Inside the bluster and lies of Petro, the scam of the Venezuelan cryptocurrency

A truck is set on fire by protesters in the Venezuelan capital of Caracas in July 2017

JUAN BARRETO / AFP / Getty Images

For Jorge Farias, head of the Venezuelan startup Cryptobuyer, Petro is personal. Whatever it is in the cryptic world is

But it is a special case with the Petro, the new cryptocurrency sanctioned by the Venezuelan government and designed to strengthen the bolivar, the national currency afflicted by the country's inflation. International experts, however, have rather straightforward words for Petro: it's a scam on top of another scam.

Farias, elegantly dressed and with short stubble, launched Cryptobuyer three years ago, to help Latin Americans use cryptocurrencies to protect their salaries and savings. Cryptocurrencies can be highly volatile; bitcoin, for example, has plummeted from its peak value of $ 19,000 in January to around $ 6,000 now. For consumers in Venezuela, however, this probably counts as fairly stable, given the hyperinflation that drives your country close to economic collapse. Logically, therefore, launching a cryptocurrency like Petro created by the state is a smart move, right? Mistaken.

The International Monetary Fund recently predicted that the economy of Venezuela will shrink by about 18 percent this year, while inflation is set to rise to one million percent. Two months ago, the annual inflation rate stood at 40,000 percent. People are afraid; more than 400,000 Venezuelans have already crossed the border in neighboring Ecuador, trying to escape the ramshackle economy of their home. Brazil also experienced a surge in illegal immigration.

The government of Caracas, however, believes it can overcome the situation with some rather unusual economic measures. Apart from the cryptocurrency, the state relaunched its official paper currency and coins as the "sovereign bolivar", but only after having devalued the traditional bolívar by a whopping 95% and then renaming it, cutting five zeros from each banknote. For one US dollar, you will not get 250,000 bolivars but about six million. The move is not unprecedented: in 2008, former president Hugo Chavez replaced a previous incarnation of the local currency with his Bolivar Fuerte, eliminating three zeros at the end.

"The same thing is happening again, but now with a smokescreen that says they will use blockchain and Petro technology," says Roger Benites, managing director of BitInka, an encrypted exchange based in Lima, Peru, but operating in many countries of Latin America (and until recently, also in Venezuela).

A new cryptocurrency will not solve the economic crisis in Venezuela

The Petro was announced last December at the height of the crypto-bubble, emerging just as the Venezuelans sought to raise billions of dollars in the wake of rather vague white sheets that outlined an initial supply of money. The encrypted world was confusing, but curious: this could be the first time that a government would issue its digital money. "At least the Petro had some connection with the physical world, compared to other things that were happening in the crypt at that moment, maybe it was not so absurd a concept," says Aaron Stanley of the Sweetbridge blockchain.

Cryptocurrencies can be disruptive, but in the Venezuelan context, Petro seems more of a folly. The Venezuelans are encrypted – they were forced to become experts by necessity while trying to survive in the middle of a paralyzed economy. For many months, the Venezuelans have put their meager savings into bitcoins, which has allowed them to avoid the collapse of the bolivar.

The extraction of Bitcoins in Venezuela is a dangerous trade, however, and has landed in many prisons. The Venezuelan government subsidizes electricity, so when miners use cryptocurrency to smuggle goods into the country, the government follows them and chase them by monitoring electricity consumption levels. The result is either jail – or the need to pay a heavy bribe.

"And now the country is embracing cryptocurrency? It looks like a wonderland!", Says Benites. He remembers how his company's office in Venezuela was shut down, because, he says, it was a target of extortion by public employees and local law enforcement agencies. "One of their high-level officials from the police intelligence agency was treating bitcoin miners as terrorists, and even came out saying miners brought bitcoins to the border of Colombia to exchange them for US dollars. National intelligence was saying that there was a physical bitcoin! And now they have a national cryptocurrency – so who will undermine it or support the network? "

A Petro should get $ 60 or 3,600 sovereign bolívars. It is presumably supported by oil barrels produced by the national oil company PDVSA; the catch: PDVSA also has debts for $ 45 billion. And in real life, the Petro – crypto or not – does not exist at all. "We have not seen a single Petro in circulation, nor his smart contracts, nor the rules of the token, nor his blockchain," says Farias.

In a sense, introducing the Petro is a bit like a trick pulled by Germany's government in the 20s, when he invented the Rentenmark to end hyperinflation and made it stable by supporting it. with a mortgage on all the assets used for agriculture and business. So it worked, not least because the property was something that the Germans understood and could hold. This time, however, the situation "is simply nonsense, a legal currency with a cryptocurrency tied to the barrels of oil of an entity that has a foreign debt that they can not pay," says Benites.

And in contrast to Germany, Petro is more than a fundraising gimmick. Its ICO has already – presumably – raised the equivalent of $ 3.3 billion. "It could be a stunt, but a stunt that works," says Dickie Armor of the consulting firm Ico Corre Innovation. "The question is: work for whom? President Nicholas Maduro and his cohorts? Or the people of Venezuela? Unfortunately, it is more likely to be the first," he sighs.

Farias Cryptobuyer has helped many Venezuelans since the beginning, offering customers gift cards for online stores such as Amazon that can be paid for with cryptocurrencies, allowing people to buy medicines, food and other supplies for the price of dollars that otherwise they would be inaccessible in a country where the government has been closely monitoring currency trading for over a decade. "We are going to issue our token through an ICO," says Farias. But unlike Petro, it will be "a functional and tangible product" with real and demonstrable uses. "La Petro has so far proved neither one thing nor the other, and is banned from the international market."

Dangling the prospect of a new digital currency could give the Venezuelans a false hope. Once the initial excitement is over, they may soon realize what Petro really is or is not. "Probably the government hopes the Venezuelans will think that Petro is the same as bitcoin, but it is not," says Avivah Litan, Gartner's blockchain technology analyst. "Petro is a coin issued and controlled by the same Venezuelan, incompetent, corrupt and opaque government that manages their legal currency, people are not stupid and will not buy it".

It is ironic, however, that cryptocurrency – an inherently unstable, unstable and relatively new concept – should save a legal currency. "One could say that desperate times with a hungry population result in desperate action," says Team Blockchain's Jonathan Fry. "What is a legal currency, but a promise to pay off your debts or at least to pay interest on your debts." The cryptocurrencies are not all good, but they definitely have a place and are a new class of activity, no way around this, says Fry.

If the government had anchored the bolivar to bitcoin, things could be different, because the bitcoin is decentralized, so hackers will not be able to take it easily. Most of the cryptic fans also claim that the essence of digital money is not having a central authority and a central bank. With bitcoin, due to decentralization, the state can not take it away. With a fiat or Petro coin, you can do it a lot.

If Petro is nothing but a smokescreen, then why does it matter? Now that Caracas has officially launched the Petro, lawmakers in Iran and Russia are also considering the benefits of creating their own cryptocurrency. "All these countries have three strands in common: they are authoritarian (or profoundly undemocratic), they have a lot of oil and they are under sanctions," says Alex Tapscott, the head of the Canadian company VC NextBlock Global. Venezuela is an example, showing how rogue governments could use their cryptocurrencies to undermine the law, international treaties and sanctions and further destabilize their already weak economies.

Except that there is no way it ever works. It is likely that Petro goes in the same way as the Venezuelan economy itself. Fast.

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