LocalBitcoins Transformed Crypto Economy in Venezuela – Now What?
by Arthur · February 9, 2023
Another day, another crypto service shuts down. LocalBitcoins, a peer-to-peer Bitcoin exchange platform, announced its demise, saying it “can no longer offer its Bitcoin trading service” due to the challenges of the long-running crypto winter.
They were an important part of the most difficult moments in my country, Venezuela. We will never forget them. Thanks for the service.
— blackarepa (@arepablack) 9 February 2023
Launched in June 2012, LocalBitcoins helped prove the main use case for Bitcoin: a global P2P electronic cash system without centralized control. That made Bitcoin stand out as a huge opportunity to develop cryptocurrency communities – especially in countries with less than stable political leadership.
Venezuela was one of the most notable national users of Bitcoin, especially during the last hype cycle.
“LocalBitcoins was the main reason for the huge use of Bitcoin in Venezuela in the period 2017-2019. The huge volume moved in the country made the world realize that Bitcoin was used in Venezuela,” Ernesto Contreras, Head of Business Development at Dash – and Co-Founder of the Caracas Blockchain Summit – told Decryptand remembers starting to familiarize himself with the platform during that time.
LocalBitcoins in Venezuela: A Case Study
The implementation of unilateral sanctions by the United States against the Venezuelan government made it difficult for individuals to send money from abroad to Venezuela. International banks were unable to conduct normal operations with Venezuelan banks, and businesses such as MoneyGram and Transferwise stopped serving the country. This left many Venezuelans abroad with few options when trying to send money to their families in other countries.
LocalBitcoins filled this gap by allowing reliable and fast transfer of funds. This was particularly appealing to Venezuelans facing an unstable economy, political sanctions and financial isolation, who could also turn to Bitcoin as a hedge against inflation.
“I joined LocalBitcoins after doing my own research and because of references from third parties,” said Venezuelan crypto lawyer Aníbal Garrido Decrypt. “Like any beginner, I started with some trepidation, but the intuitive interface made it easy to use.”
In addition to money transfers, LocalBitcoins also helped Venezuelans use BTC as cash. They would buy Bitcoin as a kind of dollar substitute and sell it when they needed fiat money. The platform also allowed them to use their BTC to buy international products through gift cards and crypto-friendly stores.
A Post-LocalBitcoin Country
Given Venezuela’s geopolitical situation, P2P crypto trading was preferable to regulated platforms. Regulated platforms did not allow operations with Venezuelan money, while local crypto platforms had limited volumes, poor infrastructure and were unreliable.
The impact of LocalBitcoins’ closure on the Venezuelan ecosystem is likely to be minimal, despite early concerns.
“For the Venezuelan ecosystem, I don’t think it will have a big impact,” Garrido assured Decryptand pointed out that activity around the platform had dropped significantly since its peak in 2018. Contreras agreed: “Today, the shutdown will not have a big impact on the Venezuelan market since very few people are currently using LocalBTC.”
In fact, the platform has seen a decline in activity since its peak in 2018, and it now only sees a weekly exchange of around 30 BTC, compared to 2,487 BTC traded in February 2019.
The numbers suggest that the problems with LocalBitcoins started well before the crypto winter, with Venezuela trading less than 100 BTC since February 2021 and falling below the 500 BTC mark in 2020.
Crypto Winter Plus Bad Choices: A Deadly Mix
The crypto winter has been a death knell for many businesses, and LocalBitcoins is no exception. Experts attribute the fall of LocalBitcoins to a combination of factors. First, its “Bitcoin Only” approach proved to be a disadvantage in the long run, especially after Binance entered the market offering a wide range of tokens, including stablecoins, which were more attractive to those looking to reduce the exposure to market risk.
In addition, the outdated and unintuitive interface of LocalBitcoins may have played a role in its downfall. “The needs of 2023 are not the needs of 2012,” Contreras observed.
Binance, which does not have a transparent policy to audit the P2P market’s transaction volume, has nevertheless become the reference for cryptocurrency enthusiasts who prefer P2P trading.
For those who don’t want to use Binance, the options are limited. Paxful and Uphold have both left the country, and most centralized exchanges do not offer crypto-to-fiat exchange services.
The most notable options available to Venezuelans are HodlHodl, a KYC-free P2P exchange platform that offers various payment options, even in Petro (the country’s state cryptocurrency), and Bisq, a private and decentralized P2P exchange. However, both options have low adoption compared to CZ’s greatness.
As a result, although LocalBitcoins marked an important chapter in Venezuela’s crypto history, it may be fair to say that it was already dead in the eyes of many citizens. Today’s announcement only served as an official notification that LocalBitcoins will no longer be there for them. As for the post-LocalBitcoins era in Venezuela?
“It’s not that Binance could fill the void left by LocalBitcoins,” Garrido said. “To be fair, Binance has already done that.”
