On December 3, Venezuelan President Nicolás Maduro announced the launch of the national petro cryptocurrency, which should have been supported by the country's natural resources: oil, gas, gold, and diamond reserves. Later on, only oil remained on this list for assets backing the petro, as Maduro allocated 5.3 billion barrels of crude oil worth $267 billion, and the very name of the new cryptocurrency is derived from the Spanish "petróleo" (oil). In a televised announcement, Maduro said that petro will help Venezuela "move forward on issues of monetary sovereignty, carry out financial transactions, and overcome the financial blockade." In early January, the president ordered the issuance of 100 million national tokens. "Every petro will have the value of a barrel of Venezuelan oil," Maduro said.
The Economic Crisis and the Political Alignment of Forces
According to the Organization of Petroleum Exporting Countries (OPEC), revenues from oil sales account for 98 percent of Venezuela's export earnings, and in 2014 the price of oil fell sharply from $100 to $115 per barrel to $45 to $50. The economic crisis that started exacerbated the conflict with the opposition, and in the parliamentary elections in 2015, the opposition won a majority in the National Assembly, the Venezuelan Parliament.
In 2014, there were riots in the country, and by 2017, they had intensified so much that the media began to discuss the possibility of a military coup. At the beginning of July 2017, a brawl took place, during which Maduro's supporters broke into the territory of the parliament armed with sticks and improvised explosive devices. And by the end of the month, the opposition parliament was actually deprived of its powers. On July 30, the Constitutional Assembly of Venezuela, completely controlled by Maduro, was convened. It announced that it "assumes the fulfillment of legislative functions in order to preserve peace and institutionality.”
The Venezuelan parliament refused to dissolve and formally continues to exist. "This fraudulent decision means nothing for us. The Constitutional Assembly itself is nothing like a zero," then Vice Speaker of the National Assembly Freddy Guevara said, saying that the parliament would not approve any decision that contradicts the constitution.
Growing every year, inflation in 2016 reached 800 percent, in 2017 it was 4,115 percent, and this year, according to the IMF, it can reach 1,000,000 percent.
Already in 2016, the lack of food, drugs, and basic products forced Venezuelans to go shopping in neighboring Colombia, and in December 2017, The New York Times published an article that reported hundreds of children who died of malnutrition.
In late August 2017, Venezuela had new problems as the U.S. had imposed sanctions against it. Restrictions have affected transactions with debt obligations and securities issued by the government of Venezuela and the state oil company.
The release of the national cryptocurrency became part of a scheme that Maduro tries to implement to overcome the crisis. On July 25, 2018, Maduro announced the final terms of the denomination of the bolivar, as on August 20, the bolivar would be replaced by a new currency, a sovereign bolivar, the exchange rate will be 100,000 old bolivars to one "new" coin. And the rate of a sovereign bolivar will be tied to the petro. The transition from the bolivar will be phased because both currencies will coexist for some time in the country.
On January 10, shortly after the president announced the release of the petro, the oppositional National Assembly deemed the new cryptocurrency illegal and in violation of the constitution of the country. Maduro's decree on the issuance of the national cryptocurrency was also declared invalid. Deputy Carlos Valero said that the parliament is forced to intervene to "prevent public opinion from falling into this trap." Another MP, Williams Davila, stressed that the government will not allow "an open violation of the constitution and the legitimization of illegal transactions."
Maduro supporter, the commissioner for cryptocurrencies and related activities Carlos Vargas called the parliament's decision contemptuous towards the country, stressing that the petro gives Venezuela the possibility of adding protection from "inflationary indices.” And, since the introduction of the Constitutional Assembly, the decisions (and bans) of the parliament are formal, and the next day, the government led by Maduro announced that the sale of the petro will take place in six weeks.
Not Just the Parliament
In late January, U.S. senators Marco Rubio and Robert Menendez wrote an open letter to U.S. Treasury Secretary Steven Mnuchin asking what measures are being taken to prevent the launch of the petro. Rubio and Menendez expressed confidence that the U.S. should prevent the launch of the cryptocurrency, whose goal is to circumvent the imposed sanctions. The document denies that petro will help the country's population "suffering from inaccessible food, medicine, and basic services.” "Maduro has only strengthened the aid to external agents, ignoring the humanitarian and political needs of citizens, becoming even more aggressive than ever." Senators also doubted that Venezuela has the resources to launch a digital currency, but stressed that "the Treasury needs to have the tools and enforcement mechanisms to deal with the use of cryptocurrencies, bypassing U.S. sanctions in general, and in this case, in particular."
On March 19, Donald Trump signed an order banning American citizens from participating in transactions involving the petro. According to Maduro, this is a sign that the president is "scared" by the potential power of the petro and Venezuela "is on the right track." In an official statement, Maduro condemned the sanctions imposed on the petro, saying that they violate the U.N. Charter and international law and are "an attack on Venezuelan citizens." Senator Menendez approved sanctions and called on the international community "to continue coordinated efforts to increase pressure on the Maduro regime."
As for the issue and circulation of the new currency, Carlos Vargas said on Venezolana de Televisión that "the petro will not be produced,” that is, its issuance will be fully controlled by the state. As Vargas said, the petro's cost "will be determined by a procedure similar to the auction,” and people will be able to use the new currency with the help of digital wallets. "We will have a cryptocurrency, the verification and use of which on all exchanges will be supported by a well-known platform that will allow the petro to be traded around the world without serious restrictions." Vargas did not name this platform, but according to the white paper, the petro is of the ERC20 standard and is a "token on the Ethereum blockchain.”
Later, however, the platform was replaced by NEM. Information about this appeared on February 20 on a Twitter account that covers the activities of the president, and later it was confirmed by the NEM Foundation.
Details of the Token Sale
The start of the token sale of the national cryptocurrency was announced on February 20 and, according to Maduro, on the first day, it was possible to raise $735 million, and the presale stage ended with a sum of $5 billion. There is no evidence of these figures yet. Maduro also said that the petro received more than 186,000 applications from 127 countries, and among the buyers, there were 83,000 private individuals and 3,523 entrepreneurs.
March 21 kicked off the main round of the ICO. In particular, this was written on Twitter by the Minister of Science and Technology of the country, Hugbel Roa. Even less information is available about this stage of the ICO. Given that, according to the white paper, out of the 100 million petro for release, only 82.4 million was available for sale, and the value of one petro was equal to the cost of one barrel of Venezuelan oil ($60 at that time), then the sale of all available tokens was intended to attract about $4.9 billion.
At the same time, it was impossible to buy the petro for a bolivar: only "hard currencies" the dollar and euro, as well as Bitcoin and Ether, were accepted as a method of payment. And the residents were outraged by this policy, since Venezuela forbids citizens to buy foreign currency. In fact, Venezuelans could buy the national currency for the bolivar only in the secondary market, which, like a Bitcoin exchange, trades on the black market rate (at the end of February, during the presale, the dollar was worth 200,000 bolivars, which was about seven times higher than the official rate). "I have only my currency, the bolivar, and I cannot get the petro. As a Venezuelan, I demand an explanation," wrote Twitter user Janet Manucci.
The Petro and the Real World
In January, Nicolas Maduro appealed to Bolivia, Cuba, Ecuador, Nicaragua, Nevis, and other states with a proposal to switch to the petro. He stressed that the new cryptocurrency can unite the South American countries and free them from the yoke of the dollar. The decision of the countries concerning businesses dealing in petro was not reported yet.
It is already known, however, that India declined the offer to buy Venezuelan oil for petros, even despite a 30 percent discount." We cannot have any trade in cryptocurrency as it is banned by the Reserve Bank of India. We will see which medium we can use for trade," said Indian Foreign Minister Sushma Swaraj.
Due to sanctions imposed by the U.S. on the petro, the Bitfinex exchange refused to add the token to its listing, saying: "We have never had plans to include the petro or similar tokens on the Bitfinex trading platform," and that this restriction applies to all platform customers, not just U.S. citizens.
The success of the petro on the international arena can be attributed to the agreement concluded in May between Venezuela and Palestine, according to which the countries decided to use Petro in mutual calculations, and also to create a joint cryptocurrency fund with an initial volume of 20 million petro.
The adoption of the petro is taking place more actively within the country. On February 20, Maduro made an official statement, obliging a number of Venezuelan companies "to carry out transactions, purchases, and sales in the petro." Among these companies are the oil and gas corporation PDVSA, its subsidiary Pequiven and the mining company CVG. In addition, consular fees of Venezuelan embassies around the world, aircraft fuel (the National Air Carrier Association), and tourist services, in particular, hotel booking, will be paid for with the help of the petro.
In July, the Minister of Housing and Communal Services Ildemaro Villarroel said that Venezuela will finance the construction of housing for the homeless using the petro. President of Venezuela Nicolas Maduro has already approved the use of 75 billion bolivars (about $750,000) and 909,000 petro for the construction of new housing.
Finally, on August 20, a new system of salaries tied to the petro came into force in Venezuela. To ensure a smoother transition to a new currency, this day was declared non-working in the country.