The secret dangerous world of Venezuelan bitcoin mining: how cryptocurrency is turning socialism against itself.

• Author: Epstein, Jim

FOUR YEARS AGO, Alberto's career prospects were bleak. The 23-year-old Venezuelan had just graduated from college with a degree in computer science, but his nation's economy was already shredded by 13 years of socialism.

"There were job opportunities, but they paid like $20 a month, and we were used to traveling and buying things from abroad so we couldn't settle for that," his friend Luis recalls. Alberto and Luis--whose names have been changed for their own safety--teamed up to start a clothing business, but the venture floundered.

Then Alberto discovered bitcoin mining.

He read about it on an Argentinian gaming forum. An item posted to the site described a process of getting paid in a new internet-based currency denominated in strings of numbers and letters, in exchange for running computations on a home computer. His parents said that the whole thing sounded like a Ponzi scheme. Alberto, however, sensed that his life was about to change.

Four years later, his country is embroiled in a humanitarian crisis. The supermarket shelves are bare. Children are fainting from hunger in their classrooms. A mob recently broke into the Caracas zoo to eat a horse. Many Venezuelans subsist on a monthly government stipend equivalent to about $13.

Alberto, meanwhile, based on his own account, is earning more than $1,200 a day mining bitcoins and other cryptocurrencies.

He's part of Venezuela's rapidly growing digital currency mining community. Faced with growing threats of violent crime and government extortion, its members interface through secret online groups and take extreme precautions to hide their activities.

In a country where cash has lost much of its value, and food and other necessities are dangerously scarce, bitcoins are providing many Venezuelans with a lifeline. The same socialist economics that caused the country's meltdown has made the energy-intensive process of bitcoin mining wildly profitable --but also dangerous.

THE ONLY HOPE TO SURVIVE

CREATED IN 2008 by the pseudonymous computer programmer Satoshi Nakamoto, bitcoin is digital money that's tracked via a public ledger and controlled by no central bank, corporation, or individual. It's a peer-to-peer currency running on the internet, which severely limits the potential for government interference.

Bitcoin mining is a process that provides the computational power and security required to run this decentralized currency network. To start mining, anyone can purchase a special type of internet-connected computer that runs difficult computations at high speeds. Though it has almost nothing in common with mining for gold, the end result is the same: Participants are awarded with currency--in this case, newly minted bitcoins.

It's become a popular vocation in Venezuela in part because the country's economy is in such dire shape. Even computer scientists and skilled technical professionals can't reliably find work. Next year, the unemployment rate is expected to climb above 20 percent.

But the main factor driving Venezuelans to take up bitcoin mining is a price control put in place by the socialist government: Electricity is virtually free.

Bitcoin mining requires a lot of computer processing power, which in turn requires a lot of electricity. In most of the world, utility bills eat into the cost of mining. In places where energy prices are high, it can even be a losing proposition. But in Venezuela, the government has turned bitcoin mining into something akin to owning a home mint.

Price controls, of course, invariably lead to shortages, and the country's frequent electricity outages create constant headaches for bitcoin miners. But they've also come up with workarounds, such as locating their operations in industrial zones, where electricity service is generally uninterrupted.

Since bitcoin mining is a process, in effect, of converting the value of electricity into currency, Venezuelan miners are engaging in a form of arbitrage: They're buying an underpriced commodity and turning it into bitcoin to make a profit. The miners have turned socialism against itself.

In the process, they've gained access to a currency with far more purchasing power abroad than the government-issued bolivar, which trades for less than a tenth of a penny on the black market. As the local saying goes, Venezuelan money is "no good for buying toilet paper or even wiping your ass."

Bitcoin's potential as an alternative to government-issued currency is still hotly debated outside of Venezuela. But in a country lacking food and basic health care, there's nothing theoretical about it. Bitcoin is helping to keep pantry shelves full and medicine cabinets stocked, making life tolerable--if not always easy--in the midst of a socialist hell.

Like many bitcoin users, Alberto, the miner who makes $1,200 daily, imports food from the U.S. through Amazon's Prime Pantry service. This would be impossible with bolivars because almost no one outside of Venezuela accepts them as payment, and the growing scarcity of U.S. currency has made purchasing foreign goods with dollars increasingly difficult. Though the Seattle-based retail giant doesn't accept bitcoins itself, plenty of intermediary companies do...