President Trump recently announced a ban on Venezuela’s new national cryptocurrency, the petro.
That’s right—Venezuela created its own national crypto, possibly to circumvent U.S. sanctions.
But could the petro do more than that, and actually catalyze government-controlled cryptos around the world?
This is a Reality Check you won’t get anywhere else.
President Trump signed an executive order March 21 banning all transactions involving digital currency issued by the Venezuelan government, after it began pre-selling its own cryptocurrency, the petro, in February.
The petro differs from other cryptos because, according to the Brookings Institute, “The price of one petro is pegged to the price of one barrel of Venezuelan oil…” and “the petro/bolivar exchange rate … includes a discount factor determined by the Venezuelan government.”
By making that distinction, the Venezuelan government is now responsible for managing multiple currency systems simultaneously, creating what Dash Force News Editor Joël Valenzuela described as “an accounting nightmare.”
But isn’t cryptocurrency supposed to make accounting for transactions easier?
Well, actually it’s not the cryptos but the tech they’re built on. A few episodes back, we discussed how cryptocurrency is backed by radical transparency due to the power of the blockchain.
Rather than being backed by radical transparency and being a “trustless system”, as Valenzuela called it, the petro is essentially “fiat crypto.”
“When you back it with something that doesn’t have transparency, you have to trust the party that is providing the assets that back the coin,” according to Valenzuela. “It ruins its original value proposition.”
So why would Venezuela create the petro in the first place?
Once a crypto is a national currency, it’s subject to many tariff barriers and, in some cases, sanctions. Which is why President Trump made the first major national decision by the U.S. to ban a cryptocurrency. But cryptos like Dash aren’t tied to a government and weren’t created to bypass sanctions.
Once the richest nation in Latin America, Venezuela had suffered wild inflation, plummeting the standard of living and causing uproar from poverty stricken citizens. Many Venezuelans facing economic hardship are putting pressure on the government to stop the bleeding.
Anything to ease their suffering in the short term will be a boon to the tyrants, according to Valenzuela. But because the petro is not truly backed by trustlessness, critics say the government crypto won’t last long. And that presents a challenge to other governments considering creating their own cryptos.
Russian President Vladimir Putin already announced his government will issue its own CryptoRuble, likely sometime in mid-2019, according to CoinTelegraph.
The CryptoRuble is supposed to be directly tied to the ruble, issued by the Russian government and could not be mined.
More governments are likely to investigate the benefits of state controlled blockchain technology.
But remember, the two major selling points of blockchain are radical transparency and decentralization, meaning no one can manipulate the supply or the transactions.
And it’s those two aspects of blockchain that governments aren’t fans of.
Recently Congressman Brad Sherman of California read a statement that called cryptocurrencies “harmful,” and appeared to accidentally admit that cryptocurrency reduces government control of our currency. He said, “It hurts the U.S. government in two ways. Our contr… …our ability to have the US dollar be the chief means of international finance is what has underpinned our ability to impose sanctions…”
So Sherman doesn’t like the lack of “contr…” that the government has over crypto.
But on the other hand, imagine if the U.S. decided to use blockchain to track how our tax dollars are spent. Remember when the Pentagon admitted earlier this year that it couldn’t account for hundreds of millions of dollars?
What could help prevent data loss like this? The blockchain.
Corporations are already testing out the tech to prevent major data breaches like what happened to Target, Home Depot, JP Morgan, Anthem and others.
John Oliver explained the power of the blockchain in a recent episode of his show “Last Week Tonight.” He said, “The blockchain… a database that is nearly impossible to hack or tamper with, and which could possibly improve security, efficiency and trust. That is why big companies like Wal-Mart, IBM and JP Morgan have all been experimenting with blockchain as a way to potentially share and secure data transactions in a reliable, easy to access way.”
So what you need to know is that the blockchain presents an opportunity for governments to create a more transparent financial system. But Venezuela isn’t really doing that with the petro.
The crypto market has and will continue to fluctuate. Some crypto will disappear, some will stick around.
The question is, who is going to control the crypto? If governments do… they will take away the freedom of crypto… but if crypto currencies remain decentralized, then we will be able to keep a radically transparent financial system for the people.