In December 2017, Venezuelan President Nicolas Maduro introduced the idea of a cryptocurrency known as Petro. Despite its official launch in 2018, the Petro has neither gained substantial traction nor alleviated Venezuela’s economic woes. With promises of backing by the nation’s oil, natural gas, and mineral reserves, the currency aimed for stability.

To revitalize the struggling Venezuelan economy and sidestep international sanctions, the government proposed Petro as a digital asset. The backing was purportedly linked to Venezuela’s vast oil reserves. Nonetheless, the Petro’s initial popularity dissipated, and its legitimacy has been widely questioned by skeptics and analysts.

Known also as petromoneda, the Petro was introduced to leverage Venezuela’s resource wealth as a means for the government to generate funding. Despite sitting on one of the globe’s largest oil reserves, financial mismanagement and political instability have stunted the nation’s economy.

A confluence of U.S-led sanctions and decreased oil prices severely reduced Venezuela’s capacity to satisfy its international creditors, nudging the country toward insolvency. Compounded by significant inflation and essential goods shortages due to controlled pricing, the nation’s productivity was crippled, leading to a prolonged economic slump.

The cryptocurrency surge preceded the proposal of Petro, with the Venezuelan government pinning hopes on capturing international investor interest. Success would have injected the badly-needed financial influx during a time when the bolivar suffered an extreme devaluation.

Used to Bypass Sanctions

Petro and similar assets have faced criticism, seen as tools for money laundering due to their ability to circumvent monetary regulations and controls. Notably, the U.S. has imposed sanctions on various significant figures in Venezuela, implicating them in the drug trade and the suppression of political dissent.

Centralization

The introduction of Petro evoked diverse reactions within the crypto community. Cryptocurrencies like Bitcoin gained traction for their decentralized nature, where no single party governs the blockchain’s transactions. A state-controlled digital currency stands in opposition to these foundational cryptocurrency ideals and risks diminishing its worth.

Too Many Uncertainties

There’s lingering ambiguity regarding how much control the Venezuelan government holds over Petro, including transaction reversals or halts. With mining nodes needing registration with authorities, the process by which Petros might be redeemable for the backed assets remains an enigma.

The Petro was pegged to one barrel of Venezuelan oil to establish its value. Both oil and cryptocurrencies are known for their instability, and tying a currency to a volatile commodity is generally ill-advised for stabilizing an already unstable economy.

Important

Many international analysts speculated that Petro aimed primarily at evading U.S.-led sanctions, which barred Venezuela from procuring funds in the global financial arena. Success would have allowed evasion of these sanctions, facilitating secretive transactions out of the country.

Venezuelans, meanwhile, have increasingly gravitated towards other cryptocurrencies over both Petro and national currency. In 2021, cryptocurrency trading volumes in Venezuela hit unprecedented highs.

Blockchain experts at Chainalysis highlight the challenges in determining cryptocurrency adoption in Venezuela due to the bolivar’s devaluation. Yet, their research indicates a rise in activity on platforms like Binance, as Venezuelans sought alternatives to their depreciating currency.

While it’s difficult to ascertain who exactly accesses these platforms or their specific cryptocurrency utilization, analyses suggest that a significant portion of transactions, more than half, is attributed to businesses and retailers of varying sizes.

Fast Fact

The Petro, a controversial venture of the Venezuelan government in 2017, is a cryptocurrency no longer traded on mainstream exchanges, making it inaccessible for purchase internationally. Despite its official status, many citizens have turned to alternate digital currencies.

Investing in cryptocurrencies and associated Initial Coin Offerings (“ICOs”) entails notable risks and uncertainties, and this piece is not advocating for investment in such assets. Given the unique financial circumstances of individuals, consulting a financial expert before any investment is prudent. The author, as of this writing, does not hold ownership in Petro or other cryptocurrencies, and claims no responsibility for the precision or currency of the provided information.