Every Venezuelan is a millionaire, but there is no country in the world where people hate money more. In their eyes, the fiat money of their country is little more than paper. Take a look at the picture below, and guess what the bundle of money on the table can buy?
Answer: a roll of toilet paper. Venezuela is experiencing extreme inflation right now. How severe is it? For example, if you bought their fiat currency for $1 million in 2013, it would be worth only $3 today.
Venezuela was once the envy of the world thanks to its oil wealth and welfare benefits. Now, however, the country’s cards are in tatters, its politics, economy and diplomacy are in disarray, its over-dependence on oil has fallen in price in recent years, and survival has become so difficult that every restaurant bin has been ransacked.
With the value of money dwindling, President Nicolas Maduro has resorted to reprinting money, with a new dollar equal to $100,000, and issuing the world’s first national digital currency, the petro, as legal tender. Venezuela is undoubtedly the first to do so, but the purpose and process are somewhat ironic.
Why the petro?
Could it be that a country that, in a pinch, has turned to digital money as a new way out, they love it? That’s not the case.
In the face of soaring inflation, Bitcoin has replaced the legal bolivar as a popular means of payment, and nearly every middle class is talking about BTC. Even government officials are using Coinbase to buy BTC. In addition, the electricity price in Venezuela is cheaper than water, and once electricity is equivalent to RMB 0.000086 yuan, which is almost free. Being a miner is the most reliable way for ordinary people to make a living.
This year, the Venezuelan government officially banned the purchase of mining machines. Mining is illegal, and all mining machines are sold on the black market. If you are caught, you will be detained, beaten, robbed of your mining machines and even asked to help install them.
Venezuela used to rely on printing money to maintain the normal operation of the country, but no matter how much money it printed, it could not prevent the deterioration of people’s livelihood and the economy. Moreover, it still owed a lot of debt to China and the United States, and the whole country suffered from internal troubles and foreign troubles. Therefore, it needed a different way of “making money” from the past, and digital currency came into being. At least it looks like a constant number of blockchain-based coins will deflate the immediate problem. Petrocoins are said to have raised $5 billion so far.
The petro white paper was published at the end of January, with a total of 100 million coins issued, one for each barrel of oil. Despite their name, the paper makes it clear that petro cannot be exchanged for oil, but is tied to the price of oil. But the genius of the coin is that it is backed by the government. Maduro promised that public services, taxes and so on would be denominated in petro.
Of course, Trump would be the first to reject this approach, since the digital currency is not pegged to the DOLLAR, and Venezuela is completely free of U.S. financial sanctions. Despite Trump’s condemnation and threats, Maduro, at his wit’s end, allowed the petro to go ahead and officially linked the bolivar to the petro on August 20.
The slot point of the petro
In addition to us objections, the petro itself is also untenable, with a bunch of points from the white paper’s release:
1. Transactions are monitored
The petro white paper claims that the petro transaction is anonymous. Although the transaction record cannot be seen by the transaction object, the transaction process and information on the whole chain are monitored by the Venezuelan government.
Questionable technology and operating platform
The white paper says petro is an Ethereum ERC20 token, while the user guide issued by the government says it is on NEM’s neCOIN network.
One dollar one oil, but is there so much oil
One petro for every barrel of crude oil, Maduro announced in the video that he would use the 5 billion tons of oil reserves in the Ayacucho Block 1 field as the material basis for the issue of the petro, but it is unclear whether there are that many.
The white paper does not say that the petro can be exchanged for oil, but the user is merely promised that if there is not enough oil in the oil field, the petro is nothing but air money.
4, against the benchmark oil price, the chance of appreciation is very small
It is mentioned above that petrocoin is directly benchmarked to oil price, and the calculation formula is as follows: petrocoin conversion price = oil price, petrocoin exchange price (1-discount rate), in which the exchange price and discount rate are determined by the authorities themselves, which is highly likely to be manipulated by the authorities.
In recent years, the price of oil has been declining, increasing the risk of irresistible decline of petro. Overall, the living space is very small, which is not a good choice to solve the current economic crisis.
What do Venezuelans think of the petro
Maduro’s push for petro coins, while cracking down on digital currency mining, seems to have had little effect, and only a handful of Venezuelans still use them.
Venezuela with 80% of people are very poor, but only little part of people have the opportunity to use digital currency that can smoothly in daily life, because to be able to use smart phones, very few people understand will use digital currency, besides now person with ability of learning has already gone, the street is full of “backward” and can’t satisfy the basic food and clothing.
One person deported from Venezuela told Cointelegraph:
“Venezuelans may support the petro politically, but they are not going to put all their assets in the petro,” he said. “Previous plans and changes only ended up enriching senior government officials.”
Venezuela banned mining around 2016. When the country issued petro, it said mining was not illegal but continued to raid the mines.
“When Maduro advertised the petro, he said he would support the miners, but he didn’t. I’ve signed a contract to help the military search the mine, which I don’t want to do, but I’ll be shot if I don’t.”
Most Venezuelans see the petro as a way to escape economic sanctions and get out of the country’s debt, as it always has been.” It’s not transparent or decentralized, and nobody knows what the total supply is.” Even V could not bear to watch:
Petro is off to a bad start as a world-class experiment. It’s not technically a digital currency at all. It’s essentially a bolivar issued on a blockchain, with the only difference being that it feels like a deflationary currency.
Maduro’s video claims that the petro is free, fair and balanced cover up the country’s fragile economy and is nothing more than a palliation to avoid U.S. sanctions.
Venezuela’s state credit is bankrupt, and buying it is virtually indistinguishable from buying a junk bond. Economists from other countries say: “Who would believe that a central bank that can’t even manage fiat money can properly manage and issue digital money?
Its value is to help Venezuela break the FINANCIAL blockade of the United States and survive the economic crisis. If President Maduro leaves office until January 10, 2019, the petro system could become ineffective and the petro bought with real money would become worthless.