Venezuela succeeded in increasing crypto adoption, just not the crypto they wanted

Back in December 2017, Venezuela’s president Nicolás Maduro announced the country’s very own native cryptocurrency, the Petro. A stablecoin of sorts, the Petro would be backed by the nation’s oil reserves (the largest in the world), as well as reserves of gasoline and precious metals. Exactly how this would work in practice was not clear at the time, but it hardly mattered — December 2017, of course, was the golden age of crypto. One could figuratively roll a dice, bet on any coin at random and triple the investment in a week. Blockchains were being discussed on mainstream TV stations — CNBC even hosted a trading expert who predicted $100,000 Bitcoin prices in 2018. If ever there were a time to announce a national cryptocurrency, this was it. The details could be hashed out later.

That was a complex process, as it turned out. First, there was the problem of development — the whitepaper claimed the Petro would be an ERC20 token based on the Ethereum blockchain, but this was changed to a NEM mosaic token just before launch, confusing anybody who tried to purchase it. Of course, scammers saw this as an excellent opportunity and created a PETRO ERC20 token to capitalize on the confusion. Then there was the price pegging. The idea in the whitepaper was that one PTR would equal one barrel of oil, but how that peg was to be maintained was never quite nailed down.

Then was the private sale, and in fact this was operated much like any ICO in 2017. There was a pre-sale with a discount, and after the entire token sale 44 million tokens had supposedly been purchased by Bitcoin, Ethereum, NEM or Russian rubles. This was unfortunate for anybody who saw this as a wise investment because, although the ability to pay for many goods and services using the currency was promised — it never launched. The release was promised month after month with a list of exchanges to support it and a wallet on the Google Play store (quickly removed, by the way) but alas, it was not to be. As the currency was predicted to be a method to avoid sanctions, the US pre-emptively banned the purchase and use of Petro by its citizens. This would almost certainly keep it off all major exchanges if it ever did launch, and rule out any influx of foreign speculation.

Then, in what might be the most bizarre event in the already fantastical history of Venezuela’s national cryptocurrency, Maduro announced a new fiat currency pegged to the price of the (not-circulating) Petro. That would be a national currency, pegged to a cryptocurrency, pegged to an oil barrel, where no evidence exists that it is indeed pegged to an oil barrel, and the cryptocurrency doesn’t exist (and would be blacklisted if it did).

The icing on the cake came in December, when the president ordered the price of the Petro to be increased from 3,600 sovereign bolivars to 9,000. Were we to thus assume that it was no longer pegged to oil? At this point, it’s pretty clear it doesn’t matter. The currency is still sold via issue certificates, not tokens via a blockchain, and is not trading or subject to market forces.

So, might we fairly say that the Petro was not a clear victory, and that Venezuela was unsuccessful in driving any sort of crypto adoption? Well, perhaps not. While nothing has happened with the Petro, Bitcoin OTC trading volume in Venezuela is at an all time high, rising from 20 BTC in 2015 to 2,400 BTC weekly volume in the second week of February on LocalBitcoins alone. Much is made of Bitcoin’s volatility, but even the great crypto collapse of 2018 is nothing compared to the hyperinflation Venezuela has seen — the IMF estimated 1.37 million percent inflation in 2018, and predicts roughly 10 million percent in 2019. In such a situation, Bitcoin begins to look like a stablecoin even at the worst of times. Facing such predictions and the enormous political turmoil, the rise of popularity for Bitcoin and any OTC-offered cryptocurrency will almost certainly continue to increase. Bitcoin is inflationary at present, with 1,800 mined every day and an annual supply increase of almost 4%. However, this will be cut in half in May 2020, and again in 2024. Somewhere in that timeframe Bitcoin will effectively become deflationary — when more coins are lost per year than created. This level of economic certainty anybody is extremely attractive to those living in an economy like that of Venezuela.

Seeing the potential for citizens to start hoarding cryptocurrency and sending it abroad, Venezuela this month embarked upon new regulation taxing and limiting remittances via cryptocurrency. Such transactions are taxed up to 15% and limited to 600 US dollar-equivalent per month. Crypto service providers will have to comply with this, but naturally it is completely unenforceable on OTC platforms and will only drive even more people to use sites like LocalBitcoins.

With all that said, Venezuela may have done more than any state in driving cryptocurrency adoption, and adding legitimacy to the core tenets of blockchain technology. Through hyperinflation, capital controls, restrictions on exchanges and freezing assets, it has guaranteed the next generation of Venezuelans will be some of the most crypto-loving people on the planet. And that crypto won’t include the Petro.

Article by Byron Murphy, Editor at Viewnodes. All opinions are the author’s alone. For information on some of the services provided by Viewnodes, including our Tezos delegate, click here.