Venezuela President Nicolas Maduro launching the Petro cryptocurrency
Venezuela President Nicolas Maduro launching the Petro cryptocurrency

Nicolas Maduro has advised government workers to invest in the newly created cryptocurrency, El Petro. The Venezuela president made the call (in Spanish) on Thursday 18 October in a public television network’s announcement.

The plea is highly controversial given that the country faces major economic and governmental crises. However, the Petro was precisely created for these particular reasons, to alleviate the harsh pressures and allow the country to breathe again.

Without surprises, the development of the Petro was met with wide range of local and international concerns and criticisms.

Venezuela experienced a period of exceptional economic growth from 2004 to 2013, averaging 6% growth per year, with a blip during the financial crisis of 2008. Benefitting from soaring oil prices Hugo Chavez, former Venezuela president, initiated the Bolivarian Missions, a series of social programs focusing on social welfare – providing housing, educational services, free health clinics, and other forms of support.

Since Chavez death in 2013, Nicolas Maduro took over the presidential powers and has been fighting an ‘economic war’ against the opposition, the US administration and other enemies who are trying to destabilize Venezuela.

The International Monetary Fund (IMF) predicts that the inflation rate may reach a staggering 1 million percent by the end of 2018. Alejandro Werner, director of IMF’s Western Hemisphere department, said “We expect the government to continue to run wide fiscal deficits financed entirely by an expansion in base money, which will continue to fuel an acceleration of inflation as money demand continues to collapse.”

Nonetheless, Maduro latest plan is to use the Petro cryptocurrency to fight back.

Previously in a television address, he announced that the cryptocurrency would be used as the second unit of account for local salaries, goods, and services. Since the national currency, the bolivar, keeps struggling with hyperinflation.

What’s the Petro?

The Petro (PTR) is the Venezuela government attempt to create a digital currency that uses encryption techniques to regulate the currency units, and benefitting from cryptography to secure the financial transactions.

The cryptocurrency is backed by the country’s most important asset – Petroleum.

The idea originates from Hugo Chavez, who wanted to have a strong currency backed by raw materials. According to its released whitepaper, the Petro is backed by gold, diamonds and iron besides oil assets.

The Petro is divisible by 100 million units, with a minimum exchange unit of 0.00000001 called the Mene.

The Petro raised $735 million in the first day of its pre-sale on 20 February 2018. In a television address, Maduro said it raised $3.3 billion in total, Bloomberg reports.

The Petro’s base price is equivalent to the price of a single Venezuelan oil barrel, around the $60.

The cryptocurrency will be available to the general public on 5 November. It will, theoretically, be available on six international exchanges from which it can be acquired using other established digital assets or popular fiat currencies such as Dollars, Euros and Bitcoins.

On their website, the government provides a link to the Petro digital wallet that can be downloaded from Google Play, or for other operating systems such as Microsoft Windows and Linux. No indications of a version for iPhone users yet.

Since its inception, the cryptocurrency has drawn a lot of criticisms from, not only financial analysts but also cryptocurrency experts. Though, others see the Petro as a great experiment with risks and challenges never undertaken before.

Will the Petro succeed?

Perhaps the most damning criticism comes from the US administration who has called the Petro a stunt.

In a special investigation, Reuters travelled around Venezuela, spoke to cryptocurrencies and oil-field valuation experts, and even attended the sites of the pledged oil reserves in addition to scouring the coin’s digital transaction records.

Their findings revealed little evidence of the infrastructure put forward by the Maduro’s government. This was also highlighted by Alex Tapscott from the Blockchain Research Institute during an interview with the BBC.

“The government says each unit of the Petro is backed by oil […] But we have no proof at all. There is very little technical information about it.” Tapscott said.

Technically, the Petro takes place via the blockchain technology, which consists on a public ledger that digitally records the transactions between two parties. One of the tenets of blockchain is its decentralization feature. Since the cryptocurrency is oil-backed and the oil assets production is controlled by the Venezuelan government; this would contravene the principle.

At present, the Petro is like an outsider with a lot stacked against it. Betting on outsiders is a risky strategy, yet they do win once in a while. Unfairly or not, the US administration has been using sanctions as a weapon against its enemies and economic competitors. This leaves them with ‘no choice’ but to back outsiders.

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