Caracas Chronicles

Original art by @modográfico

A lot has been said about the Petro, Nicolás Maduro’s much ballyhoo’d new cryptocurrency, but little is known for sure. When it comes to the Venezuelan government, we know they like to keep things tight and the Petro affair won’t be any different.

Chavismo’s plan is to just tell the market how many Petros there are, how much they’re worth, the method of acquisition and if transactions are registered by machines or an underpaid intern.

That sounds bad, but it’s not the reason I mistrust this thing.

The Petro is a blockchain project, with the particularity that all coins are already mined; a blockchain is a record of ongoing interactions between users of a decentralized system where cryptography protects the integrity of transactions. Interaction blocks are usually “mined”, which means they are registered by machines solving mathematical problems to earn the privilege to confirm them.

The supply of premined coins is limited, that’s why demand can add value to these assets. Liquidity of privately-owned blockchain, on the other hand, can be managed through the purchase and sale of coins, as the company considers market behavior.

Other cryptocurrencies have also been premined. Ripple, for example, is a privately mined token with the 3rd largest market capitalization and signs of acceptance by a few banking institutions.

No centralized registry, no closed doors and certainly no Superintendente De Los Criptoactivos. This is a big reason I believe the Petro will fail: trust.  

Now, in the case of the Petro, the initial sale will be privately held and the government will choose who can collaborate on the transaction verification process. If you feel like this is the same failed exchange-schemes the government has tried before, that’s because it is. A “public auction”, sort of like CADIVI, will sell crypto this time, for all those bolÍvares running around. It may change later, but the boy has cried wolf before and who’s to say the government won’t only sell once, get some money and call the whole thing off?

If you needed funds from a foreign government (cough-cough, Russia) to finance your presidential campaign and sanctions blocked that transaction, you could try to create a digital system where anonymous trade could be held and untraced, then use these premined coins to exchange them for other currencies anonymously. You may exchange your Petros for Bitcoin, transfer that to a wallet in China, Russia or whatever, withdraw that money from an unregulated exchange with little identity rules and turn them into cash. Or pay directly in Bitcoin.

Why would you go through all that trouble?

Petro, like other cryptocurrencies, has no intrinsic value, besides the underlying technology making peer-to-peer transactions on a decentralized manner. Other coins, like Ethereum, also began their premined journey successfully. The big difference is that in those cases, anyone anywhere could open a digital wallet, purchase the coins and exchange them for goods online. No centralized registry, no closed doors and certainly no Superintendente De Los Criptoactivos. This is a big reason I believe the Petro will fail: trust.

Guys, the Petro is nothing but a self-financing scheme that will work with some success and disappear like every other foreign currency scheme the government has implemented. Question is: will this be a lesson on the inefficiencies of current sanctions? Or will the Petro be remembered in history as the smartest way to avoid them?