Petro: Venezuela’s Oil Backed Cryptocurrency

Bitcoin’s idea can be considered revolutionary in the world of finance. In fact, by design, it was a result of the 2008 financial crisis. Over the last decade, having a decentralized ledger and not being associated with any country’s economy has made Bitcoin a stable alternative to the dollar and other major currencies, at least on paper. But is this really a good alternative to a dollar? Can this be considered the new age gold?

But what if a digital currency is being used by countries? Does it defeat the purpose of cryptocurrency itself? Venezuela announced that it is going to launch its own digital currency.

Jorge Rodriguez, Venezuela’s Vice President of Communication and Culture mentioned that the country is going to launch Petro, a cryptocurrency backed by the country’s energy and minerals, in order to avoid financial attacks in the future.

At a press conference that was broadcasted on Venezuela’s state TV, he mentioned that “It is a matter of days before we announce the first issuance of the “Petro” cryptocurrency”.

Rodriguez also mentioned that Nicolas Maduro, the president of Venezuela, has already signed the certification of the Ayacucho Block of the Orinoco Paleo Belt that will have five billion barrels of oil international certificate in order to support the Venezuelan digital currency.

An Answer to Political Opposition?

President Nicolas Maduro has been facing a strong opposition as Venezuela entered crisis after the oil-dependent regime of Hugo Chavez. According to Jorge Rodriguez, Petro was designed in order to help Venezuela which has been facing diplomatic isolation by other countries after its crackdown on its political opponents.

But since it is going to be backed by assets, this is what makes Petro different from all the other cryptocurrencies. The 5 billion barrels of oil will be worth around $267 billion. On the other hand, Bitcoin has a market capitalization of $246 billion.

 Is Petro Feasible?

Simon Quijano-Evans who works as a strategist at Legal & General Investment Management Ltd. based in London mentioned his skepticism regarding this new move by Venezuela. He also said that investors that lost their confidence in the country are unlikely to be drawn to Petro. In addition to this, he also explained that “State-backing is meant to supporting the existing currency and bonds”.

Cryptocurrency During Financial Crisis

Bitcoin has become popular in countries that have been experiencing economic problems. For instance, the removal of Robert Mugabe as Zimbabwe’s president has surged the price of Bitcoin on its local exchange. In fact, there was even a time when Bitcoin was selling twice the usual international rate.

Does this mean that a cryptocurrency such as Petro could actually hold its value during financial distress? Could cryptocurrencies like Bitcoin and Petro actually function just like gold?

Cryptocurrencies are still new up to this point. And since we are still in its infancy, we really can’t tell whether or not Venezuela made the right call. But definitely, what they are doing isn’t really a long-term solution for the country’s woes but rather a patch that can potentially lessen the impact of a financial crisis hitting the country.