Will Cuba follow Venezuela's cryptocurrency lead?

Will Cuba follow Venezuela's cryptocurrency lead?

Venezuela's economy has been in the toilet for quite a while. After the U.S. imposed tough and mostly illegal sanctions on the South American country in order to pressure its current leadership to step down, the nation's economy began the slow and inevitable decline into ruin. One of Venezuela's closest allies, Cuba, has been in a comparable situation since the 60s.

Now it looks like Cuba might be willing to follow Venezuela's lead in the cryptocurrency arena. Recent reports out of the tiny island nation suggest the government may be preparing to introduce its own national cryptocurrency much like Venezuela's Petro.

As the thinking goes, a Cuban cryptocurrency could put more money into the pockets of average citizens. It could help bolster faltering pension plans and raise the standard of living across the board. But that's all in theory. Whether or not reality would meet theoretical expectations is anyone's guess.

How sanctions damage economies and ruin lives

To truly understand why Cuba is considering its own cryptocurrency, one must understand just how damaging sanctions can be. We start with the premise that no individual country exists in isolation. The economics and culture of every nation on earth are intrinsically linked to all others in one way or another. We all rely on one another for stability.

When a core group of nations that make up the lion's share of the world's economic output put sanctions on a country like Cuba, they are preventing the rest of the world from doing business with the targeted nation. That is exactly what has happened to both Cuba and Venezuela.

U.S. sanctions against Cuba began decades ago. Since then, Cuba has not been able to do business with most of the rest of the world. A once thriving tourist industry has all but collapsed. Cuban exports are wanted but no longer available in other parts of the world. Cuba essentially has no one to partner with economically.

Think of it in terms of a local shopkeeper. If most of the other shops in that neighborhood decided to no longer do business with that shopkeeper, and also discourage their customers from doing business as well, the shopkeeper would have no one to sell his goods to. It wouldn't be long before he was out of business.

Sanctions have crippled the economies of both Cuba and Venezuela in much the same way. In Venezuela's case, leaders have tied the future of their economy to the Petro. The entire world is waiting to see if the plan works. Cuba is certainly interested, that is for sure.

Venezuela's crypto plans

Venezuela's leaders first announced plans for a national cryptocurrency during the third quarter of 2017. Plenty of skepticism followed the announcement. By early 2018 however, the Petro became a reality. Government regulators introduced it as a stablecoin backed by the nation's petroleum assets.

With the launch of the Petro, regulators also started taking a tougher stance on foreign cryptocurrencies. They encouraged citizens that already owned cryptos like Bitcoin and Bitcoin Cash to sell those assets and buy petros instead. They tightened regulations and increased taxes on blockchain companies in order to make it tougher for them to do business in Venezuela.

The last piece of the puzzle was put in place when Venezuela announced to OPEC that they would accept Petro as payment for crude oil. Their hope was that importing nations would purchase petros with fiat, then use the digital tokens to purchase their crude. But the only way to make such a system work would be to build some kind of savings into the program. Venezuela didn't do that.

Thus far, none of Venezuela's strategies have panned out. The economy is still in the tank. Citizens looking to invest in cryptocurrency are still putting their money into Bitcoin and its top competitors. They are not buying petros, and merchants are not all that excited about accepting them.

The Cuban job

Venezuela doesn't offer a lot of hope to Cuba. So what is it about their crypto strategy that has captivated Cuba's attention? It is likely not the export option in light of the fact that Venezuela hasn't sold any more oil and Cuba doesn't really have anything to export.

What Cuba might find intriguing is the possibility of replacing its own worthless currency with a crypto alternative. That could open the door to a number of interesting possibilities beginning with tourism. Keep in mind that tourism was once the foundation of Cuba's economy.

Though the United States has reversed course and once again banned tourism to Cuba, most Western nations still happy to allow it.

If you were an American looking to take a trip to Cuba, your best course of action might be to fly to Mexico City and then on to Cuba from there. But paying for your tickets with fiat could be risky. What if you could pay with a digital currency created and controlled by the Cuban government? You might be able to arrange your trip without creating any traceable record capable of getting you in trouble with the (US) law.

Online gambling in Cuba

Another interesting possibility is Cuba opening its doors to online gambling. Needless to say that online gambling and cryptocurrency have enjoyed a mutually beneficial relationship for quite some time now. Some of the most profitable online casinos in the world welcome cryptocurrency payments in the form of Bitcoin, Ethereum, Litecoin, etc.

Imagine what it would be like if Cuba opened its doors to online gambling. One need look no further than the UK to see how beneficial it can be. The UK is one of the most welcoming jurisdictions in the world for gambling across the board. They are a haven for online gambling operations.

Malta is another haven for online operators. The laws and taxes there are such that operators register their sites in Malta without hesitation. And in both Malta and the UK, their respective economies are benefiting tremendously from the income online gambling generates.

Raising the standard of living

What must be understood by Cuban authorities is that simply replacing fiat with a cryptocurrency will not automatically raise the standard of living for its citizens. If no other changes are made, they will merely be trading a paper currency for a digital one. That means nothing in terms of economics.

Raising the standard of living requires introducing some sort of utility to the new cryptocurrency. People have to actually use it in ways that improve their lives or it will make no difference. So what are Cuban authorities to do?

First, they would have to set up a system whereby consumers could obtain new cryptocurrency seamlessly. Next, that same system would have to make it possible for merchants to accept crypto payments right from the start. If there were any lapse between coin launch and payment infrastructure, Cuba's cryptocurrency would never get off the ground.

Next, they would have to create an incentive for actually obtaining the coins. One way to go would be to offer a 2-for-1 swap. Consumers would get two digital units for every fiat unit they trade in. Such a swap generates profit for both consumers and merchants before actual transactions ever start taking place.

Third, regulators would have to find a way to make their cryptocurrency valuable beyond their own borders. One way is to encourage blockchain companies to set up shop in Cuba in the hopes that they would help develop the technology there. That would bring jobs and monetary investments to the island.

They could also develop their languishing tourism industry around the cryptocurrency. For example, they could offer discounts to tourists who pay with their crypto instead of fiat. That would encourage foreigners to buy Cuban tokens.

We wait and watch

All of what you have read in this post is pretty much speculation. The only two things we know for sure are that Venezuela's cryptocurrency strategy has failed to deliver and that Cuba is seriously considering launching its own crypto. Beyond that, all we can do is speculate. Now we wait and watch to see what Cuba actually does.

If there is one thing that could stop Cuban leaders in their tracks, it is the realization that the U.S. has added the Petro to its list of sanctioned assets. That's one of the reasons the coin hasn't gained any traction outside of Venezuela. If the same happened with the Cuban cryptocurrency, it would not get far.

The curious thing about cryptocurrency is that it has the ability to completely transform economics. Just ask any Bitcoin whale who first invested in coins when they were only worth a few dollars. Ten years later, what was a relatively minor investment has grown to be worth millions of dollars.

Unfortunately, cryptocurrency's potential lies in the willingness of nations, businesses, and individual consumers to accept it. If the entire world agreed to surrender their fiat in exchange for Bitcoin, Bitcoin's potential as an alternative payment system would finally be realized. The biggest challenge with cryptocurrency now is a lack of acceptance. That translates into a lack of adoption which, unfortunately, is what has ruined Venezuela's plans. Cuba might be looking at a similar future.

Makes one wonder, why didn't Venezuela just adopt Bitcoin for its oil trade? Shouldn't Cuba look to Bitcoin to make money from tourism rather than come up with another stablecoin that no one wants?

Byline: This article was published by Henry.
About: I'm a bitcoin advocate and admin of Coinbet.com.