Congratulations, 21st Century! We now have the first-ever state-sponsored cryptocurrency.
But it’s not exactly time to celebrate.
It all burst onto the scene one week ago when Caracas made its “big” launch announcement — the Petro. Just as expected.
And it all erupted into a giant controversy, also as expected.
The design of the Petro was changed at the last moment.
The message coming out of the Venezuelan government about its use was itself cryptic.
And the entire notion of a nation-state, especially an autocratic one, launching a crypto runs completely counter to the foundational principles upon which cryptocurrencies were created in the first place.
So why isn’t it just a non-event? For three reasons …
Reason #1. It’s another telltale sign that cryptocurrencies are coming of age. One more bullet against the argument that crypto is merely fluff, or thin-air hype. (Even if that’s what Venezuela is into.)
Reason #2. This idea could spread. More adversarial or rogue states could go to crypto. Already on the waiting list: Russia, Iran, Turkey.
Reason #3. Depending on how that goes, other national cryptos could emerge from independent states large and small.
All of this has broad financial and political ramifications.
That’s why I decided to look into the Petro. But you should know now we will not be rating this coin.
Why not? Simple. The Petro is no different from any other state-backed fiat currency.
“But isn’t it based on blockchain?” you ask.
Sure. But that’s just a matter of form, not substance. Like painting lipstick on a pig. Get under the veneer, and you’ll see it’s built with the same basic stuff as a fiat currency.
Plus one more ingredient: Lies.
You see, Caracas claims that it has raised some $735 million in pre-launch sales.
But we know that’s patently false. How? It’s the power of the blockchain.
We know the address that holds the Petro tokens on the NEM blockchain.
We know this one address holds literally the entire Petro token supply.
We also know there has been no movement so far. None. The Petro hasn’t raised a dime.
You can fool some of the people. Maybe even Mother Nature. But not the blockchain.
It was created to provide a level playing field among all the actors involved in financial transactions. They are open, transparent, borderless, decentralized, peer-to-peer transactions. They are designed to be censorship-resistant.
These are not just fancy terms; they are real concepts with real-world implications.
Here’s a good example: If a government and its government-controlled media tries to hype, pump or mass-print its fiat currency, even an international consortium of Nobel-Prize winning economists might have a hard time uncovering all the facts.
But as soon as that government decides to launch its currency on a PUBLIC BLOCKCHAIN, anyone with an Internet connection is just a few clicks away from the truth.
In this case, not a single Petro has moved from the original wallet that holds it.
What makes the story bittersweet is this: The people of Venezuela face a true humanitarian crisis. It is not a laughing matter. Their government’s attempt to co-opt crypto-technology — while resorting to the same old tricks of currency manipulations behind a dark veil — is also sad.
Here’s where it does start getting funny …
- Apparently, their crypto team didn’t even know enough to run test transactions with the Petro token. Instead it just sits there, untouched, in plain sight for anyone who cares to look.
- Their marketing talks about “backing” the Petro with “Venezuelan Oil.” That was their big unique selling proposition. But I went through their Petro whitepaper with a fine-tooth comb, and I can find no mention of how they intend to do that. It’s vaporware.
- The Venezuelan government says it intends to sell some 82.4 million of its 100 million Petro coins for $60 each. (Roughly the price of one barrel of crude). Fat chance.
- You can buy Petros with most major currencies. But there’s one currency they will not accept: Their own bolivars. (I guess they know better than anyone how much those are not worth.)
- They say they also intend to accept tax payments in Petros. Plus they say they kinda sorta consider the market value of one barrel of oil when determining the tax-payment value of each Petro. (My definition of “kinda sorta” = mathematical formulas in their whitepaper that make no sense to me or any other mathematician I know.)
- Yes, the Petro could be benchmarked to the price of crude for the payment of taxes inside Venezuela. Trouble is, the price of crude will be in bolivars, and the government will dictate the bolivar exchange rate at ridiculously inflated levels. In other words, the same old smoke and mirrors.
The Petro is a worthless token that may or may not be usable for paying taxes in Venezuela.
Thus, for all those residents of Venezuela (or other autocratic countries) fearful of what new powers their governments will wield with cryptocurrencies, I do have once piece of good news.
Their crypto projects are bound to fail — and become a forgotten footnote in the future archives of history.
Best,
Juan