Venezuela’s state-backed cryptocurrency, Petro, is about to hit the market. Amidst an extreme economic crisis in the South American country, however, there is little reason to expect anything other than failure.
State-Issued Crypto Amidst a Crumbling Economy
Today, Venezuela is scheduled to launch the world’s first ever state-backed cryptocurrency with its new oil-backed Petro token, which many are construing as a desperate cash grab by a corrupt government amid an ever-worsening economic meltdown.
Called Petro, each digital token — according to Venezuelan President Nicolas Maduro — will be backed by one barrel of the country’s national petroleum.
100 million Petro tokens will be issued, with an estimated total market value of roughly $6 billion.
Though it might sound good on paper, there is little reason to expect anything other than speculative gains and long-term failure from the oil-backed cryptocurrency.
The volatile cryptocurrency market is largely governed by trust. Once lost, the value of a cryptocurrency can easily lose upwards of 95% of its value in as little as a day — and there is very little reason to trust the Venezuelan government.
Maduro’s socialist regime is currently cracking down on domestic freedoms, and the country’s finances have been crippled by international sanctions — making Venezuela the world’s most miserable economy for the last four years.
As noted by CNBC, Venezuelan citizens are currently dealing with widespread food shortages in addition to hyperinflation — expected to hit 13,000 percent this year — which has rendered the country’s traditional currency all but worthless.
According to Harry Colvin, director and senior economist at Longview Economics, the chances of success for Petro are slim to none, telling CNBC:
Venezuela has been known for misappropriation of assets in the past and the central bank has just created hyperinflation so I imagine there’ll be trust and transparency issues … If Maduro loses the election in April — or is forced out of power — then petros would probably be made illegitimate.
Providing even less confidence in the state-issued cryptocurrency is the fact that the oil allegedly backing the tokens hasn’t even been pumped yet, and the Venezuelan government isn’t in complete control of the venture.
Meanwhile, some financial analysts have pointed out that Venezuela’s cryptocurrency experiment will be nothing like Bitcoin.
There is no moon potential for the #petro. As a commodity backed currency, the best case scenario is that it remains with a stable price.
— Mati Greenspan (@MatiGreenspan) February 20, 2018
Of course, Maduro himself thinks his cryptocurrency will be a resounding success, stating, “The future is now … Venezuela is moving forward as an economic powerhouse,” despite widespread cases of food shortages and a rapidly increasing unemployment rate.
More National Cryptos Incoming?
Nevertheless, the project illustrates the potential for more legitimate, state-issued digital currencies in the future — just not from ones in the midst of an economic meltdown.
Garrick Hileman, a cryptocurrency researcher at the University of Cambridge, believes Petro — despite its faults — “validates cryptocurrencies.” He told CNBC:
In some ways I think this further validates cryptocurrencies but at the same time there are a tremendous number of questions around the petro. Will it be redeemable for the assets that are underlying it? What exchanges will it be traded on? How decentralized will it actually be? More questions than answers for the petro at this stage.
What do you think about Petro, the world’s first ever state-issued cryptocurrency? Do you think the project is doomed to fail? Let us know in the comments below!
Images courtesy of Bitcoinist archives, Shutterstock, AdobeStock.
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