Utopian Visions, Dystopian Realities: Bitcoin Gone Wrong
First it was Bukele in El Salvador. Then it was Colombia. Then Brazil, Argentina, and Paraguay, before all the countries in the south followed. I was sixteen years old living in Venezuela when my home country also followed Bukele, making Bitcoin legal tender.
Bitcoin was created to be a decentralized form of digital cash, where the transaction ledger is written by Proof of Work, meaning computing power is wasted to make recording transactions (mining) difficult enough to demonstrate a miner’s commitment to earn them a higher stake. Nakamoto consensus allows Bitcoin to remain decentralized, as the longest chain or transaction ledger is considered valid, allowing new participants to accept and trust this chain before joining the network.
Ironically, my government and others implemented custodial forms of Bitcoin. Custodial wallets meant that the government held the private keys to all holdings, and citizens only had the power to send or receive payments. This meant the government essentially had access to citizen’s savings, although this was swept under the rug when introducing the new technology. The government also set up custodial channels on a second layer of the Bitcoin blockchain (layer one), called the “Jaguar.” The name came from its ability to make transactions quickly without fees, but its government-custodied nature also granted the government centralized power to monitor all transactions. This would forever change the dynamics and trajectory of the Bitcoin blockchain.
At first people were hesitant. I remember there were protests everywhere, people saying the currency was just going to be another government action to hinder their freedom and support the 1%. I mean how were we supposed to trust it? Just three hours after Bitcoin was announced legal tender, the government-issued wallets were made available, and we were expected to know how to use them. The government gave us no education on the new technology nor did they consult with the people before implementing the law. This is how things often went in the south.
I was lucky enough to have a fairly good understanding of Bitcoin, as I had been interested in cryptocurrency since it started to take over in other countries around Venezuela. Promises of becoming your own bank, freedom, and equality were attractive to me after living under an authoritarian government all my life. I remember finding what materials I could on the topic, going to the library and scouting around for old books. I was especially interested in the early “Bitcoiners'”philosophy and their visions of a money system run by all participants equally, free of censorship and non-confiscatable. The information was hard to find and heavily controlled by the government, with limitations on which websites could be accessed and which books were available. And this censorship only grew with time. Even with my limited understanding of cryptocurrency, I knew what the government was offering us was different. Yet, the government continued the same sales pitches, marketing Bitcoin as a new opportunity to Venezuelans that would boost our economy and benefit everyone.
Long histories of corruption and dollarization left us especially hesitant of these sales pitches and such a new and “perfect” technology coming from the top down. I remember stories from my parents of triple digit overnight inflation due to dollarization, causing them to struggle to even buy groceries the next morning. Their wages remained the same, and they lost more purchasing power, while the top 1% and government officials benefited from resulting low interest rates, a story told repeatedly in Venezuelan history. Why should we trust them this time?
Yet, we didn’t have any other choice but to follow. I remember downloading my wallet the day it was released, and I was immediately awarded the equivalent of $10 USD in Bitcoin for doing so. This led many citizens, often living paycheck to paycheck, to download the app if they could, despite a prevailing distrust in the technology. Soon after, merchants everywhere were using the Jaguar channels for their transactions. And the government easily monitored these transactions. I had remembered hearing of the Lightning Network before Bitcoin had been adopted as legal tender in Venezuela. It essentially did the same thing, making fast and simple transactions through channels, but without the surveillance, often used in the Global North. I remember looking for the network in the app store shortly after the Jaguar became more mainstream. The network didn’t come up, and must have been disabled by the government. However, even if the network were available, very few Venezuelans had the technical expertise or knowledge to use the network and evade government control.
That said, there were a great deal of benefits from the Jaguar at first. Some merchants were saving their Bitcoin and using it as investments to make more money than they would have with the dollar. Some merchants even began to accept Bitcoin exclusively because of its straightforwardness and cheaper transactions. More remittances were being made too. However, this wasn’t the case for everyone. Many still lacked internet access and still didn’t have smartphones, which when coupled with already existing wealth disparities and knowledge gaps left several behind.
I was lucky enough to live in the capital, Caracas, where most had decent internet connection and smartphones. Whenever I wanted to go out and shop for groceries, all I had to do was pull out my phone and scan a QR code presented by a cashier and hit send. Just like that, Satoshis would be transferred from my government issued wallet to the merchant through the payment channels provided by the Jaguar. However, even with this new simplicity, I still did not have the privilege to save my coins as investments. This meant that for me, and the majority of Venezuelans, Bitcoin was just a new currency, not a new opportunity or a technological advancement that could magically make us rich like the government portrayed it.
In rural areas, the disparities were even more stark. I remember visiting my cousin, Mauricio, out in the rural village of Sinamaica just a month after things really started to take off in Caracas. The contrast was staggering. Mauricio didn’t have a smartphone or internet, and neither did his wife. Internet connection was sparse across the village, so even if merchants had made the switch to the Jaguar, the transactions often weren’t as reliable as the government touted them to be. Additionally, many of these merchants lacked the technical expertise and knowledge to manage their networks, often getting caught up in scams. I remember Mauricio told me the local coffee shop owner had clicked on a bad website impersonating the government coin exchange, and all their coins were stolen. Without enough money to keep their shop running, they were forced to go out of business. Most importantly, however, this meant that Maurcio’s family and several other families in these rural areas were stuck. They had no opportunity to expand their wealth, while those in the top 1% capitalized on this new technology.
Four years after I visited my cousin Mauricio, inequalities were only worsening. In an attempt to address citizen’s demands for equitable internet access, the government was working on building a hydroelectric dam at the Tuy River, seeking to become energy sovereign. The government was financing these operations by using the excess energy to mine Bitcoin. However, many were suspicious of where this Bitcoin was going, as building operations stalled continually for several months at a time. While the government got richer and richer mining Bitcoin and investing, most Venezuelans were left behind once again.
Even after the dam was built, the consequences were devastating. The local Indigenous communities, likely the only ones left at the time who remained self-sufficient, were forcibly removed from their sacred lands where their ancestors were buried for centuries. The dam's construction destroyed their places of worship and cultural resources, exacerbating the slow violence committed by generations of colonialism.
While technically “green” energy was generated, nothing was green about the dam’s construction. Dirty fossil fuels fueled most of the early days of construction, releasing greater emissions into the atmosphere and escalating the consequences of climate change. This left several especially angry because the effects of climate change were already being felt. We were all well-aware of the disproportionate distribution of climate-related impacts in the south compared to the north. We faced droughts, floodings, landslides, and more, yet the government continued to pretend they didn’t understand the connection.
I remember the drought season of 2035 was one of the worst we had seen yet. We had gotten around 70% less rainfall than usual. The crops weren’t growing so food prices had skyrocketed. Water and electricity were rationed because so much of Venezuela’s electrical grid relied on hydroelectric dams. Ironically, the government had to burn more fossil fuels to build new dams and compensate for the lack of electricity, only making the situation worse. Because electricity was short, the plan to use excess energy to mine Bitcoin was also failing.
On top of climate change related impacts, there were high ecological costs to the dam’s construction, as habitats were destroyed, species went extinct, and resiliency (which was so necessary in the face of climate change) was lost. Even more irony emerged as the dam’s construction resulted in habitat loss and degradation for many species, including the native jaguar which the Bitcoin channels were named after. It became more and more clear Bitcoin was just another tool of destruction used by the government to accumulate power at the expense of people and the land. Disparities exacerbated and the reality of Bitcoin became evidently different from the vision the government was selling.
Just last month there was an attack on the blockchain. It is still unclear who the attacker was and what their motive was, or the government just won’t tell us. All we know is the attack created confusion about the ledger, threatening the success of the Bitcoin economy which so many southern countries like Venezuela depend on. At the beginning of the attack, everybody’s government-issued wallets froze, leaving us unable to make transactions. Nobody knew that the blockchain had been attacked or what was going on.
I remember waking up that Thursday morning as if it were a normal day. I got dressed for work as I normally do, and left to stop for a morning coffee on the way to work. When I was walking through the streets, the air felt tense. Everyone was chattering about their wallets which all appeared to be glitching. Everyone was showing each other their phones, all with the same error message. At first I didn’t believe them. Bitcoin had become so ingrained in our day-to-day life, it was beginning to feel like a given. But when I pulled my phone out of my pocket and clicked on the app, I too saw the error alert.
After a few hours of our wallets being frozen and people began to realize it wasn’t an individual glitch, crowds gathered in front of the Federal and Legislative Palace, demanding the government to tell us what was going on. People yelled and pulled on the locked doors. It looked like the building was abandoned overnight. They were hiding from us. I remember standing there, feeling hopeless. It felt like the story of triple digit overnight inflation from dollarization all over again. Again, our wealth and any sense of security were gone overnight.
Still in shock, a few hours later the government finally released a statement that there was an attack on the blockchain. I remember thinking the government must have frozen our wallets and the Jaguar then, if this was an attack on the blockchain, or layer one of the network. In theory, we should be able to continue to make payments on the Jaguar even if the blockchain was under attack. Our funds being frozen had nothing to do with the attacker. This made me especially nervous. I never expected something like this to happen and had kept the majority of my money in my wallet for convenience, like many other Venezuelans.
Too scared to show their faces, the government released the message on the government-monitored media platforms. They assured us that everything would be fine, saying they would address the attack using the “invalidateblock” command to bring back order to the network. I remembered reading some information on possible defenses to attacks on the blockchain a while back and knew this was a controversial solution. The command is essentially an attempt to softfork, or change the rules, and split the longest chain which is being attacked to create an alternative chain. This would suspend Nakamoto Consensus, as the longest chain is no longer considered valid, ridding the network of decentralization. While what Venezuela was using was far from decentralized on layer two, this wasn’t the case for everyone on the network, especially those early advocates who envisioned a decentralized monetary system that can’t be confiscated or censored. In order for the command to be successful, the nodes and the remaining miners must agree to invoke the command and mine the new block. No citizens owned or operated nodes, and most lacked an understanding of the blockchain at all. Many Venezuelans struggled to even gain access to smartphones to use the custodial wallet and terminals. All we could do is wait and do our best to trust the government.
The Romero family, my next-door neighbors, and I gathered in my apartment, feeling shocked and helpless following this announcement. We all knew Venezuela didn’t have enough mining power or nodes to effectively use the “invalidateblock” command themselves, universal buy-in was required, but we suspected Venezuela would form a coalition with other southern countries whose prosperity and security also depended on the Bitcoin economy. They would all encourage node operators to reject the blocks mined by the attackers so that the network and the country’s economies could function as usual. It would seem reasonable that they would have had a plan in place prepared for this crisis because Bitcoin was such a salient part of the south's economies and societies.
Yet, days passed, and nothing seemed to change. It became more and more clear that these southern governments, fraught with corruption, could not plan and communicate with each other in an effective manner to successfully bring order to the Bitcoin network. Evidently, there was not universal buy-in on the “invalidateblock” command.
I was aware most users in the Global North held different values, seeing Bitcoin as a decentralized network that should empower users, and thus were likely unwilling to abandon Bitcoin’s founding Schelling point. In fact, a lot of early Bitcoiners appeared to be angry with the government’s use of the network. In early 2030, when there was less censorship, I remember I found blog posts from those in the United States and Europe, concerned that these custodial forms of Bitcoin may centralize the power of the government rather than protect individual freedom. Without decentralization and adherence to the proof of work protocol, the network had no value to users outside the Global South.
There was hope that these users and miners were fewer than those in the Global South, as their governments had not adopted Bitcoin as legal tender nor were these ideas completely mainstream to the public. However, without a functional plan or effective communication between the nodes and miners within the Global South, along with the recent decline in mining due to frequent climate-related disasters, the defense was ineffective. And without consensus about the rules, state, or value of Bitcoin, the Bitcoin economy officially collapsed.
Feelings of nervousness and shock were replaced with anger and hostility. With nobody able to access their frozen wallets to make transactions or take out money for what had been over a week now, the streets of Caracas were complete and utter chaos. The once “technological utopia” the governments boasted, became a lawless dystopia.
I was lucky enough to have the Romero family looking out for me. I had babysat their kids a few times, and they knew I didn’t have much family around, so we had grown fairly close over the two years I had been living in the apartment complex. We shared what food we had and kept each other safe through the resulting surges of violence. Gangs became more active and warlike protests persisted night after night with fires and looting. The armed forces were ordered to fight against the protesters, but they too are citizens of Venezuela, distrusting of the government after their lives had also been turned upside down. Nobody knew who was really fighting who.
After a full week of chaos, where the government had been “working on bringing back order to the network,” they finally made the announcement that the “invalidateblock” command failed and our wallets were unlocked. However, when we opened up our wallets, what savings we had there were gone. The government claimed it was because the attacker must have stolen our money. They said to stay calm while they were going to help us get it back. I knew from my limited background in Bitcoin this narrative couldn't be true. The attack was on layer one of the network, the blockchain. That would likely have only a little impact on layer two, where all our transactions and custodial wallets were, let alone result in all our savings being completely stolen. I was convinced the government, the only one with access to all our private keys, stole from us what they could before making an exit. Who knows if they were ever even working on issuing the “invalidateblock” command.
Of course this left us all very angry, and once again crowds gathered in front of the Federal and Legislative Palace, demanding more information. With more and more animosity that had only built up over the past days, people were quick to storm the building, looking for anyone to hold accountable. Yet, the building was empty without a trace left behind. It was as if our government was never there. The walls were empty and most cabinets were empty. Our government leaders must have fled shortly after making the final announcement, likely another ploy to buy themselves time. Or maybe they were already on their way out, cowardly releasing the announcement remotely to the government-monitored media platforms. At this point, the details didn’t matter. We were on our own.
Since then, chaos has only worsened. Gangs have tried to take over, but the result has only been further violence and instability. The Romero family and I decided to leave the capital to seek a safer shelter and find a place where we can better provide for ourselves. Right now we are staying with my cousin Mauricio and his family in Sinamaica. But with the prolonged drought we are facing due to higher temperatures from climate change, things have been grim. Nothing is growing and finding clean water is next to impossible. There are rumors that the countries of the north might begin to offer us asylum, but the future nonetheless is discouraging. This dreamt up utopia has become millions's worst nightmare.