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Venezuelan Petro Against US Sanctions: History and Use of the Crypto

Venezuela is leading the crypto peer-to-peer BTC trade market, despite government efforts to drive adoption of its oil-backed cryptocurrency, Petro.

For the entirety of cryptocurrency’s short history, Venezuela has been seen to be among the most striking example of the need for the utility. The South American country has hosted escalating political tension for years, as skyrocketing hyperinflation, electricity blackouts and shortages of vital food and medicine intensified popular discontent.

Venezuelan trade volume dominates P2P markets

Venezuelan peer-to-peer (P2P) markets have long been a leader in terms of volume, in part owing to widespread geo-blocking that targets Venezuelan citizens on the part of cryptocurrency exchanges. Recently, Binance announced that as of July 1, 2019, the residents of Venezuela and 28 other countries will be restricted from accessing Binance’s decentralized exchange platform.

Venezuelan trade has consistently comprised the second-largest market on P2P Bitcoin marketplace Localbitcoins, trailing only behind Russia. During the week of July 13, 2019, approximately 5,012 BTC changed hands — equating to 49,248,298,468 Venezuelan bolivar (approximately $5 million).

LocalBitcoins Volume in Venezuela

Origins of Venezuela’s economic crisis

Following former President Hugo Chavez’s death in March 2013, Venezuela’s current president, Nicolas Maduro, was elected to power in April 2013. The Democratic Unity Roundtable, an electoral coalition of Venezuelan political parties opposed to the policies of the United Socialist Party of Venezuela, claimed that the election was fraudulent. However, the Supreme Court of Venezuela ruled Maduro to be the country’s legitimate president. During 2013, Venezuela’s annual inflation reached a 16-year-high of 56.2%. Since Maduro’s election, hundreds of thousands of Venezuelans have taken to the streets to protest corruption, hyperinflation, a scarcity of basic goods and violent coercion. 

Oil prices slump during 2014

From the start of 2014, the price of oil dropped roughly 60% from more than $100 per barrel. With crude oil equating to approximately 80% of Venezuelan exports, the plummeting price of oil drove the Venezuelan economy to enter a recession. 2015 saw Maduro’s United Socialist Party of Venezuela suffer defeat during parliamentary elections. However, Maduro vowed to “stop by hook or by crook the opposition coming to power, whatever the costs, in any way,” and replaced the country’s entire Supreme Court the following day. The following month, President Maduro consolidated executive control over all three branches of government amid decreeing a national “economic emergency,” effectively preventing the National Assembly from legislating.

During 2015, Venezuela experienced the highest rate of inflation in the world, with inflation exceeding 100% for the first time in the country’s history. The following year saw annual inflation reach 274%, while the price of consumer goods in Venezuela rose by 800%. A study published by Diario Las Americas approximated that more than 15% of Venezuelans were then regularly consuming food waste that had been discarded by commercial establishments.

During 2017, Venezuelan inflation was estimated to have skyrocketed to 2,000% annually. Victor Torres, a chauffeur living in the Venezuelan city of Maracaibo, articulated the ordeal of attempting to make basic purchases under conditions of extreme hyperinflation to The Telegraph, stating: “The other day I went to buy a banana. In the morning it cost 1,900 bolivares and in the afternoon, 3,000. You can’t live this way. I am disappointed with politicians.”

Petro implementation timeline

Venezuelan inflation climbs to 130,000% in 2019

Following Venezuela’s May 2018 election, Maduro claimed to have won 67.8% of the ballot. However, the result was challenged by the governments of Argentina, Chile, Colombia, Brazil, Canada, Germany, France and the United States — which described the election as failing to guarantee a free, fair and transparent democratic process, and subsequently moved to recognize Juan Guaido of the Popular Will party as the legitimate president of Venezuela. During October 2018, Venezuelan annual inflation was estimated to have reached 130,060%.

Since 2015, the United Nations estimates that 4 million Venezuelans have fled the country — roughly 12.5% of Venezuela’s current population.

Since the establishment of the Corruption Perceptions Index in 1995, Venezuela has been ranked among the world’s most corrupt regimes. In 2010, the index ranked Venezuela as the 164th-least transparent government of 178 nations, with Venezuela ranking 166th of 178 countries in 2016, and 168th of 180 nations in 2018. The World Justice Project also ranked Venezuela 99th out of 99 nations according to its 2014 Rule of Law Index, with the index currently ranking Venezuela 126th of 126 nations.

Economic sanctions

In addition to struggling to persevere the degrading economy and rampant political corruption, Venezuelan citizens also bear the brunt of sanctions imposed on the Latin American nation by the U.S. and other countries.

At the start of 2019, Alfred de Zayas, the first U.N. rapporteur to visit Venezuela for 21 years, described U.S.-imposed sanctions as comprising “economic warfare.” The special rapporteur recommended that the International Criminal Court investigate the sanctions maintained by the U.S. as potential crimes against humanity under Article 7 of the Rome Statute, arguing that the sanctions are illegal due to their lack of endorsement from the U.N. Security Council. He stated:

“Modern-day economic sanctions and blockades are comparable with medieval sieges of towns. Twenty-first-century sanctions attempt to bring not just a town, but sovereign countries to their knees.”

Zayas’ findings were based on his late-2017 mission to the country that saw the rapporteur interview government ministers, members of the country’s opposing parties, nongovernmental organizations (NGOs) operating in Venezuela, and local academics, activists and church officials. The criticisms of the economic sanctions have been echoed by numerous NGOs, with the president of Fundalatin, Eugenia Russian, stating:

“We consider that one of the fundamental causes of the economic crisis in the country is the effect that the unilateral coercive sanctions that are applied in the economy, especially by the government of the United States.”

President Donald Trump has recently threatened to intensify the sanctions currently imposed on Venezuela, stating that he will “continue to use the full weight of United States economic and diplomatic power to press for the restoration of Venezuelan democracy” while announcing support for the recognition of Guaido as the country’s legitimate leader in January.

Petro

In a bid to circumvent the economic sanctions imposed on Venezuela, Nicolas Maduro announced plans to launch a cryptocurrency backed by the nation’s oil, gasoline, gold and diamond reserves during December 2017. The president claimed that the digital currency, named Petro (PTR), would allow the country to access “new forms of international financing.”

At the start of January 2018, President Maduro ordered the issuance of the first 100 million Petros, announcing that each Petro will be pegged to the value of one barrel of Venezuelan oil — equating the cryptocurrency’s capitalization to roughly $5.9 billion. Several days later, the opposition-run National Assembly criticized Petro, calling the digital currency “null and void.” Parliamentary Deputy Jorge Millan described Petro as fraudulent, stating: “This is not a cryptocurrency, this is a forward sale of Venezuelan oil. It is tailor-made for corruption.” He went on:

“We find ourselves before a new kind of fraud, disguised as a solution the (financial) crisis. This incompetent government wants to compensate for lack of oil production with these virtual barrels.”

At the end of January 2018, Maduro announced that cryptocurrency mining was a “perfectly legal” activity. The president also announced that citizens targeted during the prior year’s police crackdown on mining operations would have any related charges dismissed. On Jan. 30, 2018, Maduro’s administration published the white paper for the cryptocurrency.

On Feb. 8, 2018, Jose Vielma Mora, Venezuela’s minister of foreign trade and international investment, told the state-sponsored news outlet TeleSur that foreign investors would be willing to conduct trade in exchange for Petro, claiming that Poland, Denmark, Honduras, Norway, Canada and Vietnam were among the trading partners preparing to accept the controversial cryptocurrency as a means of payment.

Venezuela launched the presale for Petro on Feb. 20, 2018. 82.4 million Petros were made available in exchange for select fiat currencies and cryptocurrencies. Three days later, Venezuelan media claimed that the presale had raised $1 billion. On Feb. 24, the Venezuelan government launched a free cryptocurrency training course aimed at improving digital currency literacy for ordinary citizens.

Trump administration bans U.S. citizens from purchasing Petro

On March 19, President Trump barred American citizens from purchasing Petro by executive order. At a G-20 meeting in Buenos Aires, U.S. Treasury Secretary Steven Mnuchin, stated:

“President Maduro decimated the Venezuelan economy and spurred a humanitarian crisis. Instead of correcting course to avoid further catastrophe, the Maduro regime is attempting to circumvent sanctions through the Petro digital currency — a ploy that Venezuela’s democratically-elected National Assembly has denounced and Treasury has cautioned U.S. persons to avoid.”

The U.S. Treasury Department described Petro as comprising an “attempt to prop up the Maduro regime, while further looting the resources of the Venezuelan people.” On March 27, Bitfinex announced that it would not support Petro in light of the U.S. sanctions against the cryptocurrency.

Venezuela promotes Petro adoption

During 2018, the Venezuelan government conceived several initiatives designed to bolster the adoption and perceived utility of Petro. In May 2018, Maduro announced the launch of a Petro-funded crypto bank that would support project proposals from the country’s youth. During July 2018, The Venezuelan minister of habitat and housing, Ildemaro Villarroel, announced a plan to fund the construction of houses for homeless citizens using the cryptocurrency. The following month, the president also announced that Petro would be used as a general unit of account in Venezuela, stating:

“As of next Monday, Venezuela will have a second accounting unit based on the price, the value of the Petro. It will be a second accounting unit of the Republic and will begin operations as a mandatory accounting unit of our PDVSA oil industry.”

Despite the announcements, during August 2018, Reuters reported that there was little indication of Petro’s presence in the oil-rich Venezuelan town of Atapirire. Despite comprising the sole town located in a region that the Venezuelan government estimates is home to 5 billion barrels of oil, Atapirire resident, Igdalia Diaz, told Reuters, “There is no sign of that Petro here.”

During the same month, the country’s former oil minister, Rafael Ramirez, estimated that Venezuela’s state-owned oil company did not possess the roughly $20 billion that he believed would be required in order to tap the nation’s oil reserves. Ramirez stated, “The Petro is being set at an arbitrary value, which only exists in the government’s imagination.”

Accusations of plagiarism

Ethereum Core developer Joey Zhou published a tweet on Oct. 2, 2018, asserting that the 11th page of Petro’s white paper contained an image plagiarized from the Github repository of Dash. Petro also opted to use the same X11 proof-of-work (PoW) mining algorithm as Dash. Zhou described Petro as comprising a “blatant Dash clone.”

On Oct. 5, 2018, Venezuelan Vice President Delcy Rodriguez announced that the fees for all passport applications would be exclusively payable in the form of Petro from Oct. 8 onward. The announcement was accompanied by a hike in the cost of passport applications, with new applications incurring a fee of 2 PTR and passport extensions priced at 1 PTR.

Venezuela launches Petro offering

Venezuela’s Ministry of Economy announced that Petro had been made available for purchase on Oct. 29, 2018. In an infographic published on Twitter, the token could be purchased from the Venezuelan Treasury from either the coin’s official website or from six government-authorized cryptocurrency exchanges: Bancar, Afx Trae, Cave Blockchain, Amberes Coin, Cryptia and Criptolago. The official Twitter account of the Petro indicated that investors were able to purchase the cryptocurrency using U.S. dollars, euros and Chinese yuan, in addition to Bitcoin, Litecoin, Ether and Dash. 

During November 2018, the National Assembly of Venezuela approved a bill containing new cryptocurrency regulation. The bill sought to legitimate Petro as a unit of commercial exchange within the country. The same month saw the National Assembly pass amendments to Anti-Money Laundering (AML) laws to pave the way for Venezuelan cryptocurrency exchanges to conduct foreign exchange operations using Petro.

Venezuelan government official Andres Eloy Mendez described the amendments as being intended to combat the “financial and commercial blockade” being maintained by the U.S. government, adding that the cryptocurrency would allow the evasion of sanctions and facilitate new transnational business relationships.

Venezuela raises bolivar-value of Petro

On Nov. 30, 2018, President Maduro announced that the fiat-value of Petro had been raised from 3,600 bolivars to 9,000 bolivars amid extreme inflation, alongside ordering an increase in the monthly minimum wage by 150% — the sixth wage hike of that year.

During December 2018, the Venezuelan government moved to automatically convert its pensioners’ monthly bonuses into Petro. According to Caracas Chronicles, pensioners’ government payouts were withdrawn and converted into Petro after initially being deposited into fiat accounts hosted by government web portal patria.org.ve on Dec. 7, 2018. 

On Dec. 28, 2018, Venezuela filed a consultation request with the World Trade Organization (WTO) making a complaint regarding the economic sanctions imposed by the U.S., describing five examples of “coercive trade-restrictive measures” that were imposed on the Bolivarian Republic of Venezuela. 

With regard to “transactions in Venezuelan digital currency,” the complaint alleged that U.S. sanctions violated the WTO’s General Agreement on Trade in Services by subjecting Venezuelan financial service suppliers to conditions “less favourable than that accorded to like services and service suppliers of WTO Member States not subject to the measures,” as well as conditions inferior to the treatment of “like domestic financial services and service suppliers.”

In February 2019, the Venezuelan government published a decree imposing regulations on cryptocurrency remittances within the country. The document revealed that the National Superintendency of Crypto Assets and Related Activities (SUNACRIP) would be responsible for taxation pertaining to cryptocurrency transactions. 

The new regulations established a monthly limit on cryptocurrency regulations and imposed a maximum fee of 15% on cryptocurrency transfers alongside a minimum fee of roughly $0.28. Remittances in the form of Petro were capped at 10 PTR per month (equating to approximately $600), however, individuals and entities will be permitted to conduct up to 50 Petros worth of monthly trade with SUNACRIP approval.

Petro-active

During March 2019, the United States Treasury Department added Moscow-based Evrofinance Mosnarbank to its sanctions list, accusing the financial institution of comprising the “primary international financial institution willing to finance” Petro. The department stated:

“This action demonstrates that the United States will take action against foreign financial institutions that sustain the illegitimate Maduro regime and contribute to the economic collapse and humanitarian crisis plaguing the people of Venezuela.”

In May 2019, Venezuelan U.N. delegate Geneva Jorge Valero stated that Russia and Venezuela were discussing utilities for Petro amid agreements to settle trade using the Russian ruble. On July 4, 2019, President Maduro ordered the country’s leading bank, Banco de Venezuela, to open “Petro desks” and accept PTR at all of its branches.

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President Maduro Orders The Bank of Venezuela to Accept Petro Crypto

Venezuela’s President Nicolas Maduro ordered the country’s leading bank, Banco de Venezuela, to accept the nation’s cryptocurrency El Petro at all its branches.

Venezuela’s President Nicolas Maduro ordered the country’s leading bank, Banco de Venezuela, to accept the nation’s cryptocurrency, the Petro (PTR) at all of its branches, the country’s Finance Ministry tweeted on July 4.

According to the tweet, Maduro gave “the express order to open Petro desks in all the branches of the Bank of Venezuela.” The announcement apparently came during an event celebrating the tenth anniversary of the nationalization of the bank in question.

On June 19, Maduro announced that 924 million bolivars (over $92.5 million) were allocated to the Digital Bank of Youth and Students to open one million Petro wallet accounts for the country’s youth. José Angel Alvarez, president of the country’s National Cryptocurrency Association, commented to cryptocurrency news outlet CCN:

“It is a bold and correct decision to move forward towards a hybrid economy where the fiduciary currency of a country competes face to face with cryptocurrency.”

As Cointelegraph reported in January, Venezuela has taken issue with United States sanctions, including those levied specifically against transactions in the country’s national digital currency, the Petro. In March, President Trump banned US citizens from buying Petro.

In May, news broke that Venezuela is considering closing mutual trade settlements with Russia using the ruble.

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'Fake News': Russian Official Reportedly Denies Involvement with Petro

The Russian government is pushing back against reports that it helped Venezuela launch its controversial “petro” cryptocurrency.

In public remarks Friday, the deputy director of the Information and Press Department of the Russian Foreign Ministry, Artyom Kozhin, called Time Magazine’s report linking Russian officials and businessmen to the petro “fake news,” Tass reports.

Adding that the report “is a blatant lie,” the official continued:

“In no way, have the Russian financial authorities ever participated in this project. During the course of the meeting held on February 21, 2018 in Moscow, Venezuela’s Minister of Economy and Finance Mr. [Simon] Zerpa indeed handed over a booklet on the cryptocurrency to the Russian Finance Minister exclusively for the purpose of informing Russian partners about this project.”

The Time report noted connections between certain Russian businessmen and Venezuelan president Nicolas Maduro, further claiming that Russian president Vladimir Putin signed off on the petro, possibly to assist the evasion of U.S.-led sanctions.

The news came on the heels of U.S. president Donald Trump signing new sanctions into place, prohibiting Americans from buying or transacting with the petro, as previously reported.

Tass also reported that Maduro has claimed a number of trading pairs for the petro, including the Russian ruble, Turkish lira, euros and the yuan. Investors will be able to trade for these currencies beginning Friday, he said, though it is unclear where they can do so.

Kremlin image via Shutterstock

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What Does Trump’s Ban On Venezuelan Cryptocurrency Petro Mean For Its Future?

US President Donald Trump issued an order on March 19 to effectively disallow American investors from participating in the initial coin offering (ICO) of the Venezuelan Petro, a cryptocurrency supposedly backed by the country’s oil reserves.

Caracas Capital managing director Russ Dallen told Bloomberg that the prohibition of investment in the Venezuelan Petro will lead to the decline in speculation and interest towards the cryptocurrency. Dallen noted:

“It’s a pretty big blow. Since most cryptocurrencies are not actually backed by anything real, cryptocurrency speculation is based on the greater fool theory — I can buy this at $100 because there is someone who is a bigger idiot who is going to buy it at $200. When you take the U.S. out of that equation, you reduce the interest and potential for that speculation.”

G20 and sanctions

President Trump has approved Treasury Secretary Steven Mnuchin to enforce any regulation or policy to ensure that US-based investors are barred from purchasing the Venezuelan Petro. The decision of the US government to prohibit investment in the Venezuelan cryptocurrency was likely influenced by the additional sanctions imposed on four more government officials at the G20 summit.

The sanctioned officials are vice minister of internal commerce Willian Antonio Contreras, head of national treasury Nelson Reinaldo Lepaje Salazar, National Bank of Housing and Habitat director Americo Alex Mata Garcia, and former president of Venezuela Institute of Social Security Carlos Alberto Rotondaro Cova.

During a meeting with financial authorities and leaders from the world’s 20 leading economies, Mnuchin emphasized the US needs to combat the “kleptocracy of the Maduro regime,” as he stated:

“President Maduro decimated the Venezuelan economy and spurred a humanitarian crisis. Instead of correcting its course to avoid further catastrophe, the Maduro regime is attempting to circumvent sanctions through the Petro digital currency – a ploy that Venezuela’s democratically-elected National Assembly has denounced and Treasury has cautioned U.S. persons to avoid.”

The imposition of new sanctions against Venezuela at the G20 Summit and the US government’s strict prohibition of investment in the country’s state-issued cryptocurrency could be expected to disarrange most of the Venezuelan government’s existing plans to grow its cryptocurrency and raise even more capital through a second ICO.

Petro Gold

After reportedly raising over $5 bln from the Venezuelan Petro token sale, which would make it the biggest ICO to date overtaking the $2 bln Telegram ICO and $1 bln token sale of EOS, Venezuelan President Nicolas Maduro announced on February 21 that the country is preparing to launch yet another cryptocurrency called Petro Gold, a cryptocurrency that is backed by Venezuela’s reserve of precious metals.

“Next week I’m going to launch the Petro Gold, backed by gold, which is even more powerful, that will strengthen the petro,” said Maduro in a televised speech covered by Reuters.

President Maduro did not offer any additional information on the Petro Gold and continued to pursue the path of issuing new cryptocurrencies to cover the country’s debt. Opposition leaders within Venezuela criticized Maduro’s approach in handling the economic crisis of the country, describing the issuance of Venezuelan Petro and Petro Gold an “illegal debt issue.”

Investors who participated in the Petro token sale with US dollars and euros, also expressed their concerns about the solvency and transparency of the country’s government, specifically after it was revealed that the official whitepaper of the Venezuelan Petro did not guarantee token holders with the ownership of the country’s oil reserves.

Instead, the Petro provides investors with the ability to utilize the Petro as a form of payment of national taxes, fees, contributions, and public services, which removes the merit from investors participating in the token sale.

“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. In this [way], it is guaranteed that the purchaser always has a recovery value adjusted to the investment,” the whitepaper reads.

Peter Todd at Genesis London

At Genesis London, a Blockchain conference that state-issued digital currencies are different from cryptocurrencies.

In countries like Sweden and South Korea that are significantly less dependent on cash, most of the money circulating within the country are digitized, through banks and financial institutions. Digitized cash can also be considered as digital currencies or digital assets.

Cryptocurrencies require decentralization and distributed financial networks in order to operate as permissionless and decentralized protocols without being affected by the control of central authorities. Todd explained:

“So most places have digital currencies already. Equally, most places you can transfer money digitally. Cryptocurrency is not about being able to move money digitally, it’s about auditing. In the case of decentralised cryptocurrency, it’s about the ability to move money and audit it without permission. But when you’re talking about a government currency, obviously there’s permission, a central authority and control — end of story.”

Todd further emphasized that the key aspect of cryptocurrencies is their ability to provide transparent audits through their public ledgers. Bitcoin for instance, displays all of its transactions on the Bitcoin Blockchain network, allowing anyone within the network to verify transactions.

“So the cryptocurrency part of it is about giving people better ability to audit what happened, audit what the supply is and audit what the transactions are. I think, in reality, a lot places don’t really care about that,” Todd added.

With the Venezuelan Petro and potentially, Petro Gold, it is still unknown whether the Venezuelan government will audit its assets in real-time, and allow investors to freely verify their transactions and holdings through a public ledger. If the government fails to provide audit results and does not develop its cryptocurrency on a public ledger like the Ethereum network, it will not be able to provide transparency to its investors.

Florida representative Ileana Ros-Lehtinen also emphasized that the US should continue to impose more pressure on the Maduro regime by cracking down on the plans of the government to raise money with a method which violates international sanctions.

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‘These Guys Just Need Money’: What Do Venezuelan Users Think of the Petro?

When the Petro was unveiled to the world by Venezuela’s President Nicolas Maduro, he led the cheering squad about what a groundbreaking and successful idea it would be. A government-backed, oil-pegged, cryptocurrency that would aid the ailing Venezuelan nation in their time of crisis with a hyper-inflated currency.

However, the pomp and promise of the Petro has quickly been dissected and seen through as the feeling coming from those in Venezuela, as well as those who have been exiled or left on their own accord, see the Petro as one big scam.

Maduro continues to plug and push his digital currency, inviting OPEC countries to join in and beginning the presale. But, as the rest of the world and especially the US, continue their tirade against it, it is important to see how it is going down among the Venezuelan community.

Trouble brewing

It is important to understand the political and socio-economic situation in Venezuela before delving into a purely financial and economic outlook, especially based around cryptocurrencies; state-backed or otherwise. Politically, it is very complicated, but essentially, there are two factions in Venezuela, the Chavistas, the name given to the followers of the socialist policies of the late President Hugo Chavez, and those who cannot wait to see an end to the 18 years in power of his United Socialist Party.

Maduro follows the socialist policies and the spirit of his predecessor but has not been able to hold sway like Chavez, leading to a bubbling undercurrent of discontent. Thus besides the economic collapse and hyperinflation, the country resides in permanent political crisis for several years. Many have reported on how this crisis has seen a stepping up in cryptocurrency usage to counteract the failing currency and also shown a boom in mining, but according to the those who are there or have witnessed the collapse, cryptocurrencies are only available for a small minority.

Limited crypto opportunity

Ostensibly there is a trend of support for the Petro. However, there are many who are calling this a paid-for propaganda campaign on platforms like Twitter. The hashtag #AlFuturoConElPetro, which means ‘To the Future With Petro’ has been used by governmental agencies and supporters alike, including the President.

Speaking to Cointelegraph, ‘Ricardo’ who admits he has recently been exiled from Venezuela explains that cryptocurrencies and those making it work in the country with digital currencies account for small percentage:

“Nowadays, at least 80 percent of the population lives under the poverty line. Only a very small percentage of the population may possess the economic resources needed to use a crypto as a currency for everyday transactions; to have access to a smartphone, at least, and an even smaller percentage from the previous group possess the technical savviness to actually understand and use a cryptocurrency. Therefore, as a substitute for the failed Bolivar, this is far from being a solution for the people.”

However, with this small group that is trying anything to make it work, Ricardo can see them taking the plunge with the Petro is there is any chance of turning a profit. “You bet they will [invest / speculate with the Petro], as long as they see a decent chance for profit,” Ricardo explained, but also reiterating that it is a tiny portion of the population that will have a chance to do so:

“Venezuelans may take sides when it comes to politics, and nowadays the great majority of the country rejects the Maduro regime. However, Venezuelans are spontaneous opportunists when it comes to prospects for personal benefit, especially economic. Add to that cultural trait the fact that the country is undergoing the worst economic, social, and political crisis of its entire modern history, and you got a catalyst for a very appealing use case of the Petro for regular Venezuelans.”

Ricardo goes on to explain that within this tiny subset of crypto users in Venezuela, those who do decide to have a go with the Petro will not be putting all their efforts into this cryptocurrency.

“By no means they will put all of their assets into the Petro. If there is something that the majority of the country knows by now, is that the Maduro regime has the only intention of eternalizing power through any means. And along that way, we have seen it all already, the high-volume propaganda, the archaic economic measures, currency controls, and financial schemes that have served only to enrich high-ranking government officials, while controlling the masses through hunger and fear.”

Petro propaganda

Following on from what Ricardo said, another Venezuelan who spoke to Cointelegraph, ‘Luis,’ reiterated the point that there is not enough of a youthful, tech-savvy population left to be buying into the Petro:

“There’s not much word in the streets at all. Given the huge exodus, anyone who has a degree or is young enough already left. What you will see in the streets are the ‘left behind’ people, these are not very tech-savvy.”

However, the reports have been that Venezuela was a mining mecca because of its cheap electricity and because of the need for cryptocurrencies to replace their failing local currency. But, according to Luis, the cryptocurrency miners have faced some dire times.

“You can check that Antmain used to sell a huge gap of their gear to Venezuelans. It all went wrong when the police started tracking down and arresting, robbing, kidnapping the ones that would have mining farms.”

Venezuela has seen reports of miners being arrested since 2016, but with the announcement of the Petro, there was a dramatic U-turn in those policies as the country’s newly-dubbed ‘cryptocurrency superintendent’ Carlos Vargas confirmed that citizens mining Bitcoin and other cryptocurrencies were not breaking the law. But, according to Luis, this is not the case, and he even admits that he had contracts himself to search mining farms:

“I had contracts myself to search farms for army officials, dangerous business… I’m not proud, but here you either smile and do it, or get shot. Maduro said he would support miners, but it got even worse. There’s are tweets from his supporters denouncing cryptocurrencies like Bitcoin to the public. Then came the Petro. It’s all now about the Petro; there’s no word about cryptos in general. Their propaganda only says they are bigger than Bitcoin.”

Dodging sanctions

Another Venezuelan, ‘Rómulo’ believes that the Petro is just another way to avoid the sanctions which have dogged the oil-rich country for so long, a tool in the hands of corrupt officials:

“The Petro is a way of running away from economic sanctions and to in debt to country. It is not transparent; it is not decentralized, nobody knows what the total supply is. How anybody can say that this is a cryptocurrency if does not comply with this main characteristics?”

A lot of the issues facing the people of Venezuela come down to the political strife and policies. As mentioned before, there is a real divide, and the opposing side is getting bigger and louder. ‘Alemacgo’ has aimed at Maduro and his policies in this state-backed cryptocurrency procurement.

“I am appalled at the fact that some in the crypto community appear to be taking the word of a totalitarian dictator and helping him fund the oppression of my fellow citizens. Venezuelans are starving because of Maduro’s communist policies. For those that think that this can be an opportunity to shift the economy around, the government has been in power for 20 years, and all they’ve done is leave us poor and hungry.“

Dodgy coin

Some of the citizens have even taken a hard look at the makeup of the coin, putting in context of the creators, the under-fire government, questioned its so-called oil pegging. “Alexander’ explains:

“This Petro news and all the trash that comes with it… baked on oil for example, which is not true, has no relation with China, Russia or other governments in the world. It has nothing to do with Venezuelan people, and nothing to do with oil or precious metals…these guys just need this money to keep the fallacy of socialism alive and stay in power to continue stealing. Just read the whitepaper and you will find a lot of inconsistencies, and remember that what starts badly never ends well.”

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Venezuela Launches Free Cryptocurrency Training Course For Citizens

The Venezuelan government has launched a free cryptocurrency training course to teach its citizens how to buy, sell and mine digital currencies, particularly the oil-backed Petro that has been recently issued by the state, local news outlet Telesur TV reported on Saturday, Feb. 24.

The opening of the “Granja Laboratorio Petro” in Caracas takes place days after the launch of the oil-backed national cryptocurrency of Venezuela Petro (PTR) on Feb. 20.

Carmen Salvador, a teacher of cryptocurrency trading at the newly established training course, comments that the school offers “a completely free training,” noting that “in any international market a trading course cost more than $500 to $800.”

Many of our young people here find it impossible to have this amount of resources, [but] the Venezuelan state is guaranteeing that all can participate through these plans,” Salvador said.

Venezuela launched its own oil-backed cryptocurrency in order to attract foreign investors, bypassing the economic sanctions that are enforced against the country by the United States and the European Union.

Since the beginning of the pre-sale (ICO) of Petro on Feb. 20, at least $735 mln worth of investments have allegedly been secured, according to a tweet posted by president Nicolás Maduro. Another report by the Venezuelan news outlet Actualidad claims that a total of $1 bln has been raised in the first two days of the Petro sale.

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Petro: Stable Coin for Crypto Economy or Illegal Oil Futures?

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Starting in late 2017 Venezuela’s President Nikolas Maduro began expanding heavily into media space in an attempt to promote a new payment instrument– the government-issued cryptocurrency Petro.

On Feb. 20 the pre-sale of Petro was launched and has already raised $735 mln, according to Maduro’s Twitter. Total amount of PTR issued for sale is 100 mln and is worth $6 mln. The pre-sale will end on March 19.  

The following questions are raised by this controversial project: what is Petro in an economic context and what would be its possible real use in the global economy? Is it a cryptocurrency, a stable coin, oil futures, new government debt instrument or something else? What is its possible economic impact? Which legal issues could follow?

Having carefully studied the Petro white paper and other data available, we present below the results of the analysis.

Venezuela now

According to Maduro, Petro being backed by the Venezuelan crude oil is one of the best ways to use new technologies to restore the financial condition of Venezuela. For many years, the country has been suffering from hyperinflation by thousands of percent per year, while US sanctions cut off Venezuela from international capital markets.

A huge deficit of US dollar monetary supply has led to the absence of basic goods and a tenfold price discrepancy between official and black market currency exchanges for the Venezuelan bolivar and US dollar. That said, this financial catastrophe coincides with Venezuela’s status as possessing the largest volume of readily retrievable proved oil reserves as assessed by OPEC, being well ahead of well-known oil producers such as Saudi Arabia, Kuwait, and others.

But it seems even more alarming news are boiling up. The US administration was urged to impose a full embargo on Venezuelan oil in the near future. According to export statistics, US is the main market for Venezuelan oil and a primary source of ‘hard currency’- US dollars. The excluding of the market from the oil export structure could lead to an even more dramatic economic situation in the country.

The idea of issuing cryptocurrency by the government has been suggested before (Japan, UAE, Russia, and some others), but has so far fallen short of authorization by top officials and practical implementation.

Petro has received official recognition from the Venezuelan government. President Maduro has signed a white paper clearly specifying the conditions and dates of the tokensale. Its activity is aimed at both internal and external markets and carried out at ALBA (Bolivarian Alliance for the Peoples of Our America) and OPEC (Organization of the Petroleum Exporting Countries) levels as well.

El Petro white paper

The original white paper, published on the official website of Venezuela’s government describes the process of issuing Petro. The initial disbursement will be made on the Ethereum platform as a standard ERC20 token. It also states that the Petro price will be correlated with one barrel of Venezuelan crude oil.

The basic items of Petro are mentioned in the white paper as follows: (all the information in this table is the white paper summary and the details are stated as they are in the original document):


Petro: general information

Petro is not solely a token equal to the raw oil barrel price. They are looking at more broad functioning:

  • A transitory asset for exchange to goods and services, and also fiat money
  • A digital platform for emittance and trade of stable crypto assets backed up by raw minerals
  • A store of savings and an investment tool

Unfortunately, the Whitepaper is drafted in common language without any detail on an assumed technological base to launch a full-stack digital platform. Plans to develop such a platform are also absent.


Petro: initial emission and distribution information

100 mln coins will be emitted at launch. Their initial distribution is planned as follows:

  • 38.4% presale
  • 44% public sale
  • 17.6% will be stored in possession of Venezuela’s Superintendence of Cryptocurrencies and Related Activities (SUPCACVEN)

El Petro’s minimum unit is called the ‘mene’ and equals 10-8 Petro. ‘The total emission of El Petro is to be carried out at the initial coin offering,’ further down in the document we find that ‘an additional emission can be made as per the result of El Petro holders vote: 1 coin equals one vote.’


Petro: economic use cases

The project’s architecture is aimed at El Petro’s maximum involvement into settlements between economic agents. The main use cases are as follows:

  • As means of payment for Venezuelan oil via direct exchange of cryptocurrency to real oil dispatch
  • As a legal means of payment on the territory of Venezuela, which allows for tax payments, exactions, duties and official acceptance as the settlement by individuals and businesses. To intensify the use there is a special discount index (Dv)**:

Acceptance price of petro = PriceOil/Bolivar*(1-Dv)

**Dv will be at least 10%

Apparently, this means that paying taxes and any other settlements with state bodies would be at least 10 percent cheaper in El Petro at the current exchange rate than in traditional currency (i.e. in Bolivars).

In the future, the use of Petro is planned to be expanded into other payment markets promoting its use in the world as a stable currency backed up by a real resource.


Petro: legal aspects

As the document states, Petro will fully comply with Venezuela’s legislation. However, the opposition in the National Assembly publicly claimed that issuing Petro was illegal. Some operations with Petro, such as initial sales, subsequent exchange to oil and other assets at ‘authorized exchange sites’ will be carried out in strict compliance with KYC/AML, yet the standards for these are not stated in the document.


Overall the document goes well beyond the scope in which Petro was covered by the media in late December and early January. Earlier it was considered to be simply a cryptocurrency backed up by oil. However, over the course of deeper investigation into the white paper, one could see that it also announces future creation of a platform for e-commodities (digital representation of goods/raw materials), greatly expanding the concept.

At the same time, some parts of the Whitepaper lack fine details, and some statements are not backed by any sufficient explanation. Some items feature information that could seem contradictory. A more thorough white paper with extra technical details would probably spark much more interest and trust in global crypto community.

Economic aspects

Petro could be described as ‘a legal payment instrument’ or ‘a legal tender’ applicable by the government. The concept raises the question of determining the use of a single currency as a legal payment instrument for goods and services to businesses, individuals and the government. This leads to several basic assumptions:

  • Any individual or business must accept this medium of settlement as payment in a private or public transaction
  • All taxes, levies, duties and excise duties as well as other payments to state bodies can be made solely in this currency (currencies)

In the case of Petro, the government, businesses, and individuals can (but are not obliged) to accept it as the currency for all the payments and levies. Despite the fact that the whitepaper declares the maximum intensification of Petro use – up to the discount index, which actually makes it more beneficial for use on the market compared to the Bolivar – we still cannot confirm that Petro fully corresponds to the concept of a legal means of payment. It is a payment instrument that has the attributes of a legal means of payment but is not necessarily such.

In reality, the value of emitted currency is to be ‘secured’ by the liability of Venezuelan government on providing the goods, i.e. the oil, and by its acceptance as the payment to state bodies. In theory, Petro looks more like the currency of the gold-standard period that is technically implemented by virtue of Blockchain technology.

Petro concept

The concept of Petro seems to be both simple and complicated. Up until now, there has been no precedent of issuing cryptocurrencies with such broad functionality to the mass market by the government. Petro is the ‘intersection’ of several familiar concepts from the world of conventional finance.

In Venezuela, Petro stands close to the concept of a legal settlement medium, and in global trade, it is basically a conditionally-stable crypto asset (oil also has specific volatility) that is in fact an oil future without a specific delivery date. Petro could also be assessed as an instrument for tax and levies payment with discounts in a concrete jurisdiction (in the ICO world: a token discount on the unique goods or service of the project). From the investors perspective, at the time of running the crowd sale, the purchase of future oil delivery (the futures) is made with the nominal discount.

New monetary aggregate

That being said, Petro can be conventionally viewed as a new monetary aggregate in the structure of Venezuelan monetary mass. Unlike the Bolivar, it is expected to be easily converted into the US dollar as well as other currencies, which will help Venezuela in export trade.

Therefore, it all comes down to ‘a special monetary aggregate for international payments’. Since it is planned to issue 100 mln coins with each coin equal to one oil barrel (~$60), its total capitalization will amount to $6 bln.

This cost will be actually created during the initial offering with the Venezuelan government receiving several billion of real US dollars from investors. Taking into account the correlation with the oil price and based on the price range starting from 2008 ($30-$150 BBL), we could claim that this monetary aggregate will amount to somewhere between $3 bln and $15 bln. The white paper doesn’t have any grounding on why this specific amount of coins is issued. However, this amount should probably be calculated according to the country’s demand in US dollars and foreign trade transactions.

Payment in Petro

From now on by order of Nicolás Maduro the oil state corporation PDVSA is obliged to carry out transactions in Petro. Moreover, all public and private services like hotels or services of the Venezuelan consulates can now legally accept Petro as means of payment. At the same time, the circulation of digital currency has not even started yet, but Maduro is already preparing a full-fledged legislative and actual infrastructure for future acceptance of Petro.

Questions arise

Many questions arise upon scrutinizing the project, and finding answers to them might clear up the future of Petro. Here we’d like to list some major concerns:

  1. Is it a currency or an oil future? And to what extent is it legal? Taking into account Venezuela’s condition under economic sanctions, it’s highly unlikely that this monetary tool will be easily accepted by the global community. And if it is not, Petro investors and users could get into trouble with the law in jurisdictions outside Venezuela.
  2. Whats are the risks of money laundering through Petro? There’s a clear possibility that it could be purchased with the funds that were received illegally at crypto exchanges or privately, and then exchanged to oil that can be ‘laundered’ and documented to eventually be sold under above-board business practices in various jurisdictions.
  3. Taking into consideration the political and economic situation in Venezuela and the level of corruption, it’s very likely that KYC/AML could become a rather byzantine procedure. Another question is whether major crypto exchanges would agree to list a token that is contradictory in terms of legal compliance.
  4. The project is initially issued at a digital platform. However, there is zero information on the technical parameters of the future blockchain system.
  5. What is the discount index going to be like? The white paper states that ‘no less than 10 percent’ will be available. This could be a point of leverage for Petro’s popularity in the country.
  6. It should be noted that introduction of Petro could put Venezuelan national currency Bolivar into even more miserable condition.
  7. The issue of additional issuance is not fully transparent. If it is done with consideration to holders’ votes, then apparently the government will profit from accumulating >50 percent of the coins and sooner or later start disseminating whichever amounts it chooses. On the one hand, it is useful for Venezuela’s economy: it could actually put into full swing the printing of ‘hard currency,’ on the other hand, a trust issue could arise.

To be continued…

Petro has set a precedent of bringing a cryptocurrency to the market which was created by and government and secured by a physically tangible resource. This instrument features broad functionality that is close to regular money and conventional financial instruments.

However, at the moment the project raises a lot of concerning questions and provides few answers. It still looks more like a beautifully crafted concept than a real and viable financial instrument which could operate worldwide.

It should be noted that initially, the cryptocurrency world is in the state of postindustrial economy, i.e. an economy of communities which independently emit the values determining cost on their own. Therefore, any attempt to secure the cost by virtue of some kind of liabilities is pretty risky.  As history shows, the emitters of money like to renege on financial liabilities. Taken Venezuela’s negative reputation on world financial markets, one might think twice about the promise of Petro.

So the big question is still there: is Petro a stable coin for the world’s crypto economy or merely an illegally emitted oil future? It remains to be seen.

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Venezuela's Cryptocurrency Is Here, But Who's Involved Isn't Clear

There’s a flurry of information coming out of Venezuela this week about its new national cryptocurrency, the petro, though a full picture of the project has yet to emerge.

Indeed, despite the press conferences and Twitter campaigns, one of the notable questions to emerge about the first-of-its-kind cryptocurrency is exactly who is building it, which technologies are being used and which private companies are involved (if any).

Perhaps most notable among those named in the latter category is a relatively little-known consulting firm called Aerotrading, which describes itself as “the biggest blockchain consulting company” on its official website.

The social media push from the Venezuelan government highlighted the agreement with the consultancy, and has included photos of its representatives meeting with the country’s president, Nicolas Maduro.

A Twitter account linked to Aerotrading has several tweets posts, all from today, including one that reads: “We are pleased to welcome the #Petro cryptocurrency to the #blockchain ecosystem.”

Yet questions remain, including what role exactly the firm will play in the launch and use of the petro. Emails sent to addresses associated with Aerotrading were not returned by press time.

As previously reported, Maduro unveiled the “petro” back in December, and on Tuesday the government launched a presale which it claims has raised a whopping $735 million on the first day. Still, the sale was reportedly marred by confusing messaging, and political figures in the country have decried the move as illegal.

NEM says no involvement

One group that has confirmed that it is not involved with the petro is the NEM Foundation, which oversees development of the open-source NEM protocol. The NEM Foundation was first linked to the story after documents published by the Venezuelan government indicated that the NEM network would be used as the platform on which tokens would be issued.

“The NEM technology is freely open to any individual or organization that wants to use it. The NEM Foundation abstains from political endorsements. We can confirm that the Venezuela Government is intending to use the NEM Blockchain,” the group said in a statement posted to Twitter.

A representative for the Foundation told CoinDesk in an email that the group “is not involved with this project and we’re not in a position to control any open source projects.”

“The NEM Foundation has a clear purpose to introduce, educate, and promote the use of the NEM blockchain technology platform on an international scale to all industries and institutions,” the rep added.

Confusion over the Foundation’s involvement was sparked by a tweet from the Venezuelan government that inaccurately cited them as meeting with officials there. Chatter on social media suggests that the exchange in question is ZeusExchange, which is based in Russia.

When reached for comment, a representative for the exchange suggested that its code would be utilized in connection with the project.

“The part of Zeus Exchange code will be used for the future crypto exchange and as a part of NEM Blockchain Alliance to all Mercosur countries, Venezuela included,” the rep said.

Other links uncertain

Information about other groups reportedly linked to the petro project is less clear at this time.

According to a source, the team behind Venezuela-based cryptocurrency exchange MonkeyCoin is among those rumored to be involved. MonkeyCoin was launched in June 2017, according to press statements at the time, and emails sent to the exchange were not returned by press time.

A December report from news service El Cooperante links an additional cryptocurrency project, the loan platform OnixCoin, to the petro initiative. As the site reported on Dec. 13, OnixCoin “is in charge of carrying out the generation of Venezuelan cryptocurrencies.”

Additionally, as reported by Reason that same month, OnixCoin founder Angel Salazar is part of a group that is advising the Venezuelan government on cryptocurrency regulation.

Annaliese Milano and Nikhilesh De contributed reporting. 

Venezuela flag image via Shutterstock

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.

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Venezuela Blasts 'False' White Paper for Oil-Backed Cryptocurrency

Venezuela’s government is pushing back against what it calls “false information” in connection with a purported white paper tied to its planned oil-backed cryptocurrency.

While the South American nation did not confirm exactly what this false information constitutes, the superintendent of Venezuelan Cryptoassets and Related Activities – recently created to oversee the work, which was first announced last month – told Reuters that the government was rejecting a white paper which purported to explain how the petro worked.

The white paper for the petro has not been released yet, he said, but Venezuelan President Nicolas Maduro will do so “soon.”

A Reddit post from roughly two weeks ago claimed to include a link to the petro’s white paper, and the document itself – unconfirmed by the Venezuelan government as of yet – appears to be hosted on the government’s official website. Whether this document is an early version of the expected official release remains to be seen.

The controversial “petro token” was announced last month, with the stated goal of bypassing financial sanctions amidst a years-long economic decline. Venezuela’s current fiat currency, the bolivar, has been subject to intense inflation, with the government recently issuing a 100,000 unit note.

That said, the proposal has drawn criticism from some quarters of Venezuela’s government, namely the legislature, which is controlled by political forces opposed to Maduro. The concept has been called “illegal” by the nation’s Congress, for example.

Venezuelan flag image via Shutterstock

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.