This article is the second in a series of three. To read the first, click here.
Cryptocurrency and blockchain technologies have been slated as technological ‘saviors’ that will allegedly solve many of the world’s problems and put power back in the hands of ‘regular people’.
While the movement surrounding decentralized currency has improved the lives of many, there are some entities who seek to capitalize off of crypto’s revolutionary buzz. The newest of these hopeful crypto adoptees? Governments of financially stricken countries.
The Venezuelan Petro–Power to the People?
It’s no secret that Venezuela has been hit by another round of hard times. In addition to the rampant financial crisis, Venezuelan President Nicholas Maduro abruptly announced that presidential elections would be held in April–and, of course, he would be the official candidate.
Bloomberg reported that ATMs are running out of banknotes as inflation continues to surge; banks are reportedly limiting withdrawals to just a few cents a day.
What’s worse is that according to the International Monetary Fund, this is just the beginning–Venezuela’s inflation is predicted to balloon to 13,000 percent by year end. The country’s economy is set to contract by 15 percent over the same time period.
The Venezuelan Petro, the country’s controversial national cryptocurrency, was originally announced in a Christmas television special by Maduro, who said: “Venezuela will create a…cryptocurrency to advance monetary sovereignty, as it will help to overcome the financial blockade and thus move towards new forms of international financing for the economic and social development of the country.”
Essentially, Maduro was (and is) touting the Petro as the silver bullet that will end the financial crisis. The cryptocurrency, which is backed by commodity reserves (i.e. oil), has been branded as a tool that will “promote well-being” and “[bring] power closer to the people.”
If all goes according to plan, the currency can be used in conjunction with the Venezuelan national ID card to pay taxes, government fees, contributions, and national public services; the currency is also slated to be used for everyday purchases. In a departure from the initial proposal of the Petro currency, which said that the Petro would be a pre-mined coin, Petro “mining farms” have been set up at educational institutions.
Maduro has also “authorized all savings banks in the country to join the cryptocurrency production system and acquire the petro to contribute the benefits to their workers,” according to the Venezuelan government website. The move has outraged bank union organizers, who say that the imposition of the Petro is an act of totalitarianism.
According to the Petro website, “the Venezuelan government is committed to promoting the use of Petro in the domestic market and making efforts to encourage its acceptance throughout the world.”
In an announcement on Venezuelan state television, Maduro declared: “This is the moment to accelerate the entry of the Petro, to have faith in what we’ve created and in the technological and intellectual capacity of our country.”
“The Petro will have a great impact in how we access foreign currencies for the country and in how we obtain goods and services that we need from around the world,” he said.
However, bank unions aren’t the only ones who aren’t on board–and for good reason.
The Petro Requires Good Faith in a Government that Many Regard as Untrustworthy
Although the coin claims to be backed by commodity reserves, the whole system relies on trust in the Venezuelan government’s promise that it will exchange Petro tokens for oil and other commodities; there is no legal securitized value.
In fact, the only guarantee of any sort of securitized value is this simple statement in the Petro whitepaper:
“The Bolivarian Republic of Venezuela guarantees that it will accept Petro’s as a form of payment of national taxes, fees, contributions and public services, taking as a reference the price of the barrel of the Venezuelan basket of the previous day with a percentage discount of Dv.”
The messages of ‘decentralization’ and ‘power to the people’ that the Venezuelan government have been shouting from the rooftops may be nothing more than empty words spoken in an attempt to regain the trust of the public. Fritz Charles, founder of Coin Gamma, told Finance Magnates that the advent of the Petro was nothing more than “a phantom launch aimed at establishing a positive public perception.”
Official DASH spokeswoman Amanda B. Johnson stated in an email to Finance Magnates that “currency is first and foremost an instrument of trust.”
She continued: “If a group of individuals have publicly shown themselves incapable of providing good stewardship over paper money, why would anyone think their stewardship practices would change when managing digital money?… It is entirely accurate to say that a cryptocurrency is only as good as its administrators are wise.”
Indeed, here has been quite a bit of criticism over the technical substance of the Petro. Immediately following the announcement of the Petro, Reuters quoted lawmaker Angel Alvarado as saying that the Petro had “no credibility” and that the whole thing was just “Maduro being a clown.”
Indeed, financial analyst Matt Levine wrote that the Petro whitepaper was much more a manifesto than anything else, and that “the petro is just a way to hide new international debt behind crypto mumbo-jumbo.”
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In a blog post for the Peterson Institute for International Economics, researchers Monica de Bolle and Martin Chorzempa wrote that the Petro “combines serious misunderstandings with wishful thinking about the benefits of blockchain technology, along with evidence that the government is either trying to fool its populace or that it does not understand the basics of cryptocurrencies, or both.”
The Venezuelan government is hoping to raise a whopping $6 billion through the sale of PTR, which began on February 20th.
Something Doesn’t Add Up
Despite the widespread criticism of the Petro, however, Maduro claimed that $735 million was raised in the first day of the sale alone.
A grandes problemas, ¡grandes soluciones! Desde el primer minuto el juego arrancó bien, y arrancamos ganando: 4.777 millones de yuanes o 735 millones de dólares es el resultado inicial de las operaciones de intención de compra del Petro. #AlFuturoConElPetro pic.twitter.com/LoaDgj4rr1
— Nicolás Maduro (@NicolasMaduro) February 21, 2018
Estamos en la vanguardia tecnológica y económica para superar la especulación de las monedas internacionales que afecta la vida de los venezolanos. El Petro reafirma nuestra soberanía económica. #AlFuturoConElPetro pic.twitter.com/Jo72DQkSLz
— Nicolás Maduro (@NicolasMaduro) February 21, 2018
However, there may be reason to believe that the number is nothing more than a fabrication–in a report by the Caracas Chronicles printed just two days after the launch of the Petro, reporter Alejandro Machado wrote of having to endure “a myriad of errors” when registering as a participant in the sale.
Additionally, he wrote that if you do manage to register yourself and respond to the confirmation email (which may be sent hours later) in time, “nothing will happen” when you click the button to actually buy Petro tokens.
KYC requirements on the Petro token sale website appear to be weak–Machado wrote that it’s possible to set up an account with a fake name and passport number on the website.
So then, how is it possible that the Petro was able to raise such an eye-popping amount with a half-functional website and wallet? It probably wasn’t.
Machado wrote that on the NEM blockchain (where the Petro token is based), an address showed that all Petro tokens are controlled by a single address; no transactions have taken place yet.
Before Petro, Mining BTC Provided Some Venezuelans with Cash for Essentials
Despite the uncertainty of the future of the Petro, cryptocurrency has played a vital role in the lives of some Venezuelans, who turned to mining Bitcoin as a source of income long before the Petro was ever announced.
In September, the Atlantic reported that although the financial crisis made it impossible for most Venezuelans to afford most basic necessities, electricity is so heavily subsidized in the country that it’s nearly free. Therefore, those who had equipment with mining capabilities were able to profit an average of $500 a month–a paltry sum by many accounts, but enough to survive.
At the time, Maduro condemned the practice. Some miners faced serious consequences–Bitcoin rigs were seized, and some miners were arrested and charged with ‘energy theft’ and the possession of contraband.
Is North Korea Hoping That Bitcoin Will Solve Its Financial Problems?
While North Korea has not developed any public plans to build a national cryptocurrency of its own, there is some evidence to suggest that the troubled nation is hoping to use BTC as a way out of its economic crisis.
According to a report by Recorded Future, North Korea began mining cryptocurrency in May of 2017. Additionally, the Trump administration publicly accused North Korea as the entity behind the May 2017 ‘WannaCry’ malware attack that affected thousands of computers around the globe; North Korea is also rumoured to be behind several large-scale crypto exchange hacks.
Why would North Korea want to get its hands on BTC? The Korea Times wrote that the North Korean regimes’ efforts may be a “desperate bid to evade sanctions and eventually earn hard currency.”
If nothing else, desperation is indeed good motivation–in a report for The Express, an associate of independent security researcher Ashley Shen said: “Just a few years ago the [North Korean] attacks were initiated to paralyse the society, but for some time now they’ve been hacking for money–so I kind of wonder if they are facing financial difficulties.”
In any case, the North Korean regime seems to be pursuing the acquisition of Bitcoin with illicit fervor. In a Forbes report, visiting research fellow at the South Korean Jeju Peace Institute Steven Kim suggested: “If there is way to exploit crypto-currencies for financial gain, DPRK (Democratic People’s’ Republic of Korea) will figure it out and move aggressively to do so.”
He continued, “given their advanced cyber capability and the need for new revenue source in the face of growing sanctions, North Korean cyber attacks to acquire crypto-currencies will occur with increasing frequency in the future.”