World’s first national, oil-backed cryptocurrency
As they say, necessity is the mother of invention. With an acute financial crisis manifested in a deep devaluation of the national currency, the bolívar, and quadruple-digit inflation, Venezuelan President, Nicolas Maduro, has surprised analysts and the cryptocurrency world with his launching of an oil-backed cryptocurrency. The Initial Coin Offering (ICO) took place on Tuesday, […]
As they say, necessity is the mother of invention. With an acute financial crisis manifested in a deep devaluation of the national currency, the bolívar, and quadruple-digit inflation, Venezuelan President, Nicolas Maduro, has surprised analysts and the cryptocurrency world with his launching of an oil-backed cryptocurrency. The Initial Coin Offering (ICO) took place on Tuesday, February 20, 2018.
Hundreds of thousands of Venezuelans have fled the country seeking better life elsewhere because of scarcity of food and medicine, soaring crime rate and the collapse of public services and the health system. Maduro’s government has been trying to figure out ways to get around the anti-money laundering sanctions imposed by the Trump administration. The hope now in Venezuela is that the sale of the digital currency, known as the petro – with the code PTR – will enable the country to pay its debts and increase import of needed goods such as raw materials for manufacturing.
Specifically, the country expects that the new currency would allow it to circumvent the effects of the US sanctions – which forbid Americans from purchasing new securities issued by the Venezuelan government. Meanwhile, the US is reportedly telling its citizens that they might still be violating the law if they traded in petro since this would be tantamount to giving credit to the Venezuelan government.
An interesting and unique aspect of petro is its backing with oil. One of the major problems with typical Internet currencies such as Bitcoin is the fact that they are not backed by anything; meaning that in the event of a burst, you have no recourse. The concern with petro of course is whether or not traders can really recoup their investment in the event of a problem. The Venezuelan government is assuring potential traders that the value of petro will be tied to the value of a barrel of Venezuelan oil. Specifically, each petro coin will be backed by a barrel of the country’s oil, whose price is set by OPEC. For this purpose, the Venezuelan government says it has set aside 5.3bn barrels of oil worth $267bn. Maduro announced that his country raised $ 735m of petro at the ICO, with suggestions that the initial investments come from Qatar and other Middle East countries, Turkey, Europe, and the US.
From the little information provided by the Venezuelan government, petro may not be your average cryptocurrency, with some of the features clearly calling for caution in deciding whether or not to deal with the currency. Backing with oil, if workable, is positive. As stated above, typical cryptocurrencies are not backed by anything, exposing traders to maximum risk.
The technical details behind petro are not yet known, but we know that typical cryptocurrencies are based on the blockchain technology. There are concerns by analysts that Venezuela may not possess the technical know-how to pull off petro. Although the Venezuelan government claims that there is already a lineup of miners, it is not clear what the protocols are going to be for mining. Regular cryptocurrencies are minted by using supercomputers to carry out complex mathematical calculations. One feature of the standard cryptocurrencies is that they are decentralised, with their success being dependent on total transparency; with rules that are known to all, coupled with equal treatment of all players.
The apparent presence of a central controlling government in petro is one of the obvious and concerning differences between petro and cryptocurrencies before it. As is well known, Bitcoin has won over investors largely because of the absence of a central authority that controls the network that could, for example, suddenly change the number of Bitcoins to be released, or the rules of the network. In petro, traders will probably be under the mercy of the Venezuelan government, while the confidence of investors will be determined by their confidence in the Maduro government.
To buy and trade in petro, according to Cointelegraph.com, you may download a digital Petro wallet developed by the Venezuelan government. The wallet will generate an address you can provide to anyone who wants to transfer PTR to you. Just don’t ask for the exchange rate if you plan to exchange petro for any of the standard world currencies, as no one knows.
A highly critical point of view has been presented by David Floyd on February 20, 2018, in investorpedia.com, to which you should consult before you develop too much interest in petro. Floyd is basically saying that petro isn’t backed and that it isn’t even a cryptocurrency. He stresses the position that the marvelous thing about the world of cryptocurrency is that transfer costs and commissions tend to be zero. He emphasises the need to democratise financial flows, without regard to the country or social stratum of the investor, through the use of the blockchain technology.
The success of petro is not certain, while the US is expected to rigorously enforce regulations that prevent the participation of US residents in trading in it. Meanwhile, there are still too many unknowns about this currency.