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Guest written by Kym from Robots.net
Contxto – In a recent press conference on state television, Venezuela’s Information Minister, Jorge Rodríguez, said it was only a matter of a few days before the Venezuelan government first launched its cryptocurrency.
Known as “petro,” the crypto relies on a system where one barrel of crude oil covers the value of each monetary unit.
Venezuela could use such currency because its national currency has long since lost its functionality due to the economic crisis. In 2017 alone, the bolivar lost more than 97 percent of its value compared to the dollar.
Additionally, the Finance Committee of the Venezuelan Parliament reported a loss of nearly 2,000 percent in purchasing power over the past year.
What is the petro?
The petro is the cryptocurrency that Venezuelan President Nicolás Maduro suggested in December 2017. Petro’s importance would focus on the oil, gas, and mineral resources of the country.
All the while, some in the international community have criticized cryptocurrencies as an instrument for laundering illicit gains by bypassing currency controls and regulations.
For many advocates, the petro’s announcement confused much of the cryptocurrency world. After all, part of the beauty and popularity of cryptocurrencies is that they weren’t available to regulators up until this stage.
Having the state regulate the digital currency from the start, not only contradicts the cryptocurrency movement’s guiding values, but can also undermine the currency’s importance.
Petro aiding the government’s cashflow
Venezuela’s Information Minister Jorge Rodríguez said that Petro will help the oil-rich state beat the “dollar tyranny,” referring to the fact that the United States’ own’s the world’s de facto currency. The fresh petro would assist the government to avoid the US-led financial sanctions placed on the oil-rich state, according to the Venezuelan leader.
Also according to Minister Rodríguez, he pledges that each piece of the currency would connect to an oil basket of Venezuela. This week, they measured at US$59.07 per barrel. That suggests a total cryptocurrency of just over US$5.9 billion would be given.
Investors are not convinced
Despite the optimism, the release of the virtual currency experienced ridicule by investors and opponents of Minister Rodríguez. Opposing leaders claim that the scheme will definitely fail and will not assist normal Venezuelans struggling from elevated inflation.
On top of other issues, many of today’s problems are results of economic mismanagement.
Eclipsing oil wealth with inflation
According to The Organization of the Petroleum Exporting Countries (OPEC), Venezuela has the largest petroleum resources in the world and accounts for some 95 percent of its petroleum import income. Yet the nation continues to be in profound financial crisis amid the latest decade-long oil boom.
Although the state allegedly spent the profits on successful economic programs, the call for difficult changes remains unheard. The Bolivarian currency of Venezuela is formally traded at 10 to the dollar, but a dollar is presently purchasing 137,000 bolivars on the black market.
Commodity covered cryptocurrency, without commodities
The South American nation is on the verge of bankruptcy, despite having the world’s largest verified oil reserves. The Wall Street Journal recently wrote: “Venezuelan government bonds have lost three-quarters of their value, reflecting a dozen defaults by the state-owned oil company.”
Therefore, there are no alleged guarantees to support the petro.
On the other hand, as Steve Hanke imagines, a commodity-based cryptocurrency would have a physical and therefore measurable equivalent, it would be a kind of fast-tradable commodity-ETF based on Blockchain technology. Specifically, an Exchange-traded fund (ETF) is a stock exchange-traded investment fund.
Circumventing the international monetary system
Protection of commodities or not, if Venezuela launches the petro, it would probably be the first government with its own a crypto-currency. Although it shouldn’t be the only one for too long. Virtually all significant companies monitor blockchain technology. Even a tiny nation like Estonia is trying to accomplish this.
Can Venezuela program a crypto-currency?
The “Blockchain Investment Platform” creator and CEO, Manav Prakash, also has his concerns. He informed the digital journal “Peru Reports” that a cryptographic currency’s fundamental composition is not too hard to develop.
In fact, many ICOs are nothing more but forks of previous blockchain infrastructures, such as the Ethereum Smart Contract network.
According to him, nearly all current cryptocurrencies are open source applications with accessible programming instructions.
Bitcoin has appeared over the previous few years, along with hundreds of other digital currencies. Despite their incredible increase in value, several economists and policy experts have warned that they are worthless. Why? Because they are not backed by any central bank.
Venezuela urges 10 Latin American nations to adopt Petro
Venezuelan President Nicolás Maduro urged a group of ten South American and Caribbean nations to adopt the upcoming Petro cryptocurrency. The president even called the members of the Bolivarian Alliance (ALBA) to join his new initiative.
Some of these countries include Antigua and Barbuda, Bolivia, Cuba, Dominica, Ecuador, Nicaragua, Saint Lucia, Saint Vincent and the Grenadines, Saint Kitts and Nevis and Grenada.
According to Maduro, the Petro would work among nations as an “integration” currency that could launch initially in Venezuela. Meanwhile, the country is apparently constantly hiring miners for it. Yes, Petro can be mined – although only by the state.
The Venezuelan government is also kick-starting the Petro ecosystem concerning calling for cryptocurrency miners. Venezuela Arts and Youth Minister, Pedro Infante, said that he’s preparing to “establish a unique committee to be responsible for discussing the ideas submitted by different industries to implement the cryptocurrency Petro’s financial system.”
Trump Administration bans U.S. citizens from purchasing Petro
President Trump prohibited American people by executive order on March 19 from buying Petro. The U.S. Treasury Department defined Petro as “an effort to promote the Maduro government while pillaging the Venezuelan people’s funds further.”
On March 27, Bitfinex announced that it would not promote the petro in the context of US cryptocurrency sanctions.
Accusations of plagiarism
On the second of October in 2018, Ethereum Core developer Joey Zhou published a controversial tweet. Specifically, he claimed that the eleventh page of Petro’s white paper allegedly contained a plagiarized image from Dash’s Github repository.
Petro also decided to use the same mining algorithm X11 proof-of-work (PoW) as Dash. Zhou portrayed Petro as a “blatant Dash duplicate.”
The opposition party of Venezuela has declared Maduro’s announcement to be illegal as it violates the constitution of the country. According to them, the Petro tries “to avoid control over operations of public debt” and international pressures.
All the while, sources don’t expect them to seriously impede cryptocurrency development. The fact of the matter is that the government of Maduro controls major institutions within the country, such as its Supreme Court.