Petro, Venezuelas Oil-Backed National Cryptocurrency

BitCoin is hitting the headlines in Venezuela. The country’s President, Nicol?s Maduro, has officially embraced blockchain and P2P technology. On December 3, 2017, he announced that a new cryptocurrency, known as the Petro, will be introduced to Venezuela. It will be funded by the country’s reserves of gold, oil, diamonds, and gas. The aim is to counteract what the left wing leader describes as a financial ‘roadblock’ against the struggling nation, due to American sanctions.

A Modern Solution to an age-old Problem

Maduro said that the new cryptocurrency will allow Venezuela to make progress, with regards to financial sovereignty. He maintains that this policy will open up different options for global funding, to facilitate the country’s social and economic development. After the president’s announcement, the government finance department stated that a system of cryptocurrency is required, to perform monetary transactions and offer new avenues for financing.

Critics Quick to Discredit the Idea

The concept of introducing a Venezuelan cryptocurrency was greeted with contempt by Maduro’s political opponents, who don’t believe that the poverty-stricken country is capable of pulling off such a launch. Angel Alvarado, an opposition economist, and lawmaker, told Reuters that the policy demonstrated Maduro’s ineptitude. As far as Alvarado is concerned, the plans cannot work in practice and Jose Guerra, who is an opposition legislator, commented that the policy is doomed to fail over the long term.

Tough Times for the Economy in Venezuela

The Bolivar, which is the fiat currency in Venezuela, has been steadily declining in value. Last month, roughly fifty-seven percent of its’ value was lost on the black market, pulling the country’s minimum wage each month down to $4.30. As a result, millions of Venezuelan citizens are living in poverty, and struggle to afford three meals per day.

On December 1, 2017, 103,000 bolivars was the rate on the black market for one dollar. In July 2017, the rate was 10,000. The IMF (International Monetary Fund) reports that the Venezuelan economy has shrunk by twelve percent in 2017 and that its’ yearly rate of inflation is predicted to exceed 2300 percent in 2018.

Bitcoin Mining Becomes More Popular With Venezuelans

Because of this hyperinflation, many Venezuelans have turned to bitcoin (BTC) mining to fund basic essentials, because power is greatly subsidized to the extent that it is basically free. According to Daniel Osorio from Andean Capital Advisers, who was interviewed by CNBC a few months ago, hyperinflation makes it difficult to pay in cash, because dollars are so scarce in the country. He went on to say that potentially, Venezuela could be the first sovereign state to undergo bitcoinization.

In the meantime, bitcoin trading and mining activities have increased in Venezuela. Citizens use a bitcoin wallet containing a private key, which allows them to spend bitcoins. These transactions are verified using a digital signature. The signature proves that the person who performed the transaction owned the private key — and therefore the bitcoins. In May 2017, it was reported by that bitcoin purchases helped to feed many Venezuelan families, who would have otherwise starved.