In a groundbreaking event for the mainstream adoption of blockchain currency, Venezuela became the first national government to launch an Initial Coin Offering (ICO) earlier this year. Venezuela’s ICO represents one of the world’s first experiments in tying a digital coin to commodity values, and if successful it may help the embattled nation relieve some of the extreme economic pressure it’s been under. However, corruption in Venezuela runs deep, and there appears to be several issues with the legitimacy of the world’s first cryptocurrency backed by the authority of a national government.
Venezuelan President Nicolas Maduro – a highly controversial figure in his own right, aside from his willingness to embrace cryptocurrency – released a new initial coin offering back in February of this year for a national coin called Petro. However, whether the Petro will achieve the policy goals it was meant to address remains to be seen.
Venezuela’s Cryptocurrency Tied to Oil Reserves
Like other enterprising coin entrepreneurs in the crypto space, Maduro decided to bolster the value of Venezuela’s cryptocurrency by tying it to the value of real-world commodities. This strategy has been attempted before with limited success, including coins allegedly backed by Siberian diamonds or English gold.
Despite these mixed results, however, Maduro decided to peg the value of the Petro is meant to the value of Venezuela’s oil reserves. The value of the Petro is purportedly grounded, quite literally, in the oil reserves of the country’s central savanna, beneath a town called Atapirire.
In launching the Petro, Maduro promised to revive some of the financial health of Venezuela’s struggling economy and alleviate its staggering poverty. Maduro intends to do this by excavating some 5 billion barrels of petroleum and selling off Petro, that also reflect the value of these sales. But residents of Atapirire and members of the global crypto-mining community at large are skeptical.
Can Petro Boost Venezuela’s Economy?
There are several barriers standing in the way of Maduro’s success with the Petro ICO. For starters, the government has not even started to drill the oil reserves that underpin the value of the Petro. The coin itself is still not available on any cryptocurrency exchange, and it is not accepted by any vendor. As a result, it appears that the Petro has little-to-no value, at least for the time being.
Perhaps the greatest threat to the Petro’s potential is Maduro’s regime itself. Maduro’s own cabinet minister told Reuters that Petro is still in its early stages and that the project has yet to yield any monetary or fossil fuel resources. However, Maduro has claimed that revenues from Petro sales have reached billion-dollar figures and that the country is already purchasing imports with the coin.
Maduro further muddied the project’s outlook when he announced that the Petro will now be pegged to the nation’s devalued currency, the Bolivar. The move is expected to fuel inflation and heighten economic migration by Venezuelans fleeing the chaos and poverty in their homelands.
Even in the relative cooling of the cryptocurrency market that has occurred recently, many forecasters remain optimistic that blockchain technology and decentralized wealth mechanisms are here to stay. If the unfolding story in Venezuela can tell us anything about that overall trajectory, though, it’s that even an idea founded on transparency and equity can fall prey to the exploitation of centralized power.
This is yet another reason why decentralization remains key in the financial revolution being fueled by cryptocurrency and blockchain technology, which at its core is meant to disrupt the very institutions that Maduro and similar regimes remain committed to supporting.