Among countries with troubled economies, Venezuela is a special case. Thanks to its oil reserves, the South American nation was among the richest in the region. But bad policies have resulted in its economy spiraling into a vortex of hyperinflation, poverty, and widespread unemployment. To make matters worse, US sanctions have further fueled its economic crisis.
Earlier this year, Venezuela unveiled a national cryptocurrency – the petro – to circumvent those sanctions. The idea was to enable transactions in currencies other than the US dollar. In a televised address to announce the petro’s launch, the country’s president, Nicolas Maduro, portrayed Venezuela as an underdog engaged in a fight with a superpower. “Today a cryptocurrency is born which can take on Superman,” he proclaimed.
But a recent Reuters report claims that the cryptocurrency is yet to take off, much less compete with the American Superman. The publication investigated the coin and found little evidence that it was being used in mainstream society. What’s more, there’s reason to believe that the blockchain underlying the petro is still under development.
Why Venezuela’s Cryptocurrency Is Failing
When it was released, the petro’s whitepaper made grand claims but was short on specifics.
“The petro will be an instrument for Venezuela’s economic stability and financial independence, coupled with an ambitious and global vision for the creation of a freer, more balanced and fairer international financial system,” the paper’s authors wrote. It was planned to be used as a medium for daily transactions (like a fiat currency), as an investment vehicle, and as a digital platform to represent real-world assets, such as real estate.
The Reuters journalists did not find any users who used the cryptocurrency for daily transactions. They found just two people who bought it after its release. One of them said he had been “scammed” into purchasing it. The other buyer did not disclose their name and revealed few details about their motivations behind buying the cryptocurrency, apart from expressing concern about “persecution” by the US government.
News reports suggested that Venezuela had plans to back the cryptocurrency with its oil reserves. (But the whitepaper does not mention this link). When the journalists went to the proposed region for drilling, they found little evidence of oilfield activity. Based on pictures accompanying the article, it would seem that the region is barren and poor. Conversations with resident villagers there also did not yield much information or optimism about future prospects of oil discovery. (See also: Venezuela's Cryptocurrency Isn't Oil-Backed; It Isn't Even A Cryptocurrency).
There is also reason to doubt the government’s claims of raising capital through the sale of the cryptocurrency’s tokens. President Maduro had earlier said that the cryptocurrency’s tokens had already raised $735 million in a presale round. Later estimates put the token sale amount at $3.3 billion. (See also: Venezuela Claims To Have Pre-Sold $735 Million Of Cryptocurrency).
Reuters scoured the NEM blockchain, which was used for the initial round, for addresses and their petro holding amounts. The publication calculates that a token sale of 13 million petros has netted approximately $850 million for the authorities. But there is a caveat to this calculation. “...there is no way to verify that those were sales, and no large investors have admitted to taking a position in the petro,” the report states.
Last month, President Maduro devalued Venezuela’s fiat currency by 96 percent and linked its price to that of the petro. “They’ve dollarized our prices. I am petrolizing salaries and petrolizing prices…We are going to convert the petro into the reference that pegs the entire economy’s movements,” he said.
But there are two problems with Maduro’s approach. First, the petro itself does not have any value since it is not traded on any cryptocurrency exchanges, according to the Reuters investigation. An official from Bitfinex, one of the world’s biggest cryptocurrency exchanges, told Reuters that the petro had “limited” utility. Second, the petro, as it was conceptualized, may not exist at all. The Reuters report quotes Hugbel Roa, who is responsible for the Venezuelan Blockchain Observatory, as saying that people have made “reservations” for the petro but no coins have been “released” yet.
The Bottom Line
When it was launched, the petro was seen as a way out of US economic sanctions on Venezuela. However, subsequent developments have revealed that the cryptocurrency is still to gain mainstream and international traction.
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