Venezuela’s Petro Isn’t Oil-Backed, It’s Not Even a Cryptocurrency

On February 20, Venezuelan officials launched the pre-sale of petro, which they claim will position the country as a leader in cryptocurrency. However, doubts arise regarding its legitimacy, as many warn it’s neither truly backed by oil nor a cryptocurrency in the traditional sense. Despite claims linking petro’s value to commodities like gold, the central government appears to retain all control. The ongoing evolution of this project raises significant questions about its real purpose amid a struggling economy.

On February 20, Tareck El Aissami, Venezuela’s vice president tangled up in allegations of drug trafficking, declared the pre-sale of the petro cryptocurrency – which he claims positions Venezuela as a forward-thinking nation. But skeptics raise eyebrows. Ars Technica reports a staggering $735 million supposedly raised on the first day lacks any real evidence of transactions occurring.

This crypto endeavor stumbled into the spotlight on December 3, when President Nicolás Maduro announced the launch of a cryptocurrency supposedly backed by Venezuela’s wealth in gold, oil, gas, and diamonds. Coincidentally, this was when Long Island Ice Tea, now Long Blockchain Corp., pivoted to crypto and also Eastman Kodak joined the game. The parallel? These are companies gasping for a lifeline in the form of a crypto bubble. Kodak, with no profits since its 2013 bankruptcy exit, paints a vivid picture of desperation.

To add to the gloomy tableau, Venezuela’s economy has crumbled under the current regime, despite possessing larger oil reserves than Saudi Arabia. Hospitals have bare shelves, children find themselves in dire circumstances, and the currency has taken a plunge into the abyss of hyperinflation. Maduro, seemingly unscathed by political purges, spends his time DJ-ing an inaccurately named Salsa Hour show, which runs much longer than an hour – ironic? Perhaps.

The government’s hope of riding the cryptocurrency wave might seem tempting, yet the U.S. Treasury Department warns that investing in the petro could breach sanctions, while Venezuela’s congress has deemed it illegal. The belief that it could kick start a new financial dawn for Venezuela seems misguided—patients of the crypto world are wary; this venture hardly radiates innovation and isn’t backed in any real sense either.

In a head-scratching interview, David Jaramillo, a blockchain enthusiast, confidently stated the petro’s worth won’t buzz around market whims, relying instead on the pricing of international commodities like gold and oil—an assertion that’s more laughable. If the government claims stability from said resources, it falls woefully short; commodities fluctuate like clockwork, and cryptocurrency rebounds are notoriously volatile.

The Venezuelan government’s vagueness about the backing nature only raises more questions. A decree mentions buying agreements for oil, yet leaves investors with a woefully unclear path to any real exchange. To hold petro is essentially an invitation to trade it for potentially worthless bolívares at government-set rates, leaving investors scratching their heads.

The January 31 release of a white paper about the petro was supposed to clarify things but only added to the confusion. It revealed the petro has little to do with oil, rather existing chiefly to settle government taxes–not really an impressive feat for any currency. As for its exchange rate? A clutter of formulas tied to oil and disrespected market rates hints at an alarming lack of transparency.

So, is petro genuinely a cryptocurrency? Jaramillo touts lower fees and democratized access, but what about real-world transaction fees hitting over $30 for Bitcoin? And let’s be real—the notion of decentralization evaporates when redeeming petro means doing so via a government exchange. Venezuela’s approach stifles the essence of cryptocurrency by keeping all controls firmly in governmental hands.

Suddenly, in a twist of fate, the petro is now confusingly touted as an Ethereum-based ERC20 token, then shifts yet again to a NEM-based design. No clear explanation addresses why the evolution took place—a classic case of identity crisis perhaps? Now, rather than following a decentralized network like Bitcoin, it’s merely become yet another ICO, potentially valueless amidst thousands of similar failed attempts.

And yet Maduro flaunts a vision that conjures up memories of Bitcoin’s inception—a vision of tackling corrupt institutions. It’s profound irony that a dictator who manipulates and restricts democracy aims to co-opt an ideology designed to liberate financial transactions from the grasp of the establishment—it seems like a cosmic joke of governance.

Investing in cryptocurrencies and ICOs remains a perilous venture, not a stamp of approval to jump into the crypto pool. Individual situations bear unique nuances, and consulting a professional is always wise before diving into such turbulent financial waters. Investopedia disclaims any credibility and boasts no interest in cryptocurrencies as of the article’s last revision.

Venezuela’s venture into cryptocurrencies, particularly the petro, emerges as a complicated, if not troubling, case study. What was pitched as a revolutionary financial instrument has swiftly devolved into a confusing, likely worthless scheme riddled with contradictions. With leadership needing a way out of an economic disaster, the petro appears to be a desperate attempt to salvage the regime’s credibility rather than a genuine innovation. As the government shifts its narrative, one thing is clear: this path raises more questions than it answers, leaving many investors pondering their stakes in this dangerous crypto gamble.

Original Source: www.investopedia.com