Bitcoin is generally regarded as a monetary system capable of leveling the playing field between the haves and have-nots. Fortunately, we do not have to rely only on economic theory to figure out if such thinking is actually true. There are several real-world examples we could look at. One of them is Venezuela.

Venezuela's economy has been in the tank for years. What was once the strongest economy in South America is no better than your average Third World economy thanks to government mismanagement and policies that actually encourage people to not be productive. Politics aside, cryptocurrency evangelists have been watching intently in hopes that Bitcoin would become an economic lifeline to poor Venezuelans. A few years of observation have revealed that Bitcoin is a mixed bag there.

Bitcoin and Petro

The first thing that must be understood is that Bitcoin is competing with Petro in the eyes of the Venezuelan government. If you don't know, Petro is the official government-issued cryptocurrency launched in 2018. With its launch, Venezuelan leaders also promised to crack down on Bitcoin businesses operating there. Their end goal was to make Petro the default digital coin for daily transactions. It has not worked out that way.

Petro should theoretically have decent value because it is a stablecoin backed by Venezuela's petroleum industry. The theory falls apart when you realize that the nationalized petroleum industry is worthless. Venezuela cannot sell its oil. Ergo, it is broke. The Petro is simultaneously worthless as well.

That leaves Bitcoin in the position of still being the most sought-after cryptocurrency. Despite government disapproval, people are still putting the limited assets they do have into Bitcoin in order to protect themselves. Furthermore, Venezuelans leaving the country for better opportunities elsewhere are taking their Bitcoin with them. Some are sending BTC back in support of their families, after they find employment in the new countries.

This is where the mixed bag comes into play. BTC remittances to Venezuela are helping people in desperate need. But at the same time, they are harming the family members in other countries who are actually remitting the payments. What is good for one turns out to be bad for the other.

How the remittance game works

'Remittance' is just a fancy term for making payment. What we are talking about here is not payment for goods or services in Venezuela. Rather, we're talking about sending money from outside Venezuela to a family member living in the country. There is a very specific way these remittances are set up.

Let's say you have family members in Venezuela while you live in Argentina. At the end of every workweek you are paid in Argentine pesos. You want to send a portion of that money back to your family in Venezuela. You can do it in one of two ways: you can send pesos electronically or remit a BTC payment.

Perhaps you decide to send bitcoin because you know it has more value in Venezuela than the Argentine peso. So you take some of your pesos to a remittance provider, convert them to bitcoin, and send the payment off to your family. The BTC is transferred directly into a digital wallet held by one of your family members.

Once received, your family can use that BTC to pay for goods or services provided through local merchants who also accept the cryptocurrency. If necessary, they can convert some of it to fiat as well. It is all pretty straightforward from a technical standpoint.

Why it's good

At first glance it would seem that making a bitcoin remittance to Venezuela in support of family members is good all the way around. Again, it is a mixed bag. Let us start by looking at the positive aspects of such remittances.

Just like the Petro, Venezuela's bolivar is worthless. There isn't even a benefit to hoarding bolivars at this point because the daily rate of inflation is about 3%. Over the course of a year, that adds up to inflation in excess of 1,000%. Bitcoin is not subject to such inflation because it is not tied to Venezuela's economy or fiat.

Like most other cryptocurrencies, Bitcoin's monetary value is determined by supply and demand. It is measured in U.S. dollars given that the dollar is the world's most preferred reserve currency. The combination of these two factors spares Bitcoin from the effects of inflation, at least for the most part.

Bitcoin is good for Venezuelans in the sense that it has value outside of the national economy. Those who decide to leave and take their bitcoins with them do not lose anything financially. In fact, they actually gain when they decide to convert some of their bitcoin to fiat. Provided the fiat of the new country is worth more than the bolivar - and that's not hard - their BTC is worth more in cash when they make the exchange outside of Venezuela.

Bitcoin is also good for Venezuelans in that it gives them access to a monetary system they can trust. Despite Bitcoin's daily price fluctuations, the platform itself is still trustworthy and reliable. There are no worries of the Bitcoin network collapsing. There are no concerns about secure transactions.

Why it's bad

As helpful and positive as Bitcoin remittances are for Venezuelans and their families, there are also some negatives to consider here. First and foremost is the cost. Again, imagine you are living in Argentina and sending Bitcoin back to Venezuela.

You first have to convert your pesos into BTC. That costs money. Next, you have to pay a remittance fee to cover the actual sending of the money. Your family members on the other end pay nothing as long as they leave their BTC as-is. But the minute they try to convert it to pesos, bolivars, or any other fiat, they also pay an exchange fee.

This is to be expected. Converting between currencies costs money; that is just the way it is. However, you could send pesos rather than bitcoin. Then you would not pay any conversion fee. You would only pay the electronic remittance fee. Your family members could convert the pesos to bolivars, and thus pay a fee, or they could keep the pesos and spend them with merchants willing to accept them.

A second concern here is fraud. According to a recent story appearing on the Coindesk news site, there have been reports of fraud involving unregulated exchanges and remittance platforms. Consumers looking for a cheaper alternative to the more expensive, but regulated, exchanges are taking a huge risk when they go unregulated.

Finally, there is a security risk. Coindesk reports that there are some remittance providers who are actually being used by the Venezuelan government to track account activity. Why would they do this? The remittance providers do it because they are being told to. The government is using them to track the flow of Bitcoin into the country so as to stem said flow.

You must remember that Venezuela's government wants the Petro to be the one and only digital coin Venezuelan citizens use. By making it difficult for them to use bitcoin, government officials expect to be able to convince citizens to turn to Petro remittances instead.

Pick your poison

What we have in Venezuela is a situation in which people are forced to pick their poison. Those who leave the country can remit payments back to family members in bitcoin and pay the higher prices for doing so. They can also accept the risks of potential fraud and government spying. The only other choice is to send fiat.

The rest of us could look at the Venezuelan example and learn some important lessons from it. Venezuela represents a living example of Bitcoin as a monetary system for the masses. In theory, it does level the playing field between the haves and have-nots by tying wealth to a form of currency that exists outside the boundaries and control of government. But in the real world, the playing field is not as level as it should be.

Transitioning from fiat to cryptocurrency does not stop fraud. It never will. There will always be people who find a way around the system to take advantage of others. Transitioning from fiat to cryptocurrency also does not stop government interference. Government is not going to throw up its arms and give up. If anything threatens their fiat, they are going to do everything in their power to stop it.

Finally, even a crypto-based economy will include conversion rates and fees for remittances. Remittance providers have to earn a living just like the rest of us, so they will always charge for their services. The only way to avoid remittance fees is to send cryptocurrency from your wallet directly to the recipient's wallet.

Is Bitcoin truly a monetary system that can level the playing field? Yes and no. Bitcoin can make the playing field more level than it is now, but it will never make it perfectly level. Venezuela is living proof of that.