Lucia is a 30-year-old medical worker and Bitcoin user living in Matanzas, a city of about 150,000 people sitting about 50 miles east of Havana on Cuba’s northern coast. Named after an aboriginal rebellion against Spanish colonizers, the word “matanzas” literally translates to “slaughter.” The settlement later turned into a 19th-century epicenter of slavery and sugar plantations. Today, like all Cuban cities, it is ground zero for a financial and human crisis.
The Cuban people are suffering their worst economic struggle since the early 1990s, when the Soviet Union collapsed and the regime lost its main lifeline. At the time, longtime dictator Fidel Castro told citizens they needed to unite together to get through a “Special Period.” The era was marked by food shortages, blackouts, thousands fleeing to Florida on risky rafts and a spectacular devaluation of the Soviet ruble-pegged peso. Between 1991 and 1994 the Cuban economy contracted by 35% and quality of life deteriorated dramatically.
Tensions peaked in the summer of 1994, when an anti-government protest known as the Maleconazo uprising broke out in Havana. Without its Soviet subsidy, the state ration system was failing to support the population, and important goods were all of a sudden only available for purchase with dollars, which were increasingly expensive for Cubans to obtain with their peso wages and pensions. In a desperate move, the regime violated its founding collectivist philosophy and imposed a series of unprecedented taxes on the population. In response, tens of thousands of protestors gathered at the Malecon waterfront, calling for an end to the government.
The internet did not exist, so the regime was able to quell the movement through police brutality while ensuring that most Cubans barely knew anything had happened. State television and radio made a brief mention of a small gathering of delinquents and troublemakers. But in reality, the Maleconazo was a staggering display of dissent, the biggest on the island since the revolution.
When the money system breaks, it can threaten a regime’s survival.
I. Monetary Purification
Today, Lucia and other Cubans talk of a new Special Period. As a result of currency reform and social frustration from decades of repression and bureaucracy, there are again shortages, blackouts, extreme inflation and protests.
The big difference is that today, with widespread mobile phones and internet access, everyone knows what’s going on. Last month, on July 11, the biggest anti-government protest since the 1959 revolution broke out, not just in Havana but in cities all across Cuba.
With a firsthand view into the medical system, Lucia told me that the human support network in Cuba is collapsing. The pandemic has overwhelmed hospitals in Matanzas, she said, and dead bodies pile up on the streets. It is incredibly hot and Cubans go many hours a day without electricity. Food — especially beef, fish, chicken and eggs — is scarce or even impossible to find. New American regulations, passed by President Trump right before he left office, have cut Cubans off financially from their families in the U.S.
“It’s hard to get food, it’s hard to get medicine, it’s hard to get bathroom supplies, the power grid is broken, the pandemic is peaking, tons of elderly people are passing away, the healthcare system is collapsing, we have no oxygen or fans,” Lucia said. “This was too much. This is what put people out on the streets.”
Lucia told me that at the very root of the state’s failures and the unprecedented citizen uprising is a crisis of money.
In January the Communist Party of Cuba conducted what it described as a “monetary purification.” Since 1994, the government issued two kinds of currencies: the CUP, or Cuban peso — pegged to the dollar at 24:1 — and the CUC, or Cuban convertible peso — pegged to the dollar at 1:1.
Public sector salaries and pensions were always paid out in pesos, but for years, citizens needed to obtain CUCs to buy key items like medicine, any food beyond the basics, clothing, cleaning supplies and electronics. The regime designed the system to suck value out of the population, selling CUCs for 25 pesos at state-run money exchanges called cadecas while only buying them back for 24 pesos. The regime knew it would have to keep printing and inflating pesos for the staffing of its centrally-planned economy, even as its agricultural and industrial sectors collapsed. The dual-currency system gave it life support, propping up purchasing power for the elite and well-connected.
Lucia described the system’s output as creating a reality where she could buy a cup of coffee, a bus ride or even a small meal for an incredibly cheap price in pesos, but a pair of shoes or a phone plan, priced in CUC, could cost an entire month’s salary. This put state workers — including teachers, police officers and medical workers like her — at a severe economic disadvantage compared to anyone exposed to the tourist industry, like waiters or taxi drivers.
In tragic irony, unskilled workers were often far better off financially than highly-educated ones, and many of the latter dropped out of their careers to clean tables or pick people up from the airport to get access to the CUC economy. The dual currency system institutionalized inequality, creating clear classes of haves and have nots. For many people like Lucia, this as much as anything else showed that the revolution was a sham.
More than 1.5 million Cubans have fled their home since Fidel Castro and his troops captured Havana in 1959, and many ended up in the United States. In the 1960s, Castro and his cronies triggered the human and capital flight by enforcing a planned, communist economy in Cuba, nationalizing businesses, confiscating land and reducing the role of the private sector practically to zero.
Many Cuban-Americans still have family on the island and find ways to send them dollars. It is estimated that as much as $3 billion is remitted into Cuba each year. To convert dollars to CUC, one had to pay a fee of 10%, at a minimum, to the state. The system was designed to suck in hard foreign currency and provide Cubans with “fake dollars” or even worse, pesos.
Fidel Castro ceded control to his brother Raúl in 2006, and since then, the regime has made a series of half-hearted economic reforms to stay alive. As Anthony DePalma wrote in his modern history book, “The Cubans,” the communist government toyed with capitalism “the way a tiger plays with its prey: tapping it lightly one minute, squeezing the life out of it the next. Socialist officials urged would-be Cuban capitalists to go ahead and open their small businesses, then they erected layers of burdensome regulations to limit profit and handicap success. Their real goal was not to lift millions out of poverty. It was to prevent anyone from making millions.”
Starting in 2011, Raúl spoke openly of the need for monetary unification, but he ruled for another seven years without taking any action. The Cuban economic disaster he presided over can be summed up in one statistic: As of 2015, Cuba’s GDP per capita was roughly the same as it was in 1985, despite having much higher economic potential with 13% more citizens.
In 2018, longtime communist bureaucrat Miguel Díaz-Canel took over the Cuban presidency, ending nearly 60 years of Castro family tyranny. Like Raúl, Díaz-Canel presided over changes to the planned economy — like mass layoffs of state workers and permitting tiny businesses to operate privately — but continued to parrot Fidel’s rallying cry in his speeches: “ﬞ¡Patrio o muerte! ¡Socialismo o muerte! ¡Venceremos!” (“Homeland or death! Socialism or death! We will be victorious!”)
As DePalma wrote, “Fidel and Che are dead. Raúl’s tomb already has his name on it, and the new president is as unrecognizable around the world as the leader of any small country. The mythology of the revolution means very little to Cuban youth, who, with their tattoos, smartphones, and seething nihilism, see the old men of the Sierra as impossibly out of touch with their own reality. The foreign aid Cuba relied on for so long — first from the former Soviet Union, then from Venezuela, and additionally from sympathetic nations around the world — has dried up, and, to quote Margaret Thatcher, Cuba has run out of other people’s money. At the bottom of every prescription it now prints the line: healthcare in Cuba is free, but it costs money.”
Lucia agrees, and said the revolution has run out of steam. Díaz-Canel is no Fidel, and cannot put protests down with personal charisma or a secret police operating in a world with no internet. He was forced to act, and the “monetary purification” is one of those actions.
As of January 1, 2021, the CUC was officially phased out. Cubans were given six months to exchange their CUCs for pesos at the official exchange rate. This constitutes a massive time theft, considering Cubans worked hard for those CUCs, and are now being liquidated out of dollar positions into tiny amounts of rapidly-depreciating currency. Even before January, CUCs were traded at a 15% discount to the dollar.
Over the past eight months, the monetary reform has caused a massive devaluation in the peso. Cubans have lost nearly two-thirds of their purchasing power since the end of 2020, as the price of $1 has gone from the official rate of 24 pesos to costing as much as 70 pesos on the black market.
The official Cuban annual median salary in 2018 was approximately 9,300 pesos, or around $372. Lucia told me that a pound of rice last year cost her 6 or 7 pesos, but today, it runs more than 50 pesos. Two kilos of chicken once cost 60 pesos, but now cost more than 500. Economists often say inflation is not a problem as long as wages rise at the same time, but wages have barely budged, or have even declined in dollar terms.
The government has extended the window for Cubans to redeem CUCs for a few more months, but use has evaporated, as the currency has essentially been replaced by the MLC, which stands for moneda libremente convertible or “freely convertible currency.”
Introduced by the regime in 2019 as the future monetary system of the island, the MLC functions like a reusable gift card. There is a plastic MLC card that one can pick up from a bank, and two different apps that one can download on a mobile phone. There are no MLC banknotes, coins or ways to earn interest. Functionality is pointed at citizens giving their account information to contacts abroad, who send hard currency, which the regime seizes and replaces with MLC credit for Cubans to spend at government-run stores.
In a comically-cruel twist, Cubans — who largely remain paid or pensioned in pesos — cannot buy MLC with pesos. The only way to officially “top up” your MLC account is with foreign hard currency. You must have family or contacts abroad send funds to your account. Initially, this could be done with dollars, but after the Trump administration cracked down on remittances to Cuba in the wake of a scandal in which American diplomats fell ill after apparently being exposed to sonic weapons, that option is gone, so MLC is now mainly generated through pounds, euros and Canadian dollars.
In an evolution of the trend started 25 years ago with better goods only being available in dollar stores, today’s MLC stores are basically the only place to buy good food, medicine, cleaning supplies, appliances and other essentials. The peso stores face constant shortages, and have very few and very low quality goods. Cubans who have family abroad are able to get MLC top ups and buy things to keep their lives going, but Cubans who do not must take their pesos and buy MLC in the black market. As of publication, the real exchange rate is around 65 pesos for one MLC.
Through the MLC system, the Cuban regime is essentially able to print pesos to obtain hard currency. It is a giant rug pull on the Cuban population, and a major reason for today’s historic protests.
Lucia said that the government’s official line is that the MLC system is necessary for the state to attract hard currency so that it can buy things on the international market to keep the system going and feed the people — a stunning admission of the revolution’s failure.
II. Finding Freedom Through Bitcoin
I met Lucia on Telegram, through a mutual friend who runs a Latin America Bitcoin chat group. Eighteen months ago she started buying bitcoin with her state salary. She uses Telegram groups to find people willing to sell her bitcoin in exchange for MLC or pesos. She does transactions in person — at a café, for example — where she sends MLC from her mobile account to the seller’s, or hands over peso banknotes stamped with the faces of revolutionary figures like Che Guevara in exchange for a transfer of bitcoin to the Blockstream Green wallet on her phone.
Since Lucia started “stacking sats” (as bitcoin saving is commonly called), the fruits of her labor have grown significantly and her purchasing power has increased dramatically. Since the spring of 2020, bitcoin has risen from below $5,000 to more than $40,000. If Lucia had kept her savings in pesos, she would have lost almost everything. Bitcoin has changed, and saved, her life.
Lucia told me that she is not a technologically-savvy person. At first, she did not think Bitcoin would be relevant for her (“I don’t like math,” she said) but in early 2020, she started watching RT for a few hours every Tuesday, Thursday and Saturday. Since it is trusted Russian propaganda, the Cuban regime broadcasts RT (formerly “Russia Today”) on state television. One show on RT, however, is called the “Keiser Report” (produced by Max Keiser and Stacy Herbert) and evangelizes Bitcoin use. Likely permitted to air because its tone is very critical of U.S. foreign policy, the show has acted like a Trojan horse of sorts, reaching a large number of Cubans and Venezuelans through state programming and onboarding them into the new Bitcoin economy. Ironically for Lucia, it was socialist state propaganda that showed her how to obtain personal freedom, not the hundreds of millions of dollars that the U.S. has spent on democracy promotion in Cuba since the 1990s.
Captivated by what she heard on “Keiser Report” about a new form of digital money, Lucia started researching Bitcoin. She eventually joined a Telegram group, first in English and then in Spanish, filled with other Latin Americans who follow the show. These communities gave her a full education in how to use Bitcoin.
“They taught me how I could be my own bank,” Lucia said.
Through conversation one day, Lucia discovered that one of her friends was also into Bitcoin, and they started talking about it on a regular basis. Lucia also joined several Cuba-focused Bitcoin groups on Telegram, continuing to expand her knowledge. She bought and then sent $10 of bitcoin to a friend abroad, and the two marveled together at how they did not have to use a bank, provide any identification, or use the official system in any way. Even the currency itself, they realized, was not produced by a state or corporation, but by an online community. They did not even know who created Bitcoin, and it did not seem to matter.
“This is groundbreaking,” she told me. “What papers did I have to fill out? None at all.”
Lucia told me that many people receive Bitcoin from abroad and then convert it to MLC or pesos to buy food or supplies. In her case, she uses it to invest for her future. She calls it her “personal reserve” and best option for saving money.
She said that the U.S. embargo is still very painful for Cubans.
“A lot of people will deny this reality,” she said, “but we can no longer buy MLC in dollars. We do not have access to American financial apps. Our families in the U.S. have a very hard time sending us dollars.”
“Bitcoin,” she said, “helps ease the pain.”
Lucia looks to Bitcoin as an alternative to the dollar system.
“If we are free from the dollar,” she told me, “then we have freedom.”
Several Cubans that I spoke to for this story demonstrated a similar lingering patriotism, despite the betrayal of the revolution.
“The embargo puts our government against a wall,” Lucia said, arguing that Bitcoin can give independence not just for people like her at an individual level, but for the Cuban society as a whole.
She credits curiosity for her new Bitcoin life.
“Curiosity is what moves people. That’s what motivated me to become a medical worker,” she said. “It animates all human beings.”
This curiosity is now driving her to learn about Bitcoin and spread it to others.
"People have so many questions,” she said. “Who makes it? How does it work? Where do you get it? It’s good to take advantage of these teachable moments.”
She told me that she is now personally teaching others in Matanzas and in her wider circles about how to use Bitcoin.
But learning is tough. Because of desperation, she said, a lot of Cubans have fallen into MLMs and pyramid schemes. The state, she said, conflates Bitcoin with the schemes, so people are in general fearful of getting involved. Bitcoin is hard to learn about, she said. It is unlike anything that people have ever seen before. Its abilities are hard to believe. Using it properly takes time and research.
“Adoption is happening,” she said, “but it will take time.”
Lucia concluded our conversation by telling me how important it is for Cuban women to use Bitcoin, saying that it is “vital that women learn to assert their financial freedom.” Even though Cuban society might be relatively advanced in the area of women’s rights, she said, there is still a broader culture of machismo and misogyny. Even in this context, most men do not even understand financial independence, she said, “so imagine how hard it is for women.”
“Bitcoin allows you to control your money, your spending, and by extension, your life. As a woman,” she said, “my future is finally in my own hands.”
III. Cuba’s History Of Economic Misery
By the end of the 1950s, Cuba was one of the richest countries in Latin America. As currency researcher Boaz Sobrado wrote, “Cuba had more in common with U.S. states like Louisiana and Florida than Hispanic countries like Mexico and the Dominican Republic. Cuban income per capita exceeded Mexico’s by 70% and the Dominican Republic’s by 300%. Its income per capita was even greater than that of ex-colonial powers Spain and Portugal.”
Sobrado pointed to the Havana Hilton as a “symbol of Cuba’s mid-century opulence.” It was Latin America’s tallest and largest hotel, boasting 630 guest rooms, 42 suites, a casino, six restaurants and bars, an arcade, an outdoor pool and an expansive underground garage system. At first glance, then, Cuba seemed like an unlikely place for a socialist revolution. But behind the glamor of old Havana was a deeply broken society.
Dictator Fulgencio Batista ruled the island with an iron fist, and with strong support from the U.S. government and private sector. Cuba’s annual income was an impressive $353 per capita in 1958, but most rural workers earned less than $100, and had very few public services and very weak infrastructure. Foreign governments and corporations controlled the economy, owning around 75% of the arable land, 90% of essential services and 40% of the sugar production.
During the 1950s, Fidel Castro led a socialist movement that challenged the Batista regime. By the end of the decade, his guerrilla tactics, directed from mountainous and rural areas, had drained a huge amount of funds and energy from the capital. In 1958, the U.S. government placed an arms embargo on Cuba, as Batista began to lose all foreign support. On January 1, 1959, Castro’s forces captured Havana.
“El Comandante" promised a people’s revolution, but his rule quickly descended into tyranny, complete with concentration camps, thousands of arbitrary executions, secret police, a surveillance state on par with Eastern Germany or North Korea and political prisons. The Cuban gulags were especially cruel. Their horrors, once hidden, were eventually brought to light by testimonies of survivors in books like Armando Valladares’s “Against All Hope.”
As Anthony DePalma wrote, “Cubans who dared to think differently feared more than anything else their ever-present neighborhood CDR (Committee for the Defense of the Revolution). The president of each local CDR was the person to whom neighborhood snitches reported. They kept track of who had not attended a May Day parade, who listened to the baseball game while Fidel was speaking on the radio, who had an illegal satellite dish hidden under a barrel on the roof, and passed along the information to Fidel’s feared Stasi- and KGB-trained Interior Ministry. The CDR president had what some called the power of fusilamiento del dedo, literally, ‘to execute with a finger’ by pointing out and denouncing anyone suspected of counterrevolutionary activities. Simply allowing someone to use your telephone to call a relative in Miami could trigger a denunciation and ruin a life. The surveillance network was so pervasive that Cubans grew fearful of voicing any complaint. Even in their own homes, they refrained from mentioning the name Fidel, in case anyone was listening. Instead, they stroked an imaginary beard when they dared to criticize el comandante.”
Beyond being brutally repressive and invasive, the new government was also completely inexperienced when it came to actually running an economy. They followed the Soviet example of a planned financial system, and quickly became dependent on the USSR as an export market. Economists were replaced by loyalists, regardless of their background or proficiency. It is said that when Castro chose Che Guevara as head of the Cuban central bank, it is because Guevara rose his hand after Castro asked if anyone was an economist, thinking Fidel asked if anyone was a communist.
In the early 1960s, in a back and forth series of retaliations, the Eisenhower and Kennedy administrations placed trade restrictions and eventually a total blockade on Cuba, while Castro and his troops nationalized hundreds of millions of dollars in U.S. property and businesses.
The revolution was disastrous for Cubans’ personal savings. As president of the central bank, Guevara switched the peso peg from the dollar to the ruble, devaluing extant pesos by 75%. Then, pre-revolutionary banknotes were demonetized. If the new authorities declined to accept your old money, you lost everything.
Various American plans and attempts to oust Castro failed, and the regime persisted. It became structurally dependent on the Soviets for oil, loans, weapons, technical training and as a market to sell their main export of sugar, which Moscow purchased at a subsidized price above market rates.
Over the next few decades Cuba’s economy grew, in large part due to the relationship with the Soviets. But even during communist Cuba’s most prosperous times, in the late 1970s and early 1980s, making ends meet was still difficult, and thousands tried to leave. In 1980, more than 125,000 Cubans fled to the U.S. on around 1,700 vessels and rafts in an event known as the Mariel boatlift.
When the Soviet Union dissolved in the early 1990s, the Castro regime lost as much as $5 billion in annual subsidies, and Cuba’s sugar exports crashed by 80%. The peso suffered a devaluation from 5 per dollar to 150 per dollar. Castro asked the Cuban people to make a collective sacrifice to get through the Special Period, not unlike the way Kim Jong Il asked the North Korean people to stay strong and committed during the “Arduous March” in the late 1990s when millions perished.
During the Special Period, many Cubans could only afford or find enough food to eat once per day. Their libreta (ration book) promised things like beef and chicken, but these items disappeared. Fidel had promised that everyone would be able to have a glass of milk each day, but even that went missing.
According to DePalma, Cubans “flattened and tenderized grapefruit rinds and fried them as if they were steaks. Banana peels ground up and mixed with spices became another pale substitute for meat.” Each family received around nine eggs per month. The food shortages were accompanied by blackouts “so routine and long lasting that lightless nights became the norm, as Cubans celebrated the brief periods when the lights came back on as fleeting phenomena that they excitedly called alumbrones.”
Industry collapsed. For example, by the end of the ’90s, fishing fleets all but disappeared. Today, Cubans consume just 25% of the seafood that they did in the late 1980s. In a nation where one is never more than 60 miles from the water, Cubans joke about being an “island without fish.” A country that once produced 80% of its food now imported 80% of it. Sobrado wrote that Cuba’s domestic consumption has “never recovered to pre-1990 levels,” a tragic summary of a starving state.
Times were so grim that in 1993, Castro was forced to make the enemy dollar legal tender to attract hard currency. Cubans began to make dollar deposits at banks with remittances from abroad. Thier’s law was in full effect, as good money drove out the bad. Sobrado estimated that as many as half of all day-to-day transactions were done with dollars, a rate similar to present-day Venezuela. To stop this trend and prevent full dollarization, the regime rolled out the CUC, which they said was backed by an equal amount of dollars in the Cuban central bank.
Out of desperation Castro also allowed family restaurants or “paladares” to operate as small private businesses. This was part of a wider opening process that included allowing European companies to operate Cuban hotels, permitting some citizens to run independent farms, and restoring Christmas as a national holiday — a move seen as a quid pro quo for the eventual visit of Pope John Paul II. The combination of small reforms and increased foreign investment led to a relative recovery out of the Special Period.
In the early 2000s, Venezuelan president Hugo Chávez began to support the Cuban state with some of his new oil profits, providing a new lifeline. But while the government was bailed out, times for the average citizen continued to be extremely difficult. Sobrado wrote about a Cuban expression: dice que hay pollo (they say there is chicken), which the crowd in the streets would shout when chicken became available at stores. Libretas, he said, used to have a provision for fish, but that ran out and was substituted with chicken — pollo por pescado — and in the past few years, the chicken ran out, too.
In November 2004, facing another economic collapse, the Cuban government withdrew U.S. dollars from circulation. State-run stores, enterprises and banking moved entirely to the CUC system. Dollars had to be converted into CUC upon arrival in Cuba, allowing the regime to seize the hard currency, tax it and replace it with something they could print unbacked. The big picture effect was that dollars once held by citizens were now held by the communist central bank.
In the CUC era, the dual currencies allowed the government to provide a very basic level of some cheap goods and services, but created a system where one needed CUCs for anything beyond the bottom-rung tier of items. For example, one might be able to purchase a low-quality loaf of bread for 1 peso at a state-run bakery — if there was any left — but for 1 CUC, you could get a much nicer loaf at a fancier store. Tourists in recent decades only used CUCs, and shopped at the fancy stores with the much higher prices, and thus always poured a lot of hard currency into the regime’s coffers.
The dual currencies also allowed for accounting alchemy that benefitted state-run enterprises. For example, as Sobrado noted, a well-connected elite could buy a ticket to fly out of Cuba paying a few hundred pesos, instead of a few hundred CUCs or dollars. This also meant that some state enterprises could buy imports at the “peso” price, while selling at the dollar price. There was a chronic exaggeration of assets and underestimation of liabilities. These financial tricks were done at the expense of the peso and the average worker.
Many Cubans have another gig beyond their state job, which might give them access to CUCs (or today, MLC) and earn them enough to survive. One can often make more than their entire monthly state salary or pension in one day on the black market. Sobrado said that some even have what he calls negative salaries: “People sometimes bribe their boss so that they do not have to show up. This way they can work at their income earning hustle all day.”
Depalma wrote that “almost every Cuban — whether an entrepreneur with a small business or a parent searching for dinner — became a criminal in one way or another. Inventando (the Spanish verb for ‘inventing’) largely replaced the word ‘stealing’ in Cuban vernacular, and the rules of civil society changed so that stealing was condoned, so long as what was being stolen came from the state and not from a neighbor or a friend. In the new Cuba, inventando was a way of leveling the playing field and making up for the miserable dollar-a-day salaries that the state workers received.”
The cumulative decay of Cuba’s economy is hard to imagine, but the fact that the 2018 sugar harvest yielded just one million tons, the same as the harvest in 1894, helps paint the picture. Once the largest sugar exporter on the planet, Cuba has been forced to import from France.
“Historic” reforms of the system announced by Raúl and Diaz-Canel ended up being small tweaks. Entrepreneurship does not grow well in a climate with no wholesale market, with strict limits on the number of employees one can hire, where licenses are expensive, taxes hefty and credit scarce. By 2017, despite many much-hyped reforms, a pair of jeans still cost a month of state income, and rations ran out after only a few days. The vaunted healthcare system allowed a cholera outbreak, and was tilted toward special care for elites. Education remained propaganda. In 2014 and 2015, the Obama administration opened up American restrictions, boosting local enterprise with a wave of new tourists. But Obama also ended the wet-foot, dry-foot immigration policy, and a few years later Trump reversed the opening.
According to DePalma, the small economic reforms that the government offered Cubans over the past 15 years were not “freedom to better themselves, but permission to eke out a level of survival the government could no longer provide. On top of the limitations it slapped onto their entrepreneurial vision and capacity to amass wealth, the government required would-be capitalists to buy their licenses for relatively hefty fees and pay heavy taxes. The goal, as outlined by the government, was to make Cuba a rich country without rich people.”
IV. Cuba’s Human Rights Crisis
As part of my research for this essay, I spoke to a human rights defender with a background in accounting and finance, living in Havana. She did not wish to be named (“I want to keep a low profile,” she said) but spoke openly about a variety of sensitive topics in our video chat. We will call her Verita.
Her concern is understandable. Cuba remains a one-party communist state. Diaz-Canel’s regime continues the climate of fear built by the Castros. Other political parties are illegal, dissent is suppressed and civil liberties are severely restricted. According to the rights watchdog Freedom House, “the regime’s undemocratic character has not changed despite new leadership in 2018 and a process of diplomatic normalization with Washington, which has stalled in recent years.”
Cuba earns just 13 out of a possible 100 points on the Freedom House 2021 democracy report, with only 1 out of 40 points on political rights, and 12 out of 60 on civil liberties. The constitution forbids independent media, and “the country’s independent press operates outside the law, its publications are considered ‘enemy propaganda,’ and its journalists are routinely harassed, detained, interrogated, threatened, defamed in the official press, and prohibited from traveling abroad.”
Cubans are banned from posting content on foreign servers, including social media platforms, and in general cannot share anything "contrary to the social interest, morals, good customs, and integrity of the people.” Private universities and schools have been illegal since the 1960s, and teachers are promoted based on ideological loyalty, not academic performance. Independent labor unions are outlawed, and Cuban workers cannot strike, protest or collectively bargain. A popular revolutionary saying goes, “Dentro de la revolución, todo. Contra la revolución, nada” — “Within the revolution, everything. Against the revolution, nothing.”
Verita is part of Cuba’s community of human rights defenders. Born largely in the 1990s in the wake of the Special Period, they live under constant attack. In 2003, at just around the same time as the regime was forced to modify the currency system to keep society afloat, it launched the “Black Spring” crackdown, rounding up dozens of poets, authors and journalists. To this day, the sisters, wives and daughters of these political prisoners march in Havana every Sunday for their freedom, and are known as the Damas de Blanco — the Ladies in White.
Independent outlets like 14ymedio, founded by blogger and philologist Yoani Sánchez, and Diario de Cuba continue to report, but work remains difficult. One of Cuba’s leading human rights advocates, Oswaldo Payá, died in a car crash in 2013, an incident widely believed to be state murder. Going onto the street and protesting continues to carry huge risk, as hundreds of disappearances and lengthy prison sentences for protestors last month demonstrate.
In 2018, an Afro-Cuban group of academics, artists and journalists known as the San Isidro Movement, formed to protest Decree 349, a communist law requiring artistic activity to be pre-authorized by the government. In November 2020, the group launched a protest in support of one of their members, the rapper Denis Solis, who had been convicted of “contempt for authority.” State police raided the protest, but the regime was forced to promise more rights for artists, and the seeds were sown for last month’s uprising.
Black Cuban communities have been at the center of these protests. It is estimated that up to 90% of White Cuban families have relatives abroad as a remittance stream, but only 30% to 40% of Black Cuban families have the same option. Guillermo “El Coco” Fariñas, a well-known Black dissident, calls the situation a “powder keg about to explode.”
At first, Verita, who is also Afro-Cuban, was extremely formal, literally reading from a speech that she had prepared for the first part of our conversation, where we talked about the economy. She kept repeating the government line that “devaluation does not impact inflation” and that the peso to dollar exchange rate remains 24 to 1. Later in our chat though, she opened up, and told me that in reality, the exchange rate is as much as 70 to 1. It was clear that Big Brother is very much still alive in her mind.
Verita explained that the MLC system was a government strategy to stockpile hard foreign currency and avoid the flight of dollars and euros. It was also, she said, a way for the government to tax the informal sector which had been leaking huge amounts of value out of Cuba.
For example, a few years ago, if you wanted to buy an air conditioner, you would likely hire someone (sometimes known as a “mule”) in a place like Panama, and they would bring it to you and you would pay them in dollars, which would permanently leave the Cuban economy, without the regime getting a chance to take a cut. With the MLC system, the regime stocks stores with appliances like air conditioners, so that it is actually easier for citizens to buy them there as opposed to with a mule. This way, instead of leaking hard currency out, the regime actually accumulates it, as citizens ask family, friends, and colleagues to top up their MLC accounts so they can buy the air conditioner.
As a result, Verita said, the peso is in the process of demonetizing. Out of the three main functions of money, it has essentially lost the functions of store of value and unit of account — which have now leaked to the MLC or dollar — and really only lives on as a medium of exchange for individuals when interacting with the government, or when buying things on the street.
When I asked her if the government had a plan to stop the peso inflation, she gave me a look that I will never forget: She turned her head, smiled slightly and looked at me in disbelief.
“Plan?” she asked. “No. There is no plan.”
In her estimation, the Cuban economy would need to grow 5% per year for the next 12 years to recover from its current trauma. But, she said, it actually contracted by 11% in 2020 and will shrink even more in 2021. It will be, in her words, “a disaster.”
V. The Embargo’s Ongoing Impact
To learn more about the impact of the American embargo on Cubans, I spoke to Ricardo Herrero, a son of Cuban exiles and the executive director of the Cuba Study Group. He explained that today, because of U.S. sanctions, Cubans cannot access a wide range of popular American products like PayPal, Stripe, Cash App, Zelle, Coinbase, GitHub, Adobe, Dropbox, Lyft, Uber or Amazon. He called the embargo “the most rigid and expansive sanctions regime towards any society on the planet.”
Herrero works to help push the U.S. government to relax some of these restrictions. He said his job is difficult, especially because of the Torricelli and Helms-Burton Acts, which were passed in the 1990s, formalizing restrictions on American trade, business and travel to Cuba in order to destabilize the Castro regime at a time of weakness and promote democratic opposition.
Unlike previous Cuba policy between the Kennedy and Clinton years, in the new era since 1996 when Helms Burton was passed, the embargo has been codified into law and cannot be lifted by executive order. Centered on American claims of business and property considered stolen by the Castro regime during the revolution, Helms Burton expanded extant restrictions on U.S. companies and tries to prevent any company in the world from doing business in Cuba. It threatens, for example, to prevent a corporation from entering or doing business with the U.S. if it chooses to do business with Cuba.
U.S. Presidents Clinton, Bush and Obama waived part of the act, so some foreign entities have been able to do business with Cuba, with mixed results. As Sobrado dryly noted, the Havana Hilton, which was renamed the Habana Libre during the revolution, was eventually handed over to Spanish hotel chain Meliá Hotels International. As of last year, the famed hotel stood empty.
Last year, President Trump designated Cuba a state sponsor of terrorism and introduced 243 new measures to strengthen the embargo. President Biden has yet to rescind them. Herrero said that Helms Burton is the deterrent that explains why you do not see Starbucks, Zara or McDonalds in Cuba. It is why Cuba does not receive loans from the International Monetary Fund (IMF) or the World Bank. It is why the Juragua Nuclear Power Plant was never finished. During the Obama opening in 2015 and 2016, some American payment companies tried to explore establishing payment services between the U.S. and Cuba, but once Trump won the election, it was clear the opening would be rolled back, and plans were put on hold.
The embargo, Herrero said, gives “political oxygen” to the Cuban government’s revolutionary narrative.
“It’s the big bogeyman,” he said. "Without it, the regime would suffer an ideological collapse.”
The embargo mixed with an inept, repressive government is an especially tragic combination. This was illustrated recently when a diabetic British citizen was unable to find insulin in Havana, due to the medical shortages. His wife tried to ship him some from London, but DHL returned the package, scrawling “US sanctions on Cuba” on the label. He died in a hospital soon after.
“The combination of the American sanctions on Cuba, Cuba’s mismanagement of scarce resources, and the Covid-19 pandemic is a lethal brew,” his wife said.
Herrero still places most of the blame for the suffering of the Cuban people squarely on the regime’s shoulders, and said that they play a duplicitous game. The regime blames the embargo for all or most of the crises in Cuba, but they have “never missed an opportunity to miss an opportunity to lift it.”
It continues to use the embargo as a scapegoat, and as a tool to draw international sympathy for their cause.
“They paint themselves,” Herrero said, "as a David against the imperialist Goliath.”
Under the Obama opening, U.S. companies flew in to strike deals, but the Cubans allowed very few to get signed. Herrero explained that this was partly because of their Soviet mentality: “The bureaucrats were trained to be enemies with the yankees, and to oppose capitalism."
They were, when presented with the opportunity to connect Cuba with the world, unable to seize it. For the past decade, the Cuban regime has talked about private enterprise and decentralization of the economy, but in reality, it has been all talk, no action.
Anthony DePalma explained that the regime constantly reminds Cubans “of the imperialist peril from the north, yet it also demands that the empire drop its embargo so that Cuba can do more business with America and its allies. The regime has used the perpetual threat of American intervention as a cover for every misstep, failed program, food shortage, or power blackout over the last six decades, but it also depends on the billions of American dollars that exiles send back in remittances to keep Cuba afloat. State-run media presents the United States as a hellhole of drug addiction, mass murder and runaway consumerism, while portraying Cuba as an egalitarian paradise run by a government that can do no wrong. And yet, when Cubans compare their own lives with what they hear from relatives in Miami or with what they see on the internet, they know it isn’t so.”
Nearly everything the regime promotes about its economy is a veil of ideology covering up exploitation. As of 2018, Cuba’s top source of revenue was shockingly not the tourism industry, but rather the export of more than 50,000 healthcare workers each year to more than 60 countries. Cuba’s educational system is designed to produce a surplus of doctors, nurses and technicians — an “army of white coats” — who are sent abroad in a PR scheme. Herrero said the program is a way to “weave the revolution” into a solution, where the government proudly announces that we will send brigades around the world to save the downtrodden, who have been ignored by imperialist powers. In reality, the state confiscates 75% of the salaries of these workers, raking in more than $11 billion per year, making a form of indentured servitude Cuba’s biggest export.
Meanwhile, Cubans abroad find it hard to simply send money to their families. Herrero said one way was to make a bank wire to someone in Panama who would “duffel bag” cash to Havana. Another way would be to rely on a hawala-type system. One could give $100 to someone in Miami, and they would call their business partner in Havana and have them deliver $100 minus a cut to one’s family. Western Union transactions from the U.S. to Cuba were also an option until last November when the Trump Administration shut them down. The company closed 407 locations across the island, which seems staggering, but Herrero said that most Cubans already found the service too expensive.
As an example, Herrero detailed a Western Union transaction from last year, where someone sent $1,030 to a family member in Cuba. The fee was $77.25, so the total paid by the sender was $1,107.25. The amount that was delivered to the recipient in Cuba was $1,000. The double-digit fee was split up with 1.5% staying in the U.S. as a clearance fee, 4% going to Western Union, 1.5% going to Fincimex (the now-sanctioned Cuban state payment processor), and 3% burned by the “exchange rate” conversion, which the government pockets.
Even if the U.S. opens up Western Union again, recipients would only receive $1,000 at the “official rate” of 24 pesos to $1. So the receiver would get 25,000 pesos, even though the real value of the remittance is 70,000 pesos. The regime would keep the difference.
Americans, Herrero said, could actually top up MLC accounts directly with dollars until last summer. But the Trump administration’s new sanctions closed this channel. Combined with flight closures and reduced tourism, Herrero said this was a “double whammy” that caused a dramatic reduction in dollar flows to Cuba. This, he said, is right when Bitcoin started taking off.
“There is no currency,” he told me, “that would have helped you navigate the oscillations of U.S.-Cuba policy over the last five years better than Bitcoin.”
“It’s hard for anything to grow in Cuba,” he added, “but if you’ve been investing in bitcoin over the past few years, you have been growing.”
VI. Bitcoin As A “Cheat Code” For The Cuban System
Herrero told me about Erich García Cruz, a popular Cuban Bitcoin personality. He called Cruz a “one man CNET,” as he often appears as a guest on state TV, and runs his own popular YouTube channel reviewing different kinds of technology and payment systems. I reached out to Cruz to learn more.
“I’ve lived in Havana since the day I was born,” Cruz told me. He was comfortable using his name for this interview, as he said he is already a “very popular, very known” person.
Cruz said the recent protests have been triggered by a lack of food, a lack of medication, by people suffering from hunger, trying to survive in brutal conditions, during a pandemic, with government bureaucracy, and with high inflation.
“The Cuban people are tired,” he said. “They want a better life.”
“The system isn’t working,” Cruz said, “so people are turning to Bitcoin to escape.”
Cruz’s business, Bitremesas, is a solution to the giant problem that people have when trying to send remittances from the U.S. to Cuba. Again, because of the embargo, U.S. banks cannot wire dollars to Cuban accounts. There is no Transferwise, no PayPal, no Revolut, not even Western Union anymore.
The mule method still works, of wiring money to someone who will physically go into Cuba and give cash to your family, but this is expensive and time consuming. Cruz said one can also make a transfer to a bank in Spain, for example, where then the remittance can be sent directly to someone’s MLC account. But again, expensive and time-consuming.
The better option, Cruz said, is to use Bitcoin.
“It has become a way to connect to the outside world,” he said. “The number of Cubans using Bitcoin is exploding.”
Cruz estimates that at least 300,000 Cubans have used bitcoin or cryptocurrency at least once, and that maybe 100,000 use it on a regular basis. This is 2.5% of the island’s population, precisely in line with global estimates that 200 million of the world’s 7.8 billion people have used Bitcoin.
Cruz said that any Cuban businesses not using Bitcoin today to interact with the international financial system will learn the hard way, and adapt and adopt.
“All externally-facing companies will be forced to use Bitcoin,” he said. “We have a saying in Cuba: You have to get in the bus, because the bus is leaving the town.”
He thinks Bitcoin adoption is already greater per capita in Cuba than in Europe or Canada, but told me that he was not always a Bitcoin believer. In fact, until March 2020, he thought it was a scam. There were always friends and colleagues, he said, trying to introduce him to cryptocurrency, but they were trying to get him to do it so that he could then send the BTC to pyramid schemes like Arbistar or Trust Investing.
“I was very skeptical,” he said.
In March 2020, Cruz made a popular video where he exposed Trust Investing, and showed how it was a pyramid scheme. As part of the reaction to the video, people encouraged him to look at other investing options. One was bitcoin. He pledged to himself to try and become an expert on the topic.
In April and June 2020, he went “down the rabbit hole” and “discovered the holy grail.” Through the lens of Bitcoin, he told me, “you start seeing the actual limitations that Cubans have and the freedom that Bitcoin provides. You see the world from a different perspective.”
“We can’t access the traditional payment solutions. We’re stuck. Well, if that’s the case,” he said, “then I will make my own payment provider using Bitcoin, and we’ll develop a business around this opportunity.”
On September 1, 2020, Cruz launched Bitremesas so that Cuban families can transact easier between the U.S. and Cuba. The process is simple: someone in the U.S. sends bitcoin to a wallet managed by Bitremesas (he told me it is a two-of-three multisig, for additional security) — then the company sells the bitcoin for MLC or pesos, and delivers it to the recipient.
He describes a “negative bid” system, where his company will advertise a newly-received $100 remittance of bitcoin in a local network: One trader will offer $95, another $94. Bitremesas will sell to the lowest bidder and take the spread as their profit. The trader will deliver the money to the recipient. The big improvement this holds over other ways of sending money to Cuba, he said, is that the receiver gets close to the real exchange rate. Going through the official system, he said, results in being stuck with the 24 peso to $1 rate.
He said the Cuban people are “smart and intelligent” and are storing value in bitcoin because they trust it more than the peso.
“If you can buy satoshis with pesos and can wait three years, you’re growing your purchasing power in a huge way,” he said.
“I don’t like to speak about politics or the government or whether they have the right or wrong policies,” Cruz said. “I’m just trying to teach my fellow Cubans how to live with Bitcoin and cryptocurrency.”
He credits Satoshi Nakamoto for his new life and new business.
Cruz said he has no special political information, but said the government is researching cryptocurrency as part of its current five-year plan, and could eventually adopt a Bitcoin strategy. For example, it could start accepting bitcoin at MLC stores, or allow citizens to use bitcoin to top up MLC accounts, or to sell tourist offerings or even exports for bitcoin.
“This would be a smart move, a good way to accumulate the hardest currency” he said. “But we are talking about the Cuban government, so I don’t know.”
Cruz remains very critical of the U.S. embargo, which prevents him from accessing a variety of services otherwise available to people living just a few hundred miles away in Miami.
“But fighting the embargo,” he said, “is a fight you cannot win.”
“In Cuba, there are two options,” he added. “You can leave Cuba and escape the Matrix, or you can stay and play the game. Bitcoin is a cheat code to play the game. Now, I choose to stay."
VII. Building A Bitcoin Economy In Havana
Jorge works for a Bitcoin company in Havana. He discovered Bitcoin in March 2018, when he took advantage of Cuba’s expanded internet access to start trading and “stacking sats” online for various tasks. For much of Jorge’s life, however, connecting to the outside world had been close to impossible. The web had been heavily restricted, and information could only get to Cuba in quiet ways.
As an intern at the Human Rights Foundation, I helped participate in a 2007 program where we would send foreign books and films into Cuba’s pre-internet