At the end of last year, Venezuelan president Nicolás Maduro got desperate—really desperate—for money. For years he’d been listening to economic advisors who told him there was no link between money printing and inflation. He’d become addicted to terrible Wall Street loans that kept his government afloat. Then, U.S. sanctions hit, and American investors were banned from trading new Venezuelan government debt.
What were broke criminals doing for financing in late 2017? That’s right, they were trying to pull off scammy ICOs. Maduro held a press conference to announce the world’s first state-issued crypto-asset, branded the “petro.” To lure investors, he said the government would back each petro with an actual barrel of Venezuelan oil.
Cryptoassets usually derive their value from their usefulness: bitcoin is a censorship-resistant way to transfer value; ether can be used to pay for decentralized computations. The petro didn’t try to play that game. Instead, Maduro claimed the petro was a virtual representation of oil traded on the open market.
Take the “virtual” part extra literally. To think you could really turn petros into petrol, you have to believe a government that can’t pay rent on its embassies is going to make good on its promises to you. Because you’re special.
The cracks started to show before the sale even started: Ethereum founder Vitalik Buterin noticed the government isn’t really promising oil, but rather bolivars based on the oil price. (You read that right—the “guarantee” is on a fiat currency currently depreciating at a rate of 80% per month.) Then, Venezuelan oil guru Francisco Monaldi noted the state is unable to exploit the oil field quoted as the source of the backing.
None of this is to say that cryptocurrencies can’t work in Venezuela. While the petro has been a disaster likely to be abandoned, the country has become a fertile breeding ground for crypto activity (some international observers see Venezuela as a test-case for a post-fiat money world). I’m teaming up with other twenty-something engineers and designers to develop crypto projects that could help Venezuelans.
Riding on Maduro’s extensive TV and radio coverage of cryptocurrencies, projects like DASH and Byteball are promoting themselves as alternatives to bolivars. Eugenia Alcalá, the founder of DASH Caracas, started to organize educational events last September, growing monthly attendances from a few dozen to more than a thousand (it helps that newbies are gifted $1 in DASH). Locals can use DASH to buy a wide array of goods, everything from lunch to gasoline. Some entrepreneurs accept only digital currency, seeing it as more stable than traditional coinage.
“We focus on teaching people how to use DASH. We see it as an easy and quick alternative to make digital purchases,” Alcalá says. Still, the company remains cautious in how it advertises. DASH’s community website was blocked by the government in early June. Official policy is to ban trades at “speculative prices” and any reference website that calculates the market rate of the U.S. dollar is banned. (There have been forex controls in Venezuela for 15 years, and people have been jailed just for publishing this rate.) The government also blocked exchange website AirTM, as it looks to capture a slice of the remittances people send to Venezuela from abroad.
Even so, as late as last December, a few (naïve) Venezuelan blockchain developers believed the government was finally about to adopt sound money. They saw the petro as an oil standard that could cure hyperinflation. The initial design for the petro was an Ethereum token (ERC-20) that represented the value of physical oil barrels, according to a project developer I spoke with.
Done properly, this wouldn’t be so different from Digix, a project that lets people invest in gold bullion through a blockchain. But the project was controlled by an outright kleptocracy that trusts no one outside its tight inner circle. Of course it wasn’t going to do it properly.
Last winter, the government held diplomatic meetings with Turkey, Qatar, and other states in the Middle East, offering tokens at a steep discount. One embassy official who works on economic partnerships told me that after meeting with Venezuela’s government, he “wouldn’t touch the petro with a ten-foot pole.” The deals were off. As it became clear that Maduro wasn’t interested in giving up his money-printing powers, Venezuelan developers were gradually replaced with pragmatic Russian advisors.
Then, in late February, the wheels really came off. On the eve of the petro’s white paper release, programmers received violent threats and were forced to change all references of Ethereum to the lesser known (and more manipulable) NEM blockchain. They’ve since abandoned the decentralized version of the project.
In March, the Russian-led team deployed a website that allowed anyone to send bitcoin, ether, or XEM (NEM’s native currency) to government addresses, with no sense of how many petros a buyer would receive in return. It was also unclear where the petro was actually issued. There’s more than one token that matches the white paper’s description on both the Ethereum and NEM blockchains. As per the NEM block explorer, taking the latest version of the white paper at face value, the government sent some 13 million units of the tokens to 14 different addresses, presumably belonging to exchanges licensed in the country. As for petro sold to retail investors, it hasn’t even been issued yet. No official explanation is available.
Long-suffering locals are unimpressed by the whole affair, says Christian García, a reporter from south Venezuela who stores his wealth in bitcoin and tells colorful stories of his day-to-day life on the Let’s Talk Bitcoin podcast. “They keep giving petro commercials a lot of airtime, but people are generally too busy trying to survive to really care. People are way more interested in the animal lottery.” María Flores, an office manager in her mid-30s from Caracas, says “the government wants us to believe the petro is the silver bullet for fixing the economy, but people are mostly ignoring it. I don’t understand it, so I ignore all the propaganda”.
Maduro’s advisors have told him to ban cryptocurrencies altogether, recognizing that digital cash is a threat to the state’s monopoly on money creation. No formal steps in this direction have been taken yet. But it seems likely that Venezuela’s crypto enthusiasts will be targeted more aggressively in the months ahead.
This post has been updated to clarify Machado’s crypto development role in Venezuela.