According to the Venezuelan government, the country’s cryptocurrency will launch within the next few days and will be backed by 5.3 billion barrels of oil worth $267 billion.
Earlier this month, Venezuela’s President Nicolas Maduro shocked both analysts who follow the country’s flirting with default and the cryptocurrency community by announcing that Venezuela wanted to launch the petro cryptocurrency, backed by oil, diamonds and gold reserves, to help the country to “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade.”
If it seems like a drastic and sudden move, consider those dire circumstances often call for dramatic action. Venezuela is currently in the midst of an overwhelming financial crisis, which the government hopes that this move will offset.
Despite the skepticism of cryptocurrency experts who do not think Venezuela has the wherewithal to pull it off, communications minister Jorge Rodriguez said the first petro offering would come within days.
Rodriguez explained, "Camp one of the Ayacucho block will form the initial backing of this cryptocurrency. The Ayacucho block is located within the southern Orinoco Belt, which overlies the largest deposits of petroleum in the world.It contains 5.342 billion certified barrels of oil. We're talking about backing of $267 billion," said Rodriguez, adding that that differentiated the petro from other cryptocurrencies such as Bitcoin.
While the most popular cryptocurrencies are based purely on social value, the Petro is an asset-backed cryptocurrency – though the circumstances of the state-owned company allocating the oil might be suspect.
Venezuela’s oil-backed cryptocurrency is not the only one in the works.
Earlier in December, a team of banking and technology managers and former U.S. regulatory commissioners said that they would launch the world’s first regulatory compliant cryptocurrency backed by a physical asset—OilCoin, which will be based on oil reserves. OilCoin’s public token sale, also known as the initial coin offering (ICO), is expected to begin in January 2018. The aim of the OilCoin is to tokenize barrels of oil, where each token will represent the value of one barrel, and provide users with a meaningful safe haven from cryptocurrency volatility, the team launching the digital currency said.
Cryptocurrencies have grabbed global attention partly because of the remarkable rise in the price of Bitcoin, making millionaires of many early investors, including some in Venezuela who used Bitcoin and other cryptocurrencies to shield themselves from strict foreign exchange controls which economists blame for the crisis.
Cryptocurrencies are decentralized and their success relies on transparency, clear rules and equal treatment of all involved. Venezuela gave no technical details about the petro.
According to Communications Minister Rodríguez, the petro cryptocurrency will comply with all mechanisms of the other cryptocurrencies, but the difference will be that Venezuela’s digital currency will be backed by hard assets, namely oil wealth and that Miners were already lined up.
The government appears to be hoping the petro will offset a collapse in Venezuela's currency - 97 percent in one year against the U.S. dollar on the black market - and isolate the country from the U.S. dollar and Washington.
Rodriguez also hopes to use the petro as part of a mechanism to pay international providers, many of whom have stopped supplying to Venezuela given its inability to pay its debts.