Venezuela petro cryptocurrency
  • Petro is cryptocurrency, created by the Venezuelan government to control inflation.
  • Its value is tied to the price of oil in an effort to keep it stable.
  • Venezuelans are using Dash instead, due to its speed and reliability.

Venezuelan president Nicolás Maduro just ordered every bank in the country to adopt its new cryptocurrency: the petro.

Maduro has hailed petro as a savior to Venezuela’s economic trouble, but the US authorities call it a scam. So what exactly is it and are Venezuelans using it?

An answer to hyper-inflation?

Venezuela’s economy is crippled by hyper-inflation. In July alone, prices rose by 82,766%. The country is now on track to hit 1,000,000% annual inflation.

Millions have fled the country, food and medicine supplies are low, and the army is guarding the Brazilian border.

Maduro’s solution was to replace the hyper-inflated “bolivar” with a new currency, “sovereign bolivar.”

The sovereign bolivar was then pegged to a cryptocurrency, petro.

Petro is backed by oil

The idea is to keep petro (and therefore the new sovereign bolivar) stable by tying its price to that of oil.

One petro is worth roughly $60, the same price as one barrel of Venezuelan oil. The concept was outlined in the project’s white paper, with a view to creating a currency backed by raw materials.

The Venezuelan government set aside five billion barrels of oil to back the currency.

Pre-mined

Petro is entirely controlled and produced by the government. It was pre-mined before Maduro announced a crypto sale.

According to the government, the pre-sale generated billions, but there is no record of this claim.

Why is petro controversial?

When Maduro created the new sovereign bolivar and petro, it devalued the old currency by 95%. Although it aims to bring stability, Venezuelans are being forced to adopt a wildly devalued currency.

Some have claimed the petro is also being used to sidestep international sanctions. The country is reportedly using the petro to conduct deals with Brazil, although Brazil has not confirmed this.

Donald Trump issued an executive order banning any US companies making transactions in the cryptocurrency.

Why Venezuelans are using dash instead

Despite the hype around petro, Venezuelans are flocking to dash. Dash was built on bitcoin’s source code and aims to be a global, digital form of cash.

The adoption in Venezuela is so rapid, the price has risen 10% in the last 24 hours alone.

According to Ryan Taylor, CEO of Dash Core Group:

“We are seeing tens of thousands of wallet downloads from the country each month. Earlier this year, Venezuela became our No. 2 market, even ahead of China and Russia, which are, of course, huge into cryptocurrency right now.”

Retailers like Subway and Calvin Klein are now accepting dash in Venezuela.

But why dash? The cryptocurrency is faster than bitcoin and more decentralized than petro. As the crisis in Venezuela continues, expect cryptocurrencies to make further headway. Just don’t bank on it being petro.

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Despite the Venezuelan government embracing cryptocurrency with open arms – even launching their own oil-backed Petro cryptocurrency in an effort to solve the country’s economic crisis – according to a new report from local Venezuelan media, the country has taken a stand against cryptocurrency mining, outright banning related computer equipment from entering the country.

The report states that the Venezuelan government made a policy change at the end of April that restricts computer equipment such as GPUs or ASIC miners. Customs authorities have been seizing related devices received by air and sea since the change went into effect.

Shipping companies such as Liberty Express and DHL, who ship these mining devices to Venezuela on behalf of their customers, have either updated their pages on restricted products entering Venezuela to include mining equipment or have sent out notices to their customers notifying them of the changes to avoid any inconveniences they may experience as a result of the policy change.

The policy change has already gone into effect, but only on a temporary basis until officials from the National Association of Cryptocurrencies meet with the Superintendence of Cryptoactives and Related Venezuelan Activities to address the issue next week.

Weeks ago, Superintendent Carlos Vargas indicated that the country was evaluating authorizing companies to import digital mining equipment to sell in Venezuela:

“We are in an evaluation process to select and authorize companies that are qualified to import and market digital mining equipment and be responsible for the respective guarantees in our country.”

Vargas warned individuals mining cryptocurrency to be “prudent at the moment of acquiring the equipment since until now no company has been endorsed or certified,” by Venezuelan regulators.

Considering Vargas’ statement, the ban appears to be temporary until the government finalizes authorizing company’s to begin importing mining equipment for resale in Venezuela.

Bitcoin trading volume has achieved a new record in Venezuela, surpassing $1 million per day as locals turn to cryptocurrency for relief from the hyper-inflated bolivar.

Citing data from peer-to-peer (P2P) trading platform LocalBitcoins, Bloomberg reports that bolivar-to-bitcoin trades accounted for $1.006 million in volume on Monday, marking the first time that this trading pair has eclipsed the seven-figure barrier in a 24-hour period.

bitcoin trading
Daily Bolivar to Bitcoin Trading Volume | Source: Bloomberg

The country’s economic woes have been well-documented, and they have been underpinned by runaway inflation that has seen prices rise by nearly 8,900 percent over the past calendar year.

The government no longer issues official inflation figures, so platforms like LocalBitcoins, which allow users to organize trades on their own terms, provide efficient price discovery for the bolivar, whose value rapidly declines on a daily basis.

After obtaining bitcoin, Venezuelans often trade it for USD, which is the primary currency of the country’s black market. Others have taken to keeping most of their liquid assets in bitcoin, trading it for bolivars only when they need to make a purchase.

Venezuela’s government has turned to cryptocurrency as a solution to its economic ills as well, creating a state-backed cryptocurrency called the “petro” that is allegedly backed by barrels of oil from the country’s crude reserves.

The government has said that the petro will become legal tender for all government transactions within the next several months, forcing government agencies to accept payments made with the token, which runs on the NEM blockchain.

President Nicolas Maduro claims that the initial coin offering (ICO) for the petro, which began in January,  has raised more than $5 billion, a figure that would be a record for cryptocurrency token sales. However, most independent analysts — and the country’s opposition party-controlled legislature — dispute its accuracy, and there is currently no evidence that the petro has raised any money at all.

venezuela

Government cryptocurrency is coming, whether we want it to or not. On the 28th of December in Caracas, Venezeual’s Information Minister Jorge Rodriguez said: “It is a matter of days before we announce the first issuance of the ‘petro’ cryptocurrency.” Information Minister Jorge Rodriguez said these words at a press conference regarding ‘Petro’, broadcast on state TV Thursday.

Early in December, Venezuelan President Nicolas Maduro announced that Venezuela would be issuing their own cryptocurrency in order to circumvent U.S.-led financial sanctions.

According to Rodriguez on Thursday, the Petro will help Venezuela face the increasing international diplomatic opposition regarding President Nicolas Maduro’s crackdown on any political opposition at home. Rodrigues also hopes the Petro will help him skirt sanctions or attacks on Venezuela from the international financial system at large. “It will allow us to overcome any financial blockade.” He said.

Not the first announced government cryptocurrency, but Petro could possibly be the first to market

While not the first announcement of a government-issued cryptocurrency, nor nearly the first time that government has meddled in crypto,  the Petro is the first cryptocurrency to be backed by physical assets. Maduro stated on Wednesday that more than 5 billion barrels of Venezuelan oil will serve as the backing for the cryptocurrency. This oil should be able to back around $267 billion worth of currency, compared to the Bitcoin’s current market cap of $247 billion.

While he didn’t give any further details on mining or how this would be secured or “decentralized,” Rodriguez did say that miners were already lined up. Needless to say, we’re eager to find out how this government cryptocurrency will function.

Venezuela to launch Petro cyrptocurrency