Is Venezuela's Petro A CryptoMilestone For Digital Currency – Or A CryptoMillstone?

Feb 26, 2018

Last week Venezuelan President Nicolás Maduro said his country had found “the perfect kryptonite to defeat Superman!” By Superman he meant the U.S. And by kryptonite he meant cryptocurrency – el petro.

The petro is the cryptocurrency Venezuela recently created to raise desperately needed cash as it sinks deeper into the world’s worst economic collapse today. Maduro touts the petro as a way around U.S. financial sanctions that prevent his authoritarian socialist regime from raising money in bond markets. And he claimed – I strongly repeat, he claimed – that his cryptocurrency had hauled in $735 million on just its first day  last week.

The kryptonite-and-Superman stuff is just what the so-called crypto-community wanted to hear. After all, cryptocurrency – digital currencies like bitcoin and ether – is a sort of rebel financial movement. It wants to free currency from the centralized grip of banks and governments.

READ MORE: Yes, Venezuela Is On the Brink of Default. No, That Doesn't Mean Regime Change.

And that movement wants legitimacy. So it was big to have an actual country – in this case Venezuela – embrace the idea.

“This is the first-ever state that issues a cryptocurrency,” says Alejandro Machado, a Venezuelan-born software designer based in Panama.

“This is a huge milestone for the crypto-community that believes that cryptocurrencies are going to be the future – that money and state will be separate things, that the government won’t have monopoly over money anymore.”

This is the first-ever state to issue a cryptocurrency. But you have to be really naive to believe Venezuela has in fact sold any of it so far. –Alejandro Machado

Even so, Machado says there’s just one, really big problem with this picture: The first country to issue a cryptocurrency is…Venezuela.

Machado works in cryptocurrency development. But like a lot of crypto-enthusiasts, he is not cheering the launch of Venezuela’s petro. For starters, he says that as a Venezuelan expat he rejects a cryptocurrency that may throw a dictatorial regime a financial lifeline.

“It’s a very exciting stage of the game,” he says, “but I think we have to remember our values.”

Whatever Machado’s political take, he and other experts say what’s more troubling is that the petro might be a fiasco – if not an outright scam. Especially the Venezuelan regime’s remarkable assertion that it scored almost three-quarters of a billion dollars on the petro’s first day out.


On the group blog Caracas Chronicles last week, Machado said he and other experts examined the petro’s web site – which most of them called dysfunctional – and, more important, its blockchain. Blockchain is the digital ledger on which the buying and selling of a cryptocurrency are recorded – and experts saw few if any petros change hands.

“You have to be really naive to believe the government has in fact sold any petros,” says Machado, “because the blockchain shows all 100 million petros are still controlled by one address.”

A screen shot of a blockchain showing virtually no transaction history for Venezuela's petro on its Feb. 20 launch day.

And that address is the Venezuelan government’s. So Venezuela is lying – trying to create hype to lure buyers in – or it’s made a behind-closed-doors deal with crypto-investors on future petro sales. Perhaps in Russia, one of the only international backers Venezuela has left.

Either way, critics say that lack of transparency – from a regime notorious for lack of transparency – should make the crypto-community worried. Far from helping to legitimize cryptocurrency, the petro may end up tarnishing the movement's fledgling image.

“There’s a sucker born every minute, and that’s what the Venezuelans are counting on,” says Russ Dallen, who heads the Miami investment firm Caracas Capital Markets.

“This is like Venezuela setting up a lemonade stand on the front porch of their country,” says Dallen, “but the fact is it’s just water.”

Or in this case: oil. Dallen sees two big problems with the petro. The first is that it’s issued by one of the most economically incompetent governments on earth. The second is that it’s supposedly backed by Venezuela’s prodigious oil reserves. One petro for one $60 barrel of crude.

But cryptocurrency experts like Barry University finance professor Charles Evans say it really isn’t supposed to work that way.

Evans says a crypto-asset like bitcoin “exists in and of itself. It’s like a box of poker chips that cannot be counterfeited. With Venezuela, it is not a case that you could show up on President Maduro’s doorstep with a bunch of petros on your phone and come out with a barrel of oil.”

Hyperinflation has made Venezuela's regular currency, the bolivar, so worthless that Venezuelans now use it to make items like purses.
Credit Fernando Vergara / AP via Miami Herald

In fact, says Evans, investors still really don’t know how or if they can actually redeem the petro for anything.

“Then it looks like any other Ponzi scheme out there. With Venezuela, the sensation I get is watching two children playing with a Frisbee on the Palmetto Expressway during rush hour – and there’s nothing I can do to stop it.”

This week Venezuela plans to issue another cryptocurrency backed by its gold reserves.

Meanwhile, Evans points out more Venezuelans are using cryptocurrencies like bitcoin. Not to rebel, but to survive – because hyperinflation has made Venezuela’s regular currency, the bolívar, worthless.

Unless Venezuela’s regime knows something the experts don’t, its cryptocurrencies may turn out to be the same.