Venezuela’s economy is in a state of disarray due to the volatility of its currency, steep economic sanctions imposed by the US government that have shut the country off from much of the global economy, and a severe shortage of food and medicine. In a move to regain stability, President Nicolás Maduro announced on January 5th the issuance of the “Petro,” a cryptocurrency backed by the country’s oil reserves, and a Superintendence of Cryptocurrencies and Related Activities to oversee the currency’s development and issuance.
An asset-backed cryptocurrency is a viable option as long as the link between the digital asset and the real-world asset is legally enforced and secured through policy and the underlying technology.
There are further plans to back the Petro with other valuable assets such as gold and diamonds.
100 million Petros will be issued with each cryptocurrency backed by a single barrel of oil, currently valued at $60.
The original notion of an oil-backed currency was proposed by Former President Hugo Chávez. When Maduro revived the idea last month in the form of a national cryptocurrency, it was met with skepticism. One criticism leveled at the proposal has been whether or not the citizens of Venezuela will actually benefit from the currency or if the government would largely settle old debts by turning their $6 billion resource into a liquid asset (pun not intended).
Nearly one million Venezuelans have registered to “mine” the new cryptocurrency. Those who register will have access to the Petro as well as other crypto-assets authorized by the government. Registration will conclude on January 14th. These individuals will help build and maintain mining farms throughout the country.
Venezuela has control over the largest oil reserves in the world. Leveraging the South American nation’s most valuable and plentiful asset to bootstrap a new currency is a bold move and will require careful and deliberate implementation to avoid critical setbacks or outright failure, but if this is successful it will be the first national cryptocurrency.
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