Advertisement

Venezuela and Russia Move Forward With Laughable Dive Into the Dirty Business of Cryptocurrencies

Venezuela and Russia Move Forward With Laughable Dive Into the Dirty Business of Cryptocurrencies
From Gizmodo - January 2, 2018

Venezuela and Russia both have economies that are heavily dependent on the price of oil. Both countries are dealing with economic sanctions imposed by the United States. And in the past few days, both countries began moving forward with an official state cryptocurrency. Neither of offering sounds like it should be taken seriously.

Weve mentioned the rumors that Russia and Venezuela were working on their own cryptocurrencies in the past, but recent news indicates that both countries will be cashing in on the cryptomania very soon. On Tuesday, the Financial Times reported that officials in Moscow say that President Vladimir Putin has commissioned his economic team to make a blockchain-based version of the Rouble. And last week, Venezuelas information minister, Jorge Rodriguez, announced on state TV that his countrys new cryptocurrency, the petro, will be issued in a matter of days.

For casual cryptocurrency watchers, this might sound like a positive development in the field. After all, naysayers often point out that the value of fiat currency might be as imaginary as bitcoin but it has the backing of the full faith and credit of a government. So, shouldnt the idea of a government-backed cryptocurrency indicate that were moving toward options that have more stability? Not necessarily.

Above all, Venezuelas idea for the petro sounds like some grade-A bullshit. That doesnt mean that Russias planned cryptocurrency is any better, its just earlier in the planning stagesthough, its unclear how much planning Venezuela has really done. President Nicolas Maduro first announced his cryptocurrency strategy at the beginning of December as an alternative to the rapidly depreciating Venezuelan bolivar. According to Reuters, prices in Venezuela have risen 1,369 percent between January and November, and the best option the government has been able to offer is a 40 percent hike in the minimum wage. But based on reporting by Bloomberg, it seems that all Maduro is attempting to do with the petro is the state equivalent of an iced tea company slapping blockchain on its name and watching its stock rise. From the report:

The petro will be different from bitcoin and other cryptocurrencies because it will be backed by hard assets, Rodriguez said. Maduro on Wednesday certified that some 5 billion barrels of Venezuelan oil reserves will be used as financial backing for the petro, according to the nations oil ministry.

That oil can support financial instruments worth $267 billion, the ministry said in the statement. By comparison, bitcoin, the largest cryptocurrency, has a market capitalization of about $246 billion, according to coinmarketcap.com.

So, the oil reserves back up Venezuelas fiat currency, and that currency is in a tailspin. But now that some sort of blockchain version of that currency is being introduced, people should feel good about it because its backed by the oil reserves? Okay.

Whats more, it sounds like Venezuela is looking to drop a set amount of its currency, rather than replicating the system of bitcoin or ether that involves individuals mining the currency by crunching complex mathematical problems. Since the petro is intended to be a centralized currency, this isnt a big surprise, but for many enthusiasts, this would disqualify the petro from even being considered a legitimate cryptocurrency at all. Ripple is the most successful current example of a pre-mined ledger-based payment system. Its caught on with banks like UBS and Unicredit who are testing it out as a way of dipping their toes into the blockchain pool. But for those who have an ideological mission in spreading decentralized currencies like bitcoin, pre-mined currencies are the antithesis of what makes blockchain good, and they are often a solid indication that youre getting involved in a scam.

The petro definitely sounds like a scam. Not only is it backed by that oil that also backs its fiat currency, its not even clear if Venezuela will be the owner of that oil for long. In August, Reuters reported that Venezuela was secretly offering Russia control of a significant chunk of its state-owned oil assets in exchange for further lines of cash and credit. We dont know if any deal has been struck behind closed doors, but in November, Russia did generously restructure the billions in debt that its owed by the Venezuelan government, and its only requiring minimal payments for the next six years.

Advertisement

Continue reading at Gizmodo »