Jill Carlson

Open Money Initiative – Free Access to Finance as a Human Right

A common meme in the cryptocurrency space is that it has the potential to help people in countries where only the rich and powerful access to global financial markets. But ten years after the Bitcoin white paper was released, just how many “unbanked” people has cryptocurrency helped? Some see crypto as a tool to empower vulnerable populations in places where hyperinflation and strict capital controls make day-to-day survival a nearly impossible challenge.

We’re joined by Jill Carlson. Previously at Chain and Tezos, Jill has been writing about the cryptocurrency industry for several years. In 2016 she published a paper titled “Cryptocurrency and Capital Controls” which observes the use of Bitcoin in Argentina. Recently, she co-founded the Open Money Initiative, a research organization which looks into how people use money in closed economies. Their initial focus is on Venezuela where years of economic downturn and strict currency controls have created a humanitarian crisis which has political repercussions well beyond the country’s borders.

Topics we discussed in this episode
  • Jill’s beginning working at Goldman Sachs in the Latin America market
  • Her journey from trading bonds to entering crypto space working at Chain
  • A brief history of Venezuela leading up to the current situation
  • What it’s like to experience hyperinflation
  • The Open Money Initiative and the organization’s goals
  • How cryptocurrency and specifically Bitcoin is used in Venezuela
  • The political motivations behind the Open Money Initiative
  • The story behind Venezuela’s Petro currency
  • Jill’s podcast with Meltem Demirors, What Grinds my Gears
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Transcript

Sebastien Couture: So we’re here with Jill Carlson. Jill is the Co-founder of the Open Money Initiative. Previously Jill was at Chain and also worked at Tezos. And so today we’re going to talk about a whole bunch of things including her interest in financial regulation circumvention in Venezuela or otherwise known as you know trying to help people in Venezuela who are struggling to put food on their table which has been in the news lately, and how crypto is playing a role there. So hi Jill thanks for joining us.

Jill Carlson: Hi. Thanks for having me.

Sebastien: So before we get started and start talking about things that will probably attract unwanted attention by a lot of people online and people who don’t agree with certain political views let’s first talk about you in a bit of your background and how you got involved in crypto and got interested in this stuff in the first place.

Jill: Yeah. Sure. So let’s see, I grew up in Boston. I went to school and studied history and then I did exactly what every good liberal arts major does and I went to work on Wall Street. So my first job out of school was as a bond trader at Goldman in New York. And specifically I was trading Latin American debt and derivatives. So I was trading the bond through the debt that these countries issued including Venezuela also including Argentina, Mexico, Brazil, Colombia, Latin America. Right. So that was a good experience. It got me deep into the wild world of political economics. I started to become acquainted with all kinds of issues that countries can have when they’re experiencing inflation, when they’re defaulting on their debt, when they can no longer pay back their loans. Very interesting stuff. Now how I got into cryptocurrency was actually through this lens and through this same experience of trading sovereign debt. So I had these colleagues who would be on the ground in these various countries who I would catch up with every morning. They would give me kind of the local color what’s going on et cetera. And in particular I had a colleague who was based in Argentina in Buenos Aires. And he calls me up one morning and at the time Argentina was going through a debt default. They were also experiencing very high inflation and not hyperinflation but high enough that it was having an impact. And he calls me up one morning and he says Jill, you’ll never guess what. Like I finally managed to get my money offshore. This guy didn’t work at Goldman so he didn’t have a US bank account. And Argentina at the time also had very strict capital controls in place meaning that you couldn’t move your money freely in or out of the country in or out of the peso if you lived there. In fact there were people using suitcases to get it across the border on boats out from Argentina to Uruguay at the time and that was one of the basic things that people would do to try and get their money out. And he says you know I found a safer easier way to do this. And this is back in 2013 and I’m like what you can probably see where it’s going. And he says oh well I bought Bitcoin with it and I at the time was very skeptical, like this isn’t backed by anything. I don’t think you want to trust this. I don’t think this is a good idea. You know as far as I know this is just something that people are using to buy drugs on the Internet. But he pulled me kind of kicking and screaming down the rabbit hole. I ended up buying some Bitcoin. Again this was early 2013 so I kind of rode it up in the first hype cycle and it went from you know a couple hundred dollars to over a thousand dollars. I rode it back down and was like I’m a huge idiot. I was right all along. But more than anything else I was kind of inspired to say OK if I’m going to own this thing I better understand actually what it is and how it works. And so that’s when I started to really dive in and start to learn about it myself. So that was kind of my intro story.

Sebastien: Cool. And so how did you get involved with the Chain. Who at the time were just starting off I guess.

Jill: Yeah. So actually before I joined the Chain I I went to grad school. I pulled the old grad school ripcord and I went to go study Development Economics at Oxford. At the time I thought that I wanted to go do a master’s degree. I thought that I was going to study a lot of this very straight and narrow stuff that I had been sort of experiencing firsthand from the trading desk about sovereign debt sustainability, all of these sort of dry topics and economics. But by the time I got there I basically I went into my professors and I was like so I know that I wrote up this proposal on sovereign debt sustainability in leftist countries but really what I want to study now what I want to write my dissertation on is this Bitcoin thing. And as you can imagine my sort of stodgy economics department professors at Oxford were less than impressed. I got a lot of sort of rolled eyes and you know this is unprecedented. A lot of skepticism. But did it anyway, realized pretty quickly that a PHD was not in my future at least anytime soon. So I started applying to pretty much every crypto company that I could find out there. This was 2015, early 2016 and I didn’t hear back from most of them. And then the ones who I did hear back from I got the classic like yeah you know you don’t have any experience here, you’re not technical, you know we’re not really hiring for biz dev and operations roles, you don’t have any product experience…so I spent about six months banging my head against the wall. But one of the companies that I had my eye on the whole time was Chain which at the time as you mentioned it was going through this sort of pivot from being basically Bitcoin developer tooling to being focused on blockchain for Wall Street, blockchain for enterprise, which felt like kind of a good fit given my background of working on Wall Street. And it actually wasn’t until I came across on Facebook of all places one of my friends from college Dan Robinson updated his ‘where he works’ on Facebook to Chain and I remember at the time I was not working in the space, I didn’t really know people in the space, and so I reached out to Dan of course and I was like Oh my God you’re into this blockchain thing I’ve been really into Bitcoin and I’ve written this whole dissertation on it. And he hopped on the phone with me and he was like Oh I think Chain is actually hiring. So they brought me in and the rest is history. Got to work with Adam and that whole team for, it was only a little over a year. In many ways it felt like longer because I think I learned so much while I was there. But yeah I had the pleasure of starting off my blockchain career at Chain.

Sunny Aggarwal: And then you left Chain after a while and you were working on other projects like you worked on Tezos for a little while. And so I think you also got a lot of popularity as well within the space of you wrote a lot of really good posts. I think in 2017 there was a lot of hype going on and you kind of broke down things and these blog posts are really easy to understand. And so could you give us a quick brief on what’s your thesis on blockchains and you know you talk a lot about how to think about blockchain assets and stuff. So what’s your brief thesis on this.

Jill: Yeah. Well I mean I guess first I’ll give the background of how I ended up with these theses and these thoughts which is that I basically spent several years at this point going down rabbit holes I think mistakenly often like oh I really want this thing to work and it feels like there’s something here and having to sort of learn from first principles, like where there is a there there and then where there’s really not. And actually during my time at Oxford I worked with a colleague. We were hell bent on starting a crypto company blockchain startup or whatever. And especially for me being not coming from a computer science background or whatever I had to learn everything right. And so I think that has been a huge detriment in a lot of ways but I hope that if anything it’s given me the ability to think somewhat clearly about the space and also to be able to express it in a way that’s accessible. But so what is my thesis on Bitcoin and cryptocurrency. I think that the first thing that people get a little bit confused about is it’s very easy to want to apply this technology to anything and everything right. Like we’re gonna have blockchain for health care records and identity and heads of lettuce being tracked on it. And I think fundamentally what you have to accept is that it really comes down to just being about assets. It comes down to being about value and in particular it comes down to digital assets, digital tokens or units of value. And right then and there you can rule out just like a lot of the use cases that people talk about. Now I think that there are aspects of blockchain technology that are applicable to these things like public private key systems, distributed computing like these are all good things, and permission databases you know whatever you want like you can take aspects of this but probably if you’re trying to solve a problem with health care records or identity what you’re talking about is probably not a canonical blockchain technology as I would talk about it. So that’s kind of I would say my overarching thesis on the space.

Sunny: So applications that kind of surround the use of assets like let’s say we’re talking about like DEX for example. Do you think that’s also on the right path?

Jill: I do. DEX is the future is my catch phrase. So I think that all of these applications built around assets become suddenly very interesting. Now I think that they become interesting probably in still very sort of specific, possibly very niche use cases today. So use cases where you need some sort of censorship resistance or some level of openness that doesn’t exist today, i.e. the ability to move across different siloed systems or else areas where you have sort of existing trust issues that exist today. So I mean one example that I’ll give and I’ll steer this example a little bit away from the sort of Venezuela censorship resistant stuff because I know we’re going to spend a lot of time talking about that but as the junior kid on a trading desk I spent a ton of time actually dealing with our back office dealing with our middle and back office. So these are the folks who do the real work at these big investment banks right. They’re sitting there reconciling all of the trades, making sure that the trades that you’ve done have gotten cleared and settled properly, making sure that you had the right counterparty on them, making sure that you actually got delivery of the bonds that you’re selling to somebody else. And this stuff is a mess. It’s spaghetti and it all relies on one central third party or at least in bond space it does which is the DTTC and for every country you have your own central securities depository or every region right. Now all of these central security depositories they basically act as this third party intermediary that every single trade has to be routed through. There is never any such thing as JP Morgan just giving direct delivery of the bonds to Goldman Sachs. Right. Or only very rarely and only in very bespoke cases. And so this was one of the things that actually initially stood out to me about this technology is even forget the censorship resistant thing for a second. If we could find a way where you didn’t have to have these literally like 10,000 people at every given bank who are keeping track of the books and records and making sure that the Goldman Sachs ledger matches the DTCC budget or matches the JP Morgan ledger and so on and so forth, I think that there is something there. I think that we’re still a long way off from our technology, this next gen financial technology blockchains being anywhere close to being able to compete with the existing system. But that’s one of my sorts of like Galaxy dream visions of where it all could go.

Sebastien: Yeah I think that makes a lot of sense having worked for a couple of years at an enterprise startup. I was working on building traceability systems for enterprise. I’ve come away from my experience with having learned that perhaps the use cases that a lot of people are looking at that aren’t in the financial space or aren’t like tracking assets, probably won’t be the ones to pan out first. Maybe those use cases will start to emerge once the more asset tracking type of use cases emerge and are stable. But yeah definitely I think like DeFi and distributed finance and to some extent you know as you say like simplifying these back office systems are probably the ones that are on….

Jill: This is one of my weirdest takeaways of working in this space is that it turns out the world has a really hard time keeping track of stuff. There are so many of these issues whether it’s on Wall Street or in supply chain or you know other big enterprise issues like the world has a really hard time keeping track of ownership and assets. Who would’ve thought.

Sebastien: So moving now to the central topic here which is Venezuela. So you mentioned that you were working at this trading desk trading bonds in South America. Did you have an interest in Latin America and South America before this or did you sort of start to get involved and interested in the political situation there with this experience.

Jill: It was really only through that experience. To be honest I don’t even speak Spanish. I didn’t know basically anything about Latin America until I showed up for the job. And then of course I became intimately familiar with it. But I mean even on the trading desk there were a decent number of other folks like me who had no real sort of background or specific interest in Latin America. But there were also a decent number of people who were from Mexico or Chile or Peru or wherever. And the nickname for me on the desk actually just became gringa which means like white girl. So no I had no real background. Obviously this is kind of a rabbit hole that I have now gone down pretty deep.

Sebastien: So how does that inform your views, obviously you’re dealing with financial assets that are being traded between banks and these banks are looking to make the best returns on these assets, at the same time you’re looking at the situation and seeing that in some countries in Latin America or perhaps even the majority of countries in Latin America people are by some extent struggling to get by. How does that inform then your political views and is it common for people to come away from my experiences saying like this is kind of messed up like I need to do something about this.

Jill: I think yes and no. So on the desk that I was working on was the Latin America desk but the sort of broader category is called emerging markets and there are certainly a lot of people who work in emerging markets in finance who feel very sort of mission driven about the whole thing and there are all of these charity organizations. There’s one called EMpower for example that does a lot of work there. So I don’t want to say that like you know people just kind of sit there and do your job and don’t think about the implications for folks on the ground although again a lot of the people I worked with are from these places. I sat across from a Venezuelan guy right. So there is no way that he’s looking at the situation just totally impassively. Stone faced. But I mean that said there is I feel like it’s almost probably not to the same extent obviously but like almost like a doctor who just sees trauma patient after trauma patient where you do become a bit numb at some point to it. And I’ll never forget there was at one point fighting that broke out in the Ukrainian parliament like actual violent fighting. Now this is the Ukraine so these were sort of my counter parties in Europe who were trading Ukrainian debt because they were dealing with the emerging European countries. But I remember everyone just sort of like watching this and being like yeap another day another dollar, another day another outbreak of violence inside of a political institution in one of these countries. And yeah it’s a very odd thing. I mean the other thing that I want to emphasize though here is that like all of these countries are not created equal like you get these very extreme moments in time, like Venezuela is experiencing today or clearly like the Ukraine was experiencing at that time. But I mean that looks completely different from what’s going on in Chile for instance. Even though these countries get sort of lumped together as like oh Latin America. And in my case oh Latin American debt like completely different things. And in fact within the bond world you tend to divide debt into two categories. You have high yield debt which is much more risky and therefore gives you a higher return. And then you have investment grade debt which is much less risky and you would put say like Apple bonds in that category. Now we were one of the few desks at the entire firm that traded both and in fact also traded what’s called distressed debt which as you can probably figure out is like high yield to the max. It’s like going through default going through restructuring.

Sunny: So like you said so a lot of the current situation you kind of do have to understand the context in the history of what got it there which probably why I assume your history background probably very useful for the trade.

Jill: I studied ancient history unfortunately so it was useless.

Sunny: So yeah. Could you give us a little bit of a history lesson, a brief idea of what happened in Venezuela in the past maybe 20 years that led to the current situation because I know 20 years ago you know Sebastian was actually just talking to me about it before the show. Venezuela was under Chavez, people were like oh wow look at this socialist country it’s like succeeding wildly and this is the future and whatnot. So what exactly changed.

Jill: Yeah. So OK I want to preface with to do this real justice you have to go all the way back to like the Spanish coming in conquering Latin American and whatnot. And this is I think actually where a lot of the sort of confusion and emotion often comes in is because depending on how far back you go, Chavez to many people was this total hero right who came in and sort of empowered the people who had been you know in many ways kind of like oppressed by these imperialist forces who’d been in the country for a long time. But to many it was also a socialist dictator. So again you have to kind of frame this with a large degree of nuance and balance but as you said you know if you look back let’s go back just 50 years to start. So in the 1950s, 1960s. At that time Venezuela was one of the wealthiest economies in the world. And I think it’s really important to emphasize that because people often miss that, they look at it today and they’re like oh this developing country that’s like totally backwards and there’s all of these messed up policies and people are starving, humanitarian crisis but not that long ago Venezuela was one of the wealthiest countries in the world. Even now they have more in terms of oil reserves than any other country in the world. And again people do a double take when I say that, sometimes I even start to doubt myself because I’m like can that possibly be true. But it’s actually totally true that Venezuela is a very wealthy country in terms of its natural resources and that’s not something that has just been sort of totally squandered. It’s actually something that has been used to build up a very modern country in modern society where if you look at the rates of online banking for to take an example that exists in Venezuela there are more people who use digital banking services in Venezuela in terms of percentage of population than there are in any developed country. Think about that for a second. Right. So like rates of sort of these common metrics of development or modernization are actually quite high in Venezuela and a large part of that is due to Chavez as you mentioned. So Chavez came to power. He came to power promising all of these sort of socialist policies that we’re going to start to equalize things. This was in the early 2000s, late 90s. And indeed he acted upon those policies. Pretty effectively if you ask him certainly in terms of redistributing wealth in terms of coming up with policies and programs that would benefit some of the poorer populations of the country etc.. But of course all of these programs were funded by these oil reserves that I mentioned that exist in Venezuela. And that was all well and good because at the time through the early to mid 2000s and 2010s oil was going through huge boom. Right. You know if you think about the global macro context of what was going on then the price of oil if you went to go fill up your car in 2003/2004 the price was going through the roof right. That was working out quite nicely actually for Venezuela. Now that gravy train ran out around 2014 when the price of oil collapsed from around one hundred dollars a barrel to around 40 dollars a barrel. And this coincided with the shale boom and the discovery of frack and the taking off of fracking the discovery of all of these oil reserves actually within the United States et cetera. But this had a really big impact of course on a place like Venezuela where not only was a huge source of their wealth and their economic growth based on oil but also basically all of the policies that had been in place for over a decade now were based on oil and the wealth and the price of oil that could be derived from the reserves they have.

Sunny: So they kind of assumed that there’d be this constant money coming out of the ground that they could redistribute and then when that money stopped flowing then…

Jill: Yeah I mean to be honest look I don’t know if it was an assumption that this would last forever or if it was just sort of short term thinking. I mean there are all kinds of great papers written about politicians and their economic policies and the decisions that they make in the short term thinking that goes on because they basically just need it you know as a politician you basically just need it to last until your reelection, until your next term, or in the case of Hugo Chavez,until you die. And Hugo Chavez died in many ways at exactly the right moment in terms of this crash. He died I believe it was 2013. There was actually a long period where no one was sort of sure if he was still alive or dead and that were potentially going to be succession issues. There was an election called and it looked like the opposition candidate, so the guy who would come in with sort of more conservative policies and try to reform the socialist system because you know there was some knowledge of the fact and discussion of the fact that this gravy train like I said wouldn’t last forever. And it looks like the opposition candidate was going to get elected but then lo and behold Chavez’s man, Nicolas Maduro got elected. And that is who is still in power today.

Sunny: In your opinion was that a fair election?

Jill: It’s very much debated. It is less debated that the last election which occurred just this past year, whether or not that was fair. That is by and large accepted by the international community as a fraudulent election. I’ll give the caveat. The United Nations has actually stood behind that election. So again there’s sort of nuance in gray area here that you have to acknowledge. But I mean I don’t think that it was a free and fair election. Like if you talk to pretty much any Venezuelan. My understanding anyway is that you’ll hear sort of nothing but complaints. But also you have to be balanced here and you have to acknowledge that there are a lot of people who experience such poverty even under Chavez but especially before Chavez that day even with what’s going on today they might say well it wouldn’t be any better under anyone else. So there are still people for sure who who believe that and we’ll say that but that is not most of the people I’ve talked to. Again if you talk to Sebastien or most Venezuelans probably who you know they will either laugh or cry at that idea that statement. So.

Sebastien: When talking about Chavez I mean we were talking about this before the show with Sunny and in fact in my late teens early 20s when I was a fresh college student I followed a friend to invest basically all of my savings at the time in Canadian gold mining company that had a potential contract to mine a whole bunch of gold in Venezuela. And we were big fans of Chávez and we thought like oh this guy’s so great. And then he nationalized the gold reserves and we lost all our money. Not that it was a lot of money. But anyways.

Jill: Yeah. That will happen to you when you’re investing in stuff in countries like this like stuff is just getting nationalized all the time, it’s getting seized. Yeah. Never a dull moment.

Sebastien: It was it was eye opening for me when years later having moved to France and everything, met someone who is from Venezuela and actually met a few people from Venezuela who were like no this guy’s a crook, Chavez is a horrible person and a dictator. And from that point on my ideas about this guy, my fresh college student ideas of socialism and everything were tumbled on their head.

Jill: This is the thing and I talk about this with my colleague, my co-founder, a guy named Alejandro who is Venezuelan. He says this all the time which is that the word socialism might as well be meaningless at this point because there is a subset of people to whom you say socialist and it means Denmark or it even means Canada. Right. And it’s not actually. And then there’s a certain subset of people to whom you say socialist and it means Venezuela which again that’s not really the intent that is a kleptocracy. That is a dictatorship. There are tons of other problems going on there. And it’s this very divisive word and you’re seeing this play out now in U.S. politics of like AOC and the Democratic Socialist Movement of Donald Trump and vilifying Venezuela and therefore using that as a means to vilify all of socialism. And of course the truth lies somewhere in this messy gray area in the middle and it’s not or the other but it is extremely divisive. And the amount of sort of political trolling that you get for even talking about this topic. Well we’ll see in the comments section.

Sebastien: Yeah. This is definitely one of the most political I think topics that we’ve got here on the podcast probably. So before we get to Open Money Initiative because we’re running a bit long here I think we could talk about this for quite a while, you know describe the situation now. I mean I think most people who are following this to some extent are aware of the humanitarian crisis in Venezuela. Obviously you have heard about hyperinflation there. So in your view what is the situation now is it. Is it degrading, Is it getting better.

Jill: Yeah. So it’s definitely integrating, there’ve been sort of glimmers of hope over the last year that things might start to change for the better. But just to lay some context. So Chavez implemented these socialist policies, Maduro sort of came into power following him, continued on with the socialist policies and spending programs and so on. But by all accounts he has mismanaged the economy and that has led to all kinds of things. So it’s led to hyperinflation. So there is 10 million percent inflation projected for this year, now what is 10 million percent inflation look like. I talked to a woman through my work with Open Money and we’ll get to that in a moment. But I talked to a woman who told me that she’d worked her whole life, had her whole life savings, she is working in a decent job, she’d saved up enough money for her kids to go to college. But when she left the country, she left to go to Colombia and she converted her whole life savings, she’d sold her car, sold her house, everything. And it was only worth a couple of thousand dollars in pesos. So that’s what it looks like. It looks like your entire life savings has evaporated into what you’re going to need to get by in the next month or two. It also looks like your salary which is set annually, so your salary gets set annually but that number is inflating at 10 million percent per year. And so what that means is that by month 2 or month 3 of the year, what you’re getting paid is not even a reasonable living wage. Even if you’re a lawyer even if you’re a doctor even if you’re sort of a professional class person, because it’s getting set at these intervals that just can’t even come close to keeping up with inflation any reasonable way. So it’s inflation, it’s shortages. One of the policies that Maduro has in place is around controlling what can come in or out of the country what gets imported and so on and so you end up with these massive massive shortages of just basic goods, you can’t find shampoo there, you can’t find body soap. We talked to a lot of people who use like dishwasher liquid as body soap because you just can’t find it. If you’re a woman you can’t find tampons, you can’t find just these basic supplies, and you definitely can’t find medicine. So we also talked to a lot of people who have elderly parents or children with an illness or whatever and they just need like basic medicine and you can’t find it anywhere. And then the last thing I’ll touch on here is the price controls, so price controls and capital controls. So it’s very limited what freedoms you have with your money with your financial life in Venezuela. You don’t get to choose what currency you use. It’s mandated by the government that you use bolivars. If you’re caught with U.S. dollars or with another currency you could be fined. You could be thrown in jail. And then it’s also mandated at what price you sell your goods. And so for example we spoke to a farmer who sold coffee. Really interesting guy. He loved being a farmer. He lived in a beautiful rural area of Venezuela. And he would sell his coffee beans. But it was mandated by the government that he would sell his coffee beans actually at a loss. And he obviously realized this immediately right. Like if I sell it at the government mandated price I’m not going to be able to continue. I’m not going to be able to make a living. And so he would try to sell it on the black market at a higher price. The authorities catch wind of this and the authorities would come to his house and beat him and threatened to rape his wife. And like literal physical violence if he wouldn’t sell it at the mandated price. And eventually he just walked away from the farm and he said you know what. Let it all rot. Like I would rather it is just rot than me sell it at a loss at this insane government mandated price. So these are just some of the dynamics that play overarching all of this is just like kind of a lack of rule of law at this point. It’s gotten to a point where people are so desperate even the police and the authorities you have to remember they’re desperate too and so it’s very patchy enforcement of things. When I first started doing research on this topic, I spend a lot of time actually being like are people misleading me, are people not telling the truth here. But the reality is that everyone’s reality their look so different from the next person’s because it just kind of depends on the day. And it just kind of depends on the policeman that you’re interacting with or like who you happen to have access to.

Sunny: And so that 10 million percent, just off the top of my head it sounds like almost one hundred fifty per cent inflation daily something close to that. So that means I can wake up today with a dollar. And by the time I go to sleep it’s like 40 cents.

Jill: Totally. And so what you have is merchants running around their store on like less than an hourly basis updating prices. And it’s gotten to the point where everyone just kind of understands that whatever price is listed is garbage, it doesn’t even make sense anymore because it’s just constantly changing.

Sunny: Do people have to have something like an app on their phone that tells them like oh this is how much the price is.

Jill: No, so this is another issue that you’re not even allowed to list in Venezuela the bolivar to US dollar price which everyone thinks in U.S. dollars there, that is sort of the default currency and under the table people will quote things in US dollars like oh how much is that bag of sugar. How much is it to get my car repaired, that will be kind of quoted in U.S. dollars but that’s risky right because again even even sites that put up what the rate is between bolivars and dollars like those are not allowed. And so it’s these very like underground informal systems. Generally what people use is WhatsApp and Instagram and in particular the stories features. And so you’ll be connected digitally on what’s happened on Instagram with all of these people who are either acting as basically informal money changers so they might have access to U.S. dollar bank account and they’re acting again as these sort of informal money changers. They might have access to goods and food and medicine and they’ll go in on their stories and list what they have access to. And then the price that they’re willing to accept or pay for it. So you have these very little quite literally decentralized digital marketplaces that have emerged around this.

Sunny: Right. And so you know I think that leading to the Open MI stuff. In the blockchain space there is this meme that I’m pretty sure I’ve said this sentence at some point before which is like oh Bitcoin isn’t for us in the US, it’s for people in Venezuela whose money inflated away at 10 million percent a year. But how true is that. Is that just a talking point, or are people actually using Bitcoin in Venezuela like we’re purporting or what’s the state of adoption there.

Jill: Yeah. So I’ll give a little backstory on how I ended up working on this. So about a year ago I basically to be honest had a bit of an existential crisis around crypto. It was like I’ve been working on this stuff for like four and a half years and I still don’t know if it’s good for any of this stuff that I hope it is. I still don’t know what it’s being used for. Like everyone around me is you know as that new York Times headline said getting hilariously rich. So you know I guess I should just be happy about that. But like this doesn’t feel good. This doesn’t feel like what I got into space to do. And so out of that was born a lot of soul searching. First of all for me it’s like OK what do I actually still believe is true here. And the thing I kept coming back to was that conversation with my Argentine colleague who used cryptocurrency as basically an escape hatch from his system that was failing him. And I came back to, Sunny this is exactly what you were saying, like how many times have I sat up on a panel at some blockchain conference and said oh you know Bitcoin, it’s not for us it’s for people in Venezuela who hyperinflation and price controls and capital controls and so on. But to be honest I was kind of sitting there like I actually don’t know if this is true. And I was lucky enough to link up with a couple of people who were sort of having similar thoughts and coming at it from a similar perspective at the time. So I mentioned Alejandro Machado already, he is Venezuelan. He’s done a bunch of interesting work in the crypto space himself. And then another guy named Jamaal Montesser who was until recently a researcher at IDEO and the three of us basically just got together and we’re like let’s go figure this out, let’s go see if there’s something here. And more importantly let’s figure out what we as an industry, not necessarily we the three of us, but we as an industry could build or do in order to make this be useful. And so we started to sort of design the research that we wanted to do. We decided very quickly that this wasn’t an academic quantitative research project. The question to us is not like oh well what percentage of Venezuelans are using Bitcoin or what percentage of Venezuelans have heard of dai. The real question is how are people using it today. In the cases where they’re not using it how are they surviving, how are people hacking the system, and then how can we take a combination of these insights to develop some concepts and design principles and so on that could actually lead to real products and services. And so with all of that the Open Money Initiative was born. So we run ourselves as a nonprofit. We’re very lucky to be sponsored by folks like Cosmos and Tezos who I did previous work with as well, the Zcash Foundation, Stellar. And then also the Zcash company, Zooko Wilcox has been a huge part of the whole story. So we decided to undertake this research as I said to go and figure out sort of what this looks like on the ground. We spent a bunch of time at the beginning of 2019, not on the ground in Venezuela but on the ground in Colombia. And spent a bunch of time on the border between Colombia and Venezuela which is basically as good as you can get if you are a U.S. citizen or if you are in Alejandro’s case a Venezuelan who is not trying to get stuck back in the country. And we spent a lot of hours interviewing people, doing sort of things like ethnographic most anthropological interviews with people both who use cryptocurrency and many more who don’t in their daily lives. We also ran a series of studies. So for example one study that we ran was we distributed Bitcoin to a whole group of people. Again a handful of whom had used crypto before most of whom had not because we wanted to see the hurdles that they would have to go through in order to even received the cryptocurrency let alone to then use it to spend it so on. So there is a lot of data. There’s a lot of nuance to all of this. It’s very hard to distill down into just a few key insights. But if I were to try to to answer your question Sunny. Yes people are using it in Venezuela. People are using specifically Bitcoin in Venezuela. No the number of people using it is not nearly as high as our industry would like to believe. No it’s not pulling the country out of poverty in any sort of meaningful way but it is serving as basically as I said an escape hatch for a fairly small but nonetheless significant subset of people in the country. And so I started to mention it’s really just Bitcoin that’s being used there now and it’s actually really just local Bitcoin that’s being used as the product so in fact as we’re doing this research we as Open Money got in touch with local Bitcoins and we were kind of like hey do you guys realize that like your tool is totally saving lives here. And we’re actually now undertaking a whole sort of study and project with local Bitcoins as well. So it’s been an interesting journey. Happy to dive into anything and everything.

Sebastien: Yeah. I mean I guess maybe local Bitcoin has some of this data but do you have an idea of the volume that’s being traded there on a daily basis or.

Jill: Yeah I don’t have the latest numbers from local Bitcoins but my sense is that the local Bitcoins volume is probably very close to the entire volume. People aren’t using at least as far as we saw, it’s not common for people to be using other tools. There are some other tools that allow this access.

Sebastien: Yeah there’s Bisq and these other kind of decentralized.

Jill: Yeah and then there was also like RTM which is in many ways a bit more centralized and then local Bitcoin. But in a way that also allows them to provide kind of like better customer support and customer service and they have a pretty big population and presence in Venezuela. So there are a handful of others but today my sense is it’s primarily that local Bitcoins volume which is pretty substantial. It’s consistently one of the highest volumes by currency that gets traded on local Bitcoin period. So if that tells you anything.

Sunny: Who wants the bolivars. Is it that merchants are not allowed to accept Bitcoin, they are required to accept bolivars, like who’s selling the Bitcoin there.

Jill: Yes. So this is one of the weirdest things or to me was one of the most surprising things that I learned which is that it’s totally true that nobody wants the bolívar, nobody wants to hold on to that thing but you still need it just to survive your day to day life. And so a lot of it as you just said Sunny has to do with this government mandate that you can only use the bolívar and that makes it so that many merchants, the incentive is just not there to accept other forms of payment. But now all of those merchants on their back end, their figuring out how to get rid of those bolivars that they’ve just accepted from their customers as quickly as possible. Whether that’s to buy more goods, whether that’s to get it somehow into US dollars. So it’s basically this gigantic game of hot potato that everyone is playing with the local currency where nobody wants to hold onto it for too long. But just to stay in the game you’ve got to hold it at some point.

Sunny: The question I have here is Bitcoin really the right solution to this. Like do people really want this decentralized crypto currency or is what they want really just access to dollars which we’re kind of seeing now through these stable coins that are being released, the bolívar may have lost like ten million percent in the last year. But you know Bitcoin still lost 80 percent which is you know not quite…

Jill: I’ll take Bitcoin any day.

Sunny: Yeah of course I think I’d take Bitcoin any day over the bolivar but in that case I’d prefer dai or USD over Bitcoin. And so really is Bitcoin the solution that we should be looking for here should we be thinking how to get more access to global financial system to people there.

Jill: I think the answer to that whole question is yes. But you know there’s this question of what is it that people actually want, you’re spot on. Like people don’t want Bitcoin they don’t want local Bitcoin wallet. They don’t want decentralization to the max. What they want is a US dollar bank account. To a person when we asked people this question that’s what they said. And one of the exercises that we did with the folks we sat down with actually was this card thought exercise where we would give them note cards with all of these different assets on it and we would have them rank them in terms of what would you most prefer to have your savings in, what would you most prefer to be able to use in your day to day life. So on. And pretty much to a person there was one young woman who ranked Bitcoin first. But other than her to a person almost it was U.S. dollars first. And so what does that tell us. To me that tells me that there probably is a place for a U.S. dollar pegged stable coin. But then you ask the question why are people using that today. And the biggest point that it comes down to is liquidity. Because we’re not yet living in a situation where people are going and spending their digital currency as directly like of those who have Bitcoin there. They’re not going to their merchant and using Bitcoin to buy bread directly. They’re cashing it out into their local currency. And so the existence of local bitcoins and the fact that local Bitcoin has a high degree of liquidity on it I think is what keeps Bitcoin as the sort of shelling point there. And the thing that people are using over other assets that may have you know attributes that Bitcoin doesn’t they want and it’s for me it’s really reframed actually completely how I think about money and how I think about what is and is not money. Because the question is never is this money. It’s how good is this at being money for my purposes right now. And there are all of these different aspects to it whether that’s stability, redeemability, convertibility, how easily can I spend this thing. What does the uptime versus downtime of the actual system look like. And you see this very explicitly for example in the US dollar represents in Venezuela. And what I mean by this is the following which is that five 20 dollar bills in Venezuela, they’re actually worth more than one one hundred dollar bill, because it’s divisible, you’re more likely to be able to spend entire 20 dollar bill and not have to worry about getting change back in bolivars, than if you have a 100 dollar bill. And so there are all of these different knobs that you’re suddenly turning whether we’re talking about Bitcoin and dai, whether we’re talking about different denominations of USD cash or whatever it is that really matter when you go to a scenario that’s as extreme as this.

Sunny: You know there’s another project. I think Coinbase kind of heavily funds them called Give Crypto and I think it was actually founded by Brian Armstrong as well. And so you know they tried to do this thing I remember last December where they were kind of like I’d call it air dropping, Zcash to some families in Venezuela. I think it was like one dollar a day or something like that. And so do you think that’s, the right approach and why Zcash in that case, USDC is partially their product and like you said Bitcoin has more liquidity. So what do you think was the motive behind them dropping Zcash. Is privacy important? Is there a privacy concern or is the Venezuelan government sophisticated enough to know how to trace the Bitcoin and that’s why Zcash is useful there.

Jill: Privacy is definitely a concern. We’re not yet at a point where the government is employing techniques to track Bitcoin transactions. But certainly that company that I mentioned earlier RTM they have basically cash in cash out agents on the ground in Venezuela. And at one point a whole bunch of them came under threat from the Venezuelan government, had to get evacuated by the RTM team from the country. So there is definitely an issue of privacy. But again we’re not yet at a point where it’s relevant to think about sort of on chain privacy, in most cases more likely you’re going to be leaking through other methods and forms and forms of communication in particular. So you know I can’t speak to sort of the value of using Zcash in that scenario. I’m familiar with Cive crypto I’m friends with Joe who runs it. I think that a lot of what they’re doing is great. I think that there is a lot of value in just sort of the more studies that we can run in these circumstances, the more knowledge we’ll have as to what works and what doesn’t. Now I appreciate that Give Crypto I think has been very humble in their approach to all of this. They’re saying like we’re doing a bunch of experiments and we’re trying to learn right now so that when we roll something out incised and at scale it can have the intended impact which of course is this like very positive mission driven impact. My sort of philosophy on it is a bit different which is that I think that you know if you just airdropped someone some Zcash or some Bitcoin or whatever it is like all you’ve really succeeded in doing is giving that person some crypto. Right. And you don’t know what the end result is going to be, what the end impact is going to be. You don’t know yet how that fits in to their life and their needs. You don’t yet understand the why of the decisions that they’re making on a day to day basis. And that’s really where I wanted to start was what do people’s lives look like today. What are the problems that they’re facing and then how can we think really critically about where the technology that we have be it cryptocurrency or not, might fit into the solutions that can be provided. As you know potential tools in what people are trying to do on a day to day basis. So it’s just to sort of very different approaches. But yeah there’s actually a decent amount of activity going on around cryptocurrency and Venezuela whether it’s Give Crypto, Dash has done a ton of marketing and education there. There’s a lot of these types of projects. Randy Brito if you follow BTC Van Bitcoin Venezuela, very active on Twitter, but also another great example of someone having a real impact on the ground. And with him he accepts Bitcoin and cryptocurrency donations and then cashes them out I believe via local Bitcoin although I’m not sure, cashes them out locally and then he uses that money to buy food to give away to people. So yeah lots of activity lots of experiments.

Sebastien: And another crypto project that’s kind of tangentially related to this whole discussion is the Petro. As we’ve got a couple minutes here left for the show maybe talk about how the Petro fits in all this context. So for those who know remember the Petro was an ICO which was effectively done by the Venezuelan government I believe in 2017. As sort of you know push back on the U.S. and on the U.S. dollar specifically sort of like the exchange currency for Petro, so yeah what’s the story there and how is it related to all this.

Jill: Yeah the Petro is one of the more sort of insane dystopian stories to come out of cryptocurrency in my view. So as you mentioned the Petro was thought up dreamed up and and created if you will back in 2017, shortly after Venezuela defaulted on their debt and also pretty long actually after sanctions had been put in place on the Venezuelan government, those sanctions actually date back to Barack Obama put them in place. And so the sanctions state that the government in Venezuela can’t go out into the world and raise money basically until they clean up their act. Now hen the government in Venezuela defaulted on their debt this created a huge issue because normally when a country defaults on their debt what they do is they negotiate with their bondholders and they say okay we’ll pay you back the same amount but over a longer period of time and so on and so forth. If you look at the Greek debt restructuring that happened in 2010 ish that’s exactly what happened. That’s a great example of this. But in the case of Venezuela because of the sanctions they couldn’t have those negotiations. And so they suddenly found themselves totally locked out like country non grata with all of these investors. And they have no mechanism of financing themselves with outside capital anymore. And of course this was 2017 if this was the year of the ICO which to most means initial coin offering but as my friend coined, to Venezuela meant initial country offering. And so they decided to attempt to issue their own token basically I think in order to evade the sanctions that the United States had put in place. And so the Petro was born. They took the whole thing pretty far. They wrote up a white paper on it. There are all of these very dystopian images of this dictator you know the guy in charge of Venezuela is sitting in front of this big sort of coin with P on it stands for Petro. They claimed initially that the Petro was backed by oil reserves that are still in their ground. And at another point is that actually no it’s backed by that and our gold reserves like they’ve sort of changed tactics a bunch of times on it. At one point it was being built on Ethereum and then they switched to NEM. And there’s also been a lot of confusion around what it’s for and how much they’ve raised. So the Venezuelan government at one point put out the number I believe it was like 700 million that they’d raised, at another point they put out the number five billion dollars that they’d raised. As far as any of us can tell they probably didn’t raise anything actually. Donald Trump actually came out with an executive order and said that the Petro is also sanctioned. So then suddenly no one is going to touch it.

Sebastien: So you can’t even have it on a crypto exchange effectively because as a sanctioned asset, if you’re running a crypto exchange you are subjecting your users to KYC and so those users can’t…..

Jill: Yeah. And you can’t mess with the Office of Foreign Assets Control which is the office within the United States that deals with sanctions enforcement like you do not mess with them.

Sebastien: So just on the amount if they did an ICO or some sort of a fundraiser couldn’t we just, how do they raise this money presumably. And can’t we just audit.

Jill: I mean if if they had raised in Bitcoin or Eth say then you could do the blockchain audit of what was going into the Venezuelan accounts. But that’s not how they did it. They put up a web form that you could fill out and click buy on things. As far as I remember they did have some form where you could go in and pay although that came up later and the website was down for a long time. So there was a lot of confusion around this. But if they did raise anything those transactions were off chain. And so there isn’t a really a good way. But it also gets really sketchy if you look at the Petro blockchain, I say that because it’s not actually decentralized. But if you look at sort of the movement of these Petro tokens like it looks like it there’s just like a lot of laundering going on within the government’s own wallets and that it’s primarily just the government’s wallets that actually hold these things. But then you also hear this very confusing conflicting information. I’ve spoken to people who told me that they logged into their Venezuelan pension accounts that are obviously related to government accounts and suddenly what was formerly denominated in bolivars then there is denominated in Petro but no one has a really good sense of what a Petro is worth, where you can spend it. The Venezuelan government has said at various times that if you want to renew a passport you have to use Petro to be able to pay the fee to renew your passport. But again no one really knows how to get a Petro or what it’s worth. So it’s just very Kafkaesque nightmare of monetary experimentation gone bad.

Sebastien: So this all backfired the day that Donald Trump issued an executive order effectively making this an illegal asset and so therefore this whole plan to use the Petro to circumvent U.S. regulators or U.S. financial sanctions also backfired.

Jill: That’s that’s my take on it. That’s my sort of understanding of what likely went on here. But as with all things having to do with the Venezuelan regime it’s so hard to say what’s actually going on, it’s so hard to say what the actual intent was. .

Sunny: Back when the Petro came out, I was having some discussions with some friends and we were like wait this is very mind blowing in a way because you know the current instantiation was just this Venezuelan shootpoint that they’re ICO’ing in order to fundraise. But it got us thinking about the concept of Petro seemed interesting, something that’s backed by oil and so we were thinking what if blockchains give the ability for all of the different OPEC countries to coordinate and launch a coin that’s a crypto currency that’s designed to be the primary way to buy oil whether it’s discounted or you know it’s the only thing you can use to buy oil and you know would such a thing have the ability to, you know there’s a term called the Petrodollar which is the U.S dollar gets its value by being the primary thing you need to buy oil with. And so have you even heard any rumors of such a thing and do you think that’s actually a feasible concept.

Jill: So I haven’t heard any rumors of such a thing. I think it’s really interesting though because for the first time we have the ability to just mint assets in this new sort of way.

Sunny: And all these different sovereign nations in OPEC coordinate to do that.

Jill: Yeah exactly. Exactly. And you certainly do have this dynamic of a lot of countries disagreeing with the dollar as the US dollars reserve status. So for example you have China and Chinese entities issuing debt not in dollars or in another sort of reserve issue currency but denominated in Special Drawing Rights or SDR is which is like the IMF neutral basket of currencies. So could I imagine a world in which you have OPEC doing something similar and trying to find or trying to create rather their own neutral asset to be able to receive payments for oil. Yeah totally totally. I think it’s super interesting. As you said very dystopian the way that it’s been sort of playing out in Venezuela and also just very inept to be honest, the execution has been very poor. But I think there’s something there and I have long been kind of like beating this drum of know the Petro is actually really important to look at because you can start to view it as a precursor to a lot of these other sorts of like sovereign esque use cases of crypto again whether that’s like good bad ugly totally up for debate and to zoom out a little bit further. Actually this is something I want to bring up I always like to highlight is like you know with the work that I’m doing with the Open Money Initiative etc. It’s very easy for me to sort of like wax poetic about you know Bitcoin, local Bitcoins. It’s helping the subset of people in Venezuela but who else is using it, is the government is like the corrupt government administration for sure are also mining Bitcoin and using cryptocurrency to get their money out of the country etc.. And so it’s this real issue of like we can dream up all of these ideas and come up with all of these ways that these tools can be used but at the end of the day we don’t get to choose who’s using them or how they’re getting used and whether it’s like OPEC or Venezuela or whether it’s you know the people or the government or whatever it is definitely something that keeps me up at night. So.

Sebastien: I want to ask you one last question about Open Money Initiative before we wrap up here. And that is with regards to your political views and how they inform say ethics about the activities of that organization. So in a country like Venezuela I think we can all agree that there is a humanitarian crisis there and people are in need and it is easy to defend educating people about Bitcoin and allowing them to do something as simple as putting food on the table but I believe your mission on your website is something to the effect of open financial systems are a human right. And for Venezuela it might be clear cut, but in the future there might be other cases where helping people circumvent their capital controls is a but more of a gray area, you know capital controls are useful some might argue in some cases to help stabilise the economy, for instance, I’m not an economist but I could see how that would be the case. how do you look at that and make decisions about what is ethically okay and what is not if you are encouraging people to perhaps break the law.

Jill: Yeah. No there are a lot of considerations there. There are those that you just outlined but also there’s the issue of,. so using Bitcoin in Venezuela is a huge gray area, it’s very patchually enforced but we’ve heard of instances where people have been punished with fines or jail time or sometimes physically for using any of this stuff and so there is also then the issue of if we are trying to build tools that make it easier for people to use this then is that potentially putting them in harms way so that’s another aspect of this that is really hard and problematic. Now I’ll say for the Open Money Initiative itself our aim is to just present the world as we find it, we are doing research. Our aim with that research is to be as neutral as possible, yes there is this underlying fundamental mission of trying to build a more free and more open and more fair financial system for people who don’t have access to that today but we are not an activism organisation we are not even a product organisation, we’re a research organisation. so that’s kind of my first answer.

Sebastien: Yeah but I mean I don’t know if I fully agree with that if you have an organisation like this Give Crypto organisation that you partner with, perhaps you’re not being active in activism but you’re partnering with organisations that kind of are.

Jill: Yeah we’re providing research to other organisations, the Human Rights Foundation which is very controversial, Give Crypto, You Name It, local Bitcoins as I mentioned earlier, and so absolutely we consider who we’re working with and we consider whether or not the potential directions that they go align with what we believe and so here I’ll get into what I personally believe which is that evasion of capital controls has been around since capitals have existed, this is actually what I ended up writing my masters thesis on, it wasn’t just Boitcoin but evasion of capital controls in general. Now historically those who have been able to evade capital controls in their given countries, it’s been big multinational orgs, it’s been the executives of those types of companies, it’s been the government officials themselves, it’s been this sort of upper elite classes of those countries who have the ability to get  an off-shore account in the Caymans or even in the US, whatever it is, and that has left behind huge parts of the population who not always, so capital controls aren’t always blanket bad, but very frequently get left behind. And so it’s one of these things where you have to look not just at in theory how does this play out, but the reality of it and the reality of it is that there are huge groups of populations who are finding ways with or without crypto to evade policies that they deem as not beneficial to them personally or to their company or even to their country as a whole. So that is one aspect of it. ANd then the other aspect that I would point to is just there is a reason why we are starting in Venezuela here and of course our vision for the research that we’re doing and the project is not solely not just about Venezuela but if I were to look at the different places that these policies are playing out, Venez is amongst the most extreme certainly, and also to me among the most clearly in need, and that comes back to the humanitarian crisis that’s playing out.The refugee crisis that’s now playing out. As a percentage of population, more people have left Venezuela in the last few years since the crisis began, than even the population of Syria. So the refugee crisis in Venezuela is bigger of that in Syria and to me there is just this very clear dire desperate need there and so that is one of the more clearer situations as you just mentioned and that is a huge part of why that’s where we are beginning.

Sebastien: It’s a noble cause to be working on. So yeah where can people find you, please plug your podcast.

Jill: Yeah, so for more information on the Open Money Initiative its just openmoneyinitiave.org or on twitter @makeopenmoney. We’ll be coming out with a whole series of blog posts and papers and so on, sharing the research that we’ve done and our findings. If you want to find me I am very much on twitter @_jillruth and then I also help run my own podcast with Meltem Demirors it’s called What grinds My Gears so by all means check that out as well. I’m not sure we keep it quite as professional as you guys do on this show but we have a lot of fun.

Sebastien: Awesome, well thanks for joining us today and it was great to learn about everything you’re doing and also to dive in to this very complex topic in Venezuela and I think is worth looking regardless of where you sit on the political spectrum, we aren’t a political show at all, but I think it does merit some attention at least from the perspective if the humanitarian crisis at least.

Jill: Absolutely. Well thanks so much for having me on, this was great.