Caracas Chronicles

If there’s one policy chavistas love, it’s regressive subsidies. You know, things like cheap dollars and cheap gasoline. While they last, they keep the masses happy and enable them kleptocrats to make a killing via a million guisos.

But because indirect subsidies are, almost by definition, poorly targetted, they tend to spill, generating some unforeseen windfalls to a few crafty people who find an angle on the system. Take this: the folks over at Reason have a pretty comprehensive report on Venezuelans who turn watts into bits (and $) leveraging the lowest electricity prices in the world.

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.

The piece goes on to discuss underground Facebook groups where miners can get everything they need, how they avoid SEBIN and CORPOELEC audits (by cutting them in: the only way someone could run an operation so big as to make $1200 a day), and how people are using exchange sites such as SurBitcoin to send remittances.

Read it all here.