The Introduction of the Petro
The white paper for
the petro claimed that blockchain technology allowed the clearest application
of Hugo Chávez’s proposal to directly back the value of a national currency with
the natural resources of that nation.
To this end, the Venezuelan
government pre-mined the
entire 2.7 billion coin supply of this currency for its initial coin offering
(ICO), and it proposed a direct exchange rate of this cryptocurrency to
Venezuelan reserves of crude oil.
The launch of the
petro is, in this manner, breaking new ground into the practical applications
of blockchain technology, as it is an experiment not only in corresponding the
value of cryptocurrency with a material good and with an explicit use-value,
but also in fielding a cryptocurrency as the result of a centralized state
effort, breaking with the tendency toward a model of decentralization as
advocated from the earliest days of Bitcoin.
Although nations such as Estonia have
already begun experimenting with blockchain technology to accomplish various
tasks, Venezuela is undertaking the first broadscale attempt to use blockchain
technology (with Forbes reporting that the petro may be Ethereum-based or run on
the NEM blockchain) to
finance a staggering national debt. The successes and failures of the petro
can, in these respects, be studied to influence the future implementation of
Due to the relationship between U.S.
sanctions and financial turmoil in Venezuela, the evasion of these sanctions is an
integral component to the Venezuelan government’s strategy for the petro, and
this strategy has attracted foreign interest, especially from Russia and China.
The international geopolitics at play have significantly impacted the launch of
the petro, with the U.S. government immediately banning U.S. citizens from
purchasing it or furthering its development.
Nevertheless, the Venezuelan president
who initially launched the petro, Nicolás Maduro, recently won re-election for
his seat, so the first experiment with state-backed cryptocurrency will
apparently continue to receive state support.
Private Domestic Mining
Venezuela is currently going through
a period of hyperinflation, with the bolivar having lost 99.99 percent of its value in the
last five years. As part of an attempt to stabilize the domestic economy, the
government has instituted price controls on many basic necessities of life,
notably including electricity.
The cheap availability of electricity
as a result of these price controls has created a noteworthy amount of cryptocurrency mining within Venezuela, as those who can set up mining operations are
able to effectively convert an essentially worthless currency into
cryptocurrencies with an internationally recognized value. The government has responded to
this new tendency by cracking down on privately owned cryptocurrency mining
even as the state-owned mining operations gain attention and prominence, with
the very legality of private mining itself seeming questionable.
In April, Venezuela began blocking
the import of cryptocurrency mining equipment into the country, trying to
disrupt this new trend of privately owned mining operations. The Venezuelan
government’s friendliness toward a national cryptocurrency does not seem to
have lessened its disdain toward private enterprise.
International Oil Trade
Showcasing the extent to which the
petro is an attempt to use new technology to get liquid capital quickly,
Venezuela recently offered the
government of India a deal in which India would receive a 30 percent discount
on all purchases of oil, provided that it conduct this transaction with petro
instead of other currencies freely convertible on the foreign exchange market.
This move would directly contribute
to the long-term viability of the petro, as it would give Venezuela a
substantial new customer for the cryptocurrency and would provide skeptics with
an example of Venezuela’s credibility to conduct international trades from a
Nevertheless, India appears uninterested in
such a risky venture, even considering the potential windfall of this oil
discount. Based on the state-run Venezuelan oil company’s previous truancy in
honoring international debts with the state of India, there seems to be little
confidence that a trade with this new and untested cryptocurrency will prove
The Petro and the Future of
Despite initial investments from
overseas nations, the petro currently has shown an inability to function as the
sort of international currency that the Venezuelan government desires. Although
the blockchain platform itself lends a substantial amount of security to
transactions, Venezuelan state companies do not have anywhere near this level
As the petro moves forward as a
possible solution to finance the Venezuelan government, potential investors in
a “centralized cryptocurrency” should take note of the failures that the petro
has faced in its first few months. The openly desperate attitude that Venezuela
has displayed during this project combined with the subsequent crackdowns on
domestic private operations have inspired little confidence in the petro’s
potential as a serious currency.
Future attempts to finance the state
through blockchain projects should recognize the role that the actions of
Venezuela have had in undermining the reputation of an ostensibly secure