Fiat digital coins are coming. And the concept is just as clunky as the name.
This week, President Trump banned deals in the Venezuela Petro, a cryptocurrency backed by crude oil.
The Petro speaks volumes about Venezuelan finances. It also sounds a warning to crypto speculators.
The rules are changing. Buyer beware.
Financially, Venezuela is a disaster. Last August, the U.S. government imposed economic sanctions. The South American country was barred from borrowing from U.S. creditors. The Treasury Department also prohibited bond trades of government and state-owned entities, like Petróleos de Venezuela SA.
It was a death blow to an already cash-strapped country.
Deprived of the ability to raise capital and service its growing national debt, Venezuela has seen the cost of everything spiral out of control.
In 2017, inflation was 2,616%. Widespread food and medicine shortages, black markets and crime became part of everyday life.
But with the Petro, Venezuelan President Nicolas Maduro is promising a new era.
Last month, Venezuela officials said the first block of 100 million Petro tokens would become available between February 20th and March 19th. That would make the Petro the world’s first “fiat cryptocurrency.”
Maduro said the first-day of pre-sales raised $735 million, and that the value of the entire issuance could reach $6 billion. He also said the petro could “take on Superman.”
That all remains to be seen. Here’s what we do know now …
The Petro, which represents a barrel of crude from Venezuela’s Orinoco oil belt, is set for an initial coin offering March 20th.
Built on top of the Ethereum blockchain, the Petro has many of the characteristics that made a handful of initial coin offerings a hit with some speculators.
In theory, it is transparent and frictionless. In practice, however, it lacks decentralization. Cryptocurrencies are attractive precisely because they are outside of central control.
The Petro is merely an extension of the bolivar, the failed paper currency of Venezuela.
There is also the sticky matter of U.S. sanctions. Given the backing by the government, and the offer of state assets as collateral, the petro looks a lot like a bond offering. Buyers might be in violation of sanctions.
Russia, also the subject of crippling U.S. sanctions, is developing another fiat-digital coin, the CryptoRuble.
In January, the Financial Times reported Sergei Glazyev, Vladimir Putin’s chief financial adviser, told a government meeting that a cryptocurrency would allow the Kremlin to “settle accounts with counterparties all over the world with no regard for sanctions.”
The politics are tricky. But countries are taking a closer look at cryptocurrencies as a solution.
Brian Behlendorf, executive director at Hyperledger, an open-source blockchain platform, told Computer World that many countries are pushing hard to implement domestic digital tokens. The attraction, Venezuela and Russia aside, is reduced administration and lower costs.
The coins would be tied to the underlying domestic currency, or backed by a commodity.
Royal Mint Gold is a cryptocurrency backed by gold. It has the backing of the United Kingdom Royal Mint.
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