Unfortunately, even blockchain can’t rescue socialism from its inherently poor economics. Despite some in this industry lauding Venezuela for its attempt to create a national cryptocurrency, it appears the “petro” is a farce on par with the government’s management of the rest of the country’s economy.
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Venezuela launched the petro to much crypto-media fanfare on February 20th. However since then, there’s been little other than mockery of the government’s inept handling of the concept. Almost immediately after the first petros (supposedly) went on sale there was confusion over which blockchain the tokens lived on, whether online purchases constituted an actual sale, or even if petros existed at all.
The government has done little since to allay the skepticism, either.
In January, the country’s own Congress, which has a majority of members opposed to President Nicolas Maduro, voted to make the petro illegal. Calling it a “mortgage” and “a forward sale on Venezuelan oil”, legislators warned anyone who bought the petro that the tokens would be voided once Maduro left office.
WaPo: Not a Crypto, Not a Currency, Not Backed by Oil
In an article that also took pot-shots at failing companies that “pivoted” to blockchain for some cheap PR, The Washington Post called Venezuela’s blockchain experiment “the most obviously horrible investment ever”. It read (italics ours for emphasis):
“Venezuela’s government has just launched the petro, its own cryptocurrency backed by oil. Well, at least that’s what the regime is saying. In reality, the petro isn’t a crypto, it isn’t a currency, and it isn’t backed by oil in any meaningful sense. It’s just a way for Caracas to try to get around the sanctions against it while raising money from the only people more clueless than itself.”
The petro is a farce that only foreigners can buy but only Venezuelans can spend, said writer Matt O’Brien. Its value is determined by whatever the government says its oil is worth on a given day, making it essentially an untrustworthy bet on the price of oil. Since it isn’t traded on open exchanges, it’s only redeemable for anything in Venezuela.
Investors looking for that sort of speculation could simply buy oil or invest in any other oil-related instrument, he wrote. Buy petros only if you have unwavering trust in the Venezuelan government and its economic management prowess.
Why Venezuela Created the Petro
That it took a hyper-statist publication like WaPo to call Venezuela out on its petro deception should make some of crypto’s libertarians hang their heads in shame. Or at least, any who praised its innovation in creating a national cryptocurrency and supposedly backing it with a real commodity.
WaPo suggested the petro was Venezuela’s latest policy of economic desperation. Crippled by a triple-whammy of government cronyism, socialist spending and international financial sanctions, the country was trying anything it could to acquire dollars and perhaps even feed its starving people.
Venezuela can’t issue bonds like a regular country thanks to its being banned from international debt markets, and it’s been missing payments on the bonds it issued before that anyway. Attempts to print its way out of trouble with more of the national currency, the bolivar, ended the way such attempts usually do — with hyperinflation.
If anything, the petro is a fiat cryptocurrency backed by the marketing value of the blockchain concept. Once you realize what that means, it’s worth about as much as a paper bolivar bill.
Actually… Are Petros Even Blockchain-Real?
Venezuela claimed it raised $735 million USD from its petro pre-sale. Yet some, including local commentator Alejandro Machado, claim no petro tokens or contracts were even created, let alone sold.
Employing the cypherpunk maxim of “don’t prove, verify”, Machado wrote a post titled The Many Deceptions Behind a Dictator’s “Cryptocurrency” — claiming that a week after launch, there still wasn’t a proper way to set up a petro wallet. The government launched only a buggy website for buyers to buy the currency, but blockchain records on both NEM and Ethereum showed a confusion of differently-named tokens, none of which actually moved to new addresses.
Machado also made the economic points WaPo repeated — the petro isn’t backed by oil in any meaningful way, and the token (if it exists) is essentially an “illegal debt issuance” with a cryptocurrency label slapped on it.
Hot take: Venezuela’s govt will no longer exchange bolívares for dollars. It will instead offer petros at an arbitrary rate. Petros could then be converted into dollars at another arbitrary rate. Double chokehold. https://t.co/qDNUP8mPZf
— mach nine 🧞 (@alegw) March 6, 2018
On top of all that, the oil that petros are ostensibly “backed” by is from a field called Ayacucho 1, which hasn’t even been developed yet.
So why would anyone actually buy petros? Perhaps if they acted quickly enough (and had the means to liquidate their holdings, i.e. government connections) they could profit from hype and speculation before the petro price collapsed. Those are big ifs, though.
Whether or not you believe WaPo’s claim that all blockchain projects are backed by hot air, there’s something smelly about Venezuela’s petro. Like socialist economic policies, its value lasts only as long as people believe it can work — which usually isn’t very long.
Did you buy any petros? Would you? Why or why not? Let’s hear your thoughts in the comments.
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