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Venezuela Announces Resource-Backed Cryptocurrency: The “Petro”

  • 13 January 2018
  • Cas Proffitt

Blockchain and cryptocurrencies bring new potential for financial markets around the world. Funding opportunities for startups, secure and immutable networks for document transfer, and even gaming. Venezuela has been enduring a severe economic situation since 2014. Some symptoms of this crisis include inflation, and more recently, hyperinflation, inability for citizens to acquire basic goods, and a falling currency value.

While Venezuela is a resource-rich nation, their currency, the bolivar, has dropped significantly in value. Some efforts taken to curb this decline were replacing the 100 bolivar note with a 500 bolivar note, introducing a 20,000 bolivar note in early 2017, and even a 100,000 bolivar note in late 2017. The results were, ultimately, outrage and increased inflation. Bloomberg reports that when the 100,000 bolivar note hit the black market, they were being sold for approximately $2.42.

The International Monetary Fund (IMF) expects the situation in Venezuela to worsen in the new year, with inflation rates rising as high as 2,300%.

The Venezuelan President, Nicolas Maduro, announced plans for a natural resource-backed cryptocurrency called the “Petro.” The Petro will be backed by Venezuelan resource reserves:

  • Gold
  • Oil
  • Diamonds
  • Natural Gas

Cryptocurrency expert Max Keiser commented on the holiday announcement,

Venezuela is attempting to fight hyperinflation with a new (hopefully, if done right) deflationary cryptocurrency, the Petro.

While Keiser is hopeful about the future of the Petro, some others are criticizing the lack of information about the mechanics and underlying technology. For example, Economist Jean Paul Leidenz warns that the cryptocurrency could have an adverse effect on citizens who only use the bolivar.

What are some potential benefits of the Petro?

The Petro is intended to act against inflation, allowing the Venezuelan economy to regain some stability. If the Petro tied to the country’s resource stores, this is a legitimate possibility, but there will be significant design concerns, such as immutability, open-source versus closed-source, and more that must be considered for the newly announced cryptocurrency.

If all goes well, then the Petro could help stabilize their economy, and alleviate some of the country’s economic struggles.

What are some potential pitfalls for the Petro?

If everything does not go according to plan, the blockchain is centrally controlled, or the underlying protocol is not immutable, then the Petro could have the opposite effect, creating even more inflation within the Venezuelan economy, driving prices even higher, and resulting in a system which may closely resemble the current government operations.

Along the same lines, Citizens have been mining and using bitcoin to circumvent some of the difficulties associated with the Bolivar, such as, difficulty in exchanging it for foreign currencies.

How can the Petro impact the blockchain ecosystem?

The impact of the Petro on the industry will ultimately depend on the course of development it follows. The Petro could have a significantly positive impact and bring it closer to adoption or turn out to be in no better position than the Bolivar and ultimately shed cryptocurrencies in a negative light within the media.

Would you use a resource-backed cryptocurrency? Let us know in the comments below!

About Cas Proffitt

Cas is a B2B Content Marketer and Brand Consultant who specializes in disruptive technology. She covers topics like artificial intelligence, augmented and virtual reality, blockchain, and big data, to name a few. Cas is also co-owner of an esports organization and spends much of her time teaching gamers how to make a living doing what they love while bringing positivity to the gaming community.