Petro (PTR)

What Is Petro (PTR)?

The cryptocurrency Petro was proposed by the president of Venezuela, Nicolas Maduro, in December 2017. The Petro was launched in 2018 but has failed to gain traction or help solve the country's economic problems. It was supposedly backed by Venezuela's oil, natural gas, and mineral reserves for stability.

Understanding Petro

The Petro, also known as petromoneda, was proposed as a means for the Venezuelan government to raise capital by leveraging the country's natural resources. Venezuela has one of the world’s largest oil reserves, but the economy has struggled due to financial mismanagement and political turmoil.

U.S-led sanctions, combined with the low oil prices, severely damaged the country’s ability to pay back international creditors, and the country has flirted with bankruptcy. In addition, high inflation rates, coupled with shortages of essential goods due to price controls, sapped the country’s productivity and sent the economy into a prolonged recession.

The proposal for a digital currency came on the heels of a rapid rise in cryptocurrency value. The Venezuelan government expected Petro to be considered an investment opportunity by international investors. Had it happened, it would have provided much-needed cash flow at a time when the country's official currency—the bolivar—had plummeted.

Concerns About Petro

At the time, many international observers believed that the primary goal of the Petro digital currency was to circumvent U.S.-led sanctions, which prevented Venezuela from borrowing funds in global markets. If the Petro were successful, it would allow sanctions to be bypassed and illicit actors to move money out of the country.

Used to Bypass Sanctions

Cryptocurrencies have been criticized as a tool to launder funds because they allow users to bypass currency controls and regulations. The United States, for example, sanctioned several prominent politicians and business leaders in Venezuela for their alleged involvement in the narcotics trade and suppression of the country's opposition.

Centralization

The announcement of the Petro received a mixed reaction in the cryptocurrency community. One of the major selling points for Bitcoin and other cryptocurrencies was decentralization; no single entity could control or censor blockchain transactions. Having a national government directly control a digital asset would go against the principles of the cryptocurrency movement. Additionally, it could undermine the cryptocurrency's value.

Too Many Uncertainties

The extent of government control of the Petro, including the ability to halt or reverse transactions, remains unclear. Mining nodes are registered with the Venezuelan government, and it is also not clear how—or if—Petros can be redeemed for the underlying assets.

Oil is a commodity and suffers from volatility issues—cryptocurrency is also a volatile asset; pegging a currency to a commodity with an unstable price is generally not an approved-of method for stabilizing an economy already in turmoil.

What Do Venezuelans Use Instead?

Venezuelans have turned to other cryptocurrencies in place of the Petro and the country's fiat currency. Cryptocurrency trading volume in the country was higher in 2021 than in any previous year.

According to blockchain and analysis experts Chainalysis, it's difficult to determine how much the country is using cryptocurrencies due to the bolivar's devaluation. However, it's clear through the company's analysis that website visits to Binance and Binance's peer-to-peer platform have increased as the bolivar loses value.

Additional factors that cannot be determined are which entities are accessing the platforms and how cryptocurrency is being used. However, the analysts suggest that more than 50% of cryptocurrency transaction volume in Venezuela is from professionals and large and small retailers.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author does not own Petro or cryptocurrency.