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Making Peace with Crypto's Capacity for Evil

Marc Hochstein is the managing editor of CoinDesk. 

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.


If Venezuela’s oil-backed cryptocurrency succeeds – and that’s still a big if – it could portend a whole new use case for the technology: fundraising for rogue states.

The world may just have to live with that.

One of the defining aspects of cryptocurrency is neutrality. Bitcoin, ethereum and the like are open networks. They don’t discriminate.

A public blockchain doesn’t care if you’re a Boy Scout or a convicted ax murderer. As long as you control the private keys to a bitcoin wallet, you control the funds in it, no passport required. (Setting up an account at a crypto exchange is a different matter.)

That is financial inclusion, in the truest sense, though it’s not exactly what policy wonks have in mind when they use the term.

Similarly, as long as you know how to code, you can contribute or build applications on top of bitcoin or ethereum, no Ivy League degree needed.

That is permissionless innovation. It’s what allowed Sir Tim Berners-Lee to create the world wide web and Satoshi Nakamoto to invent bitcoin.

And now it may allow Venezuela’s strongman president, Nicolas Maduro, to eat many more empanadas at his desk, and do who knows what else, as his nation reels from an economic crisis.

A nebulous plan

Stepping back, last week Maduro’s government claimed it had raised $735 million on the first day of a pre-sale of its cryptographic token, known as the petro, and revealed a number of other details about the project. Much remains unclear, including which network the coin will run on top of – some public documents say it’s NEM, others say ethereum.

The coins are ostensibly backed by the country’s oil reserves, with their value somehow pegged to the previous day’s price per barrel in bolivars (so much for real-time). They’ll be legal tender and accepted for tax payments in Venezuela, according to the government, so in theory there’s a use case for local residents.

Still, it’s hard to see any value proposition for outside investors in a token that’s controlled by a dictatorship. You could even argue that such a centralized set-up disqualifies the petro from being called a cryptocurrency in the first place.

But, imagine for a moment that this scheme works. It could be an encouraging sign for other authoritarian regimes that have been cut off from the global financial system by economic sanctions. Already, Venezuelan officials have met with their Russian counterparts to discuss the petro, and, late last week, Iran revealed its own cryptocurrency plans.

Now, it’s one thing for individuals or small business owners to use cryptocurrency to circumvent international sanctions. In such cases, it’s easy to root for the underdog, even when members of the Washington foreign policy establishment clutch their pearls. God forbid an Iranian shoemaker should be able to sell handmade footwear on the internet! Who’s in charge of this “bitcoin” anyway? Don’t they know financial intermediaries have a Responsibility to Society to make sure the shoemaker’s children starve? Why, for all we know, that merchant could be funding terrorism … one pair of wingtips at a time!

The recent sanctions-skirting crypto projects, however, would enrich, not the citizens of these countries, but the repressive governments responsible for their pariah status. Which, as crypto critic Preston Byrne wryly noted on Twitter, doesn’t match up with the tech’s early libertarian rhetoric.

That’s the thing about open-source technology and permissionless networks, though. Not only can the tools fall into the wrong hands – the very idea of “wrong hands” is foreign.

Choke points

For an illustration, let’s take a quick detour to the U.S., where the latest mass shooting has made firearms a hot-button political issue. In a recent op-ed in the New York Times, Andrew Ross Sorkin argues that if Washington won’t put stricter controls on gun sellers, the nation’s financial institutions should do so, for instance by refusing to do business with retailers that sell assault weapons.

This paternalistic idea would set a dangerous precedent, as my former colleague, American Banker editor-in-chief Rob Blackwell, warned in a response to Sorkin. But it’s also a helpful reminder of what sets apart cryptocurrency from the legacy financial system.

Bitcoin doesn’t know or care what the purpose of a transaction is. Nodes and miners, blind to the identities behind alphanumeric addresses, can’t be shamed by the Andrew Ross Sorkins of the world into trying to control human behavior. That’s one of the main reasons bitcoin has value.

Is this good or bad? You tell me, is fire good or bad? This much is clear: if banks took Sorkin’s advice and tried to choke off gun sales, bitcoin would probably rally.

Then there’s the alleged “Nazi problem.” You’ve probably read about how extremist platforms like the Daily Stormer, shunned by mainstream payment processors, have turned to cryptocurrency as an alternative means to accept donations, and apparently got rich in the recent run-up.

It goes without saying that these organizations’ words and ideas are despicable. But as long as they’re just words and ideas, not violent or criminal actions, what purpose did it serve to cut off their access to credit card payments?

As free-speech advocates will tell you, the antidote to bad speech is not suppression, but more speech. Blackballing speakers you or I find offensive from financial services opens the door for banking to be weaponized against others that you or I may support.

Fortunately, the existence of cryptocurrency blunts this weapon. Today it’s the neo-Nazis taking advantage of bitcoin’s neutrality, but tomorrow it may be [insert a publisher dear to your heart] who needs it. You’ll thank Satoshi when that happens.

Returning to Venezuela, western governments could try to thwart the petro, or its Russian or Iranian equivalents, by, say, forbidding licensed exchanges to list the tokens or by blacklisting ethereum ERC-20 addresses that receive the tokens. (No airdrops, please!) But to the extent these projects really do function like cryptocurrencies, shutting them down may be impossible.

That’s the hyperconnected world we live in today. Buckle up, buckaroos.

Nicolas Maduro image via Wikimedia Commons

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Venezuela May Move to Limit New Crypto Exchange Launches

Venezuela’s government may move to restrict the number of cryptocurrency exchanges that will be able to operate domestically.

According to a ten-page manual published last week as part of a set of releases related to the country’s newly-launched cryptocurrency, the Petro, as few as eight exchanges may be initially approved to operate in the market.

The document, released on Feb. 20, details the requirements by which local crypto exchanges must operate. It suggests that the cap will exist at the outset, under the auspices of Venezuela’s cryptocurrency superintendency, before going on to say that the government may modify the limit after the first 90 days of the exchanges’ operations.

Sources with knowledge of the ongoing process in Venezuela say that the cap may be more restrictive in practice.

According to Daniel Arraez, the co-founder of BlinkTrade, the government may restrict the number of permitted exchanges to less than that figure. BlinkTrade, which offers open-source software for bitcoin exchanges, launched SurBitcoin in Venezuela in 2014 and is applying to operate under the new petro licensing regime.

Arraez said that the change in regulation could present a significant market opportunity, but only if the exchanges are transparent and perceived as legitimate by the Venezuelan people. Speaking to CoinDesk, Arraez struck an optimistic tone about his firm’s prospects.

“We feel the current regulation change is a positive change,” he remarked, adding:

“We’re already in conversations to operate as soon as possible. We feel the market is going to be safe and we can get operational guarantees to safeguard our customers’ funds and safety.”

It remains to be seen how many exchanges launch in Venezuela within its newly minted regulatory framework. Likewise, it’s not clear which exchanges are in active talks with the Maduro government, though a report by regional news source Panorama on Feb. 21 quoted Maduro as saying that 36 of “the main cryptocurrency exchange houses in the world” are working with the government there.

Still, the document offers a window into the Venezuelan government’s thinking on exchange oversight amid a rapidly-developing environment. At the end of last week, President Nicolas Maduro ordered a number of state-based businesses to begin accepting the cryptocurrency as payment.

Venezuela flag image via Shutterstock

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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

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Venezuela's President Orders State-Owned Companies to Accept the Petro

Venezuela officially has its own cryptocurrency – and its president wants some of the country’s state-owned businesses to use it.

According to a recording posted on Twitter by television network VTV, Venezuelan President Nicolas Maduro has ordered several state-owned companies to convert a percentage of their sales and purchases into the petro.

“I gave the order to the company PDVSA, Pequiven and CVG to realize as of today a percentage of their sales and purchases in…the Petro,” Maduro said (according to a rough translation) during the petro pre-sale announcement.

PDVSA is a state-owned oil and natural gas company which, in addition to the Venezuelan government, is also the target of U.S. sanctions. Pequiven is a petrochemical company, and Corporacion Venezolana de Guyana (CVG) is a decentralized conglomerate whose subsidiaries include aluminium and gold producers.

Maduro also said that citizens will be able to pay for fuel, airline and tourism services with cryptocurrencies, including the petro. Likewise, the government previously promised to accept petros for the payment of national taxes, fees and other public services.

Another petro?

And as the cryptocurrency world adjusts to the idea of a state-backed coin, it appears that the Maduro government is moving to launch another one already.

Just one day after the commencement of the controversial petro-presale, Maduro made waves once again, announcing that he plans to unveil a second cryptocurrency next week: the petro gold.

“Next week I’m going to launch the petro gold, backed by gold, which is even more powerful, that will strengthen the petro,” Vice quoted Maduro as saying in a Wednesday speech.

He has yet to divulge further details, and it is unclear as to whether the president was referring to gold held by Venezuela’s central bank or its gold natural resources.

Petro coin image via Shutterstock

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Venezuela Is Talking With Russia About Cryptocurrency

Officials from the Venezuelan and Russian governments discussed the former’s newly-launched cryptocurrency during a meeting in Moscow this week.

Venezuelan Finance Minister Simon Zerpa Delgado was in Moscow on Wednesday discussing collaboration between the two governments, according to tweets published through his official account. According to one missive, the subject of the petro – which was unveiled in December and sparked global headlines with its launch Tuesday – was brought up during the meetings.

Delgado tweeted (according to a translation):

“In this meeting we have reviewed the economic and financial cooperation between the two countries, with emphasis on the new [cryptocurrency] of Venezuela: the Petro. We deliver the Min. Siluánov updated information about our [cryptocurrency].”

“Russia and Venezuela will continue to strengthen their trade balance,” Delgado also wrote. “We will continue advancing in the construction of a multipolar and pluricentric world, free of imperial tensions.”

It’s unclear based on the messages whether Russia’s government will play a role in the development of the petro, which Venezuelan president Nicolas Maduro has pledged will be used to circumvent international sanctions imposed on the country. That said, a Russian company called Aerotrading has been linked to the project, as previously reported.

Venezuelan citizens have had mixed reactions to the launch, with some hailing the currency as part of a “new economic era,” while others have called it a vehicle for corruption.

Simon Zerpa Delgado and Anton Siluanov image via Twitter

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.