On February 20, Venezuela’s Nicolas Maduro announced that Petro cryptocurrency’s pre-sale proceeds amounted to US$735 million. This was after a lot of critics predicted that no one would want to invest a considerable amount on the national cryptocurrency. But on the first day of the pre-sales investors from Middle East, Europe, and the US poured in.
“Today, a cryptocurrency is being born that can take on Superman,” said Maduro, addressing the public on state television. “For big problems, (we have created a) big solution… We Venezuelans are indomitable,” he added. This seems like a success for the Venezuelan government.
The launch of the national cryptocurrency, “Petro” was announced in December 2017. It was immediately mired in controversy and criticism from all sides. A lot of critics point out that the Venezuelan government is just using Petro cryptocurrency to circumvent the banking sanctions set by the US. Maduro seems not to deny this as in his words he said that Petro cryptocurrency would help Venezuela, “make financial transactions and overcome the financial blockade.”
Petro cryptocurrency can provide Venezuelans, especially the government an alternative channel to send money overseas. But political issues aside, how can a national cryptocurrency like Petro help an economy?
How a Government Can Make a State Cryptocurrency Work
Aside from the investments, there are other roadblocks that Venezuelan government needs to overcome in order for Petro to become a success:
- The international community should trust the Venezuelan government.
- The foreign investors should be able to gain something in return for their investment. The national cryptocurrency’s whitepaper does not mention any oil security interest payoffs that investors can receive.
- There should be an established formula on how Venezuela’s gold, oil, and mineral reserves translate to the value of Petro.
Petro cryptocurrency can’t be bought with Venezuelan bolivars, further undermining the value of the currency. But citizens aren’t putting all their trust on Petro cryptocurrency. A lot of citizens had been Bitcoin mining for quite some time. Even with their national currency’s devaluation, electricity is still an affordable commodity for Venezuelans. The power sector received heavy subsidies under Maduro’s socialist regime that electricity is practically free. A lot of college professors, students, and even politicians were said to have participated or benefited from cryptocurrency mining activities. Maduro is against any Bitcoin mining operation but condones trading. At least one person was arrested and charged for energy theft and possession of contraband, prompting Bitcoin mining operators to go underground. Some are looking into other options, ETH mining. “But ETH mining is more affordable—all you need is free software and a PC with a video card. Any police officer is easily fooled into thinking your ETH miner is just a regular computer,” said one Venezuelan ETH miner.
This trend is expected to continue as the hyperinflation of bolivars continue and Petro cryptocurrency fails to give citizens real value.
The Reality of Cryptocurrency as an Economic Tool
Even with its flaws, Petro is the first cryptocurrency that is approved by a government and recognized as legal tender. Petro is supposed to be an ER20 token based on the Ethereum blockchain. Upon its release, it can be used to pay taxes, and other fees necessary in transactions with the government. But there’s a reason why cryptocurrency isn’t still recognized as legal tender by many governments: it works best as a decentralized currency. A government body controlling the national cryptocurrency – even the underlying blockchain technology somehow negates the purpose for its inception.
Over the years, blockchain technology had been used to create new platforms, facilitate the delivery of services or give life to digital concepts. Can the blockchain technology really be used to deliver government services? The idea of a society run by a national cryptocurrency is quite intriguing and gives us a glimpse of the future as envisioned by works of science fiction. But as a lot of governments somehow repel even the idea of allowing cryptocurrency to touch their nation and others somehow miss the mark – a fully-digital future seem so far out.