcoin.
Alejandro Machado: Exactly. So, that's my point. If you have a currency that absolutely doesn't work, you might as well try to use a cryptocurrency that you don't control to have an economy. I think it will be way more interesting to be the first country that uses Bitcoin on a massive scale than to be the umpteenth country that will try to use the dollar again.
Peter McCormack: Yeah, yeah.
Alejandro Machado: That's been done and we have done it and maybe it works better than Bitcoin, but we won't know until we try.
Peter McCormack: Okay man, listen, we've done an hour and a half there. Can you just close out by telling people where they can get hold of you, how they can follow you, what you're working on and what the future is for you?
Alejandro Machado: Sure. So, my handle on Twitter is @alegw, it's easy and I'm on Twitter a bunch of times. I'm travelling a lot; I'm working on projects that relate to cryptocurrency in Venezuela. I don't want to advance too much, because it's really still a work in progress, but I do want to say that there are opportunities in this space where Bitcoin can help a great deal for Venezuelans.
I could say that I'm working on a crypto airlift, like when the Berlin airlift successfully circumvented the Soviet's blockage of West Berlin. I think something similar could be done to that, because the Venezuelan government is clearly not giving up on their strategy of cutting out Venezuelans from provisions and from a good life. So, what would happen if we could in a way airdrop Bitcoin or any kind of sound money to Venezuelans at a massive scale and kickstart a local economy; it doesn't have to depend on a currency that is constantly devaluing?
That's the kind of question I'm pondering right now and I'm working with other people to do it. It's a very tricky subject; you have a lot of variants there. You have to stop Sybil attacks from happening; that's actually the main thing we're struggling with right now. How do you verify that you are actually dropping the same amount of coin for every citizen and you're not dropping more coin to the government or to some big special power? That is a very interesting question that I'm pondering and I am generally working on usability for crypto.
I want crypto to be usable and useful to people everywhere and that's my mission, that's what I want to accomplish in Venezuela and everywhere. All the projects that I'm working on right now are geared towards that, having that mass adoption.
Peter McCormack: Keep me updated.
Alejandro Machado: Absolutely.
Peter McCormack: Honestly, this was fantastic; there's so much we didn't cover, this is becoming more apparent. Thank you.
Alejandro Machado: Thank you, Peter. It's a pleasure and we could do this any time you like.
Peter McCormack: Safe travels and we'll catch up soon.
Alejandro Machado: Thank you.
