How Venezuela could save their economy using Blockchain technology and the petro cryptocurrency.
Petro cryptocurrency, an unexpected help
The new Venezuelan currency will see its value modeled on the petro cryptocurrency. A digital asset launched by the government this spring to escape hyperinflation.
The financial turmoil in Venezuela does not offer any signs of respite with the national currency losing all its value. Moreover, the International Monetary Fund predicts that inflation will reach 1 million percent in 2018. On August 23 the Venezuelan President, Nicolas Maduro, announced the introduction of a new currency, the sovereign bolivar. This new currency would count five less zeros than the current bolivar. The value of the sovereign bolivar would be modeled on that of petro cryptocurrency launched by the Venezuelan government in February.
New petro cryptocurrency became the first digital asset in the world created by a state. It has the particularity of not being subject to speculation. According to official documents describing how the petro cryptocurrency works, those documents states the petro currency as just “oil-indexed” and unlike cryptocurrencies such as bitcoin – which are very volatile. This allows it to maintain a relatively stable value, the petro cryptocurrency is currently worth $ 60, equivalent to 3,600 sovereign bolivars.
The authorities of Caracas hope to stabilize the new bolivar to prevent the hyperinflation faced by its predecessor. Nicolas Maduro also mentioned: “We will convert the petro cryptocurrency into a reference to fix all the movements of the economy”. A minimum wage, for example, set at “half a petro” or 1,800 sovereign bolivars. That’s 34 times its current value.
Petro Cryptocurrency with stable value
The “stablecoins”, cryptocurrencies with a “stable” value of which petro cryptocurrency is an example, have been controversial because of their modes of operation deemed fraudulent. Thus, the main outstanding stable coin, Tether, now supposed to stay linked to the US dollar. Each tether issued must match a dollar present in the funds of the start-up at the origin of this cryptocurrency. But recent research revealed that the tethers that were not link to the dollars, and its use was simply to manipulate the bitcoin rate. A similar problem could arise in Venezuela, where no audit organisation could verify that each petro cryptocurrency is well coupled with a real amount of oil.
Some analysts criticized the lack of technical specifications on the internal functioning of the petro cryptocurrency. The ConcourseQ start-up, which estimates the reliability of various cryptocurrencies, is subject to multiple inconsistencies in official documents. “Is petro backed by oil? No. There is no specific and legal method of conversion between petros into barrels. Moreover, even if correctly implemented, the petro cryptocurrency exposes itself like all cryptocurrencies to risks of piracy. During November 2017, 30 million dollars in Tether got stolen during a virtual burglary.
As soon as the launch of the petro cryptocurrency, the United States banned its own nationals from buying or selling this digital asset. Hence, in the broader context of sanctions against Venezuela, state-issued. Cryptocurrencies are gaining more and more popularity in countries hit by international financial sanctions. Iran being the next in line and preparing to launch its own cryptocurrency.