In recent days the government of Venezuela has announced its decision to launch its own Crypto Currency. The move, the first by any national government, is certainly an unusual one.
The government of Venezuela has said the value of the Crypto will be tied ‘in some way’ to the value of a barrel of Venezuelan oil, how exactly this will work is unclear. The Crypto which is to be known as the ‘Petro’ clearly aims to highlight its supposed links to the countries oil reserves.
The launch of the Petro comes in advance of next months presidential election in Venezuela, questions are being asked how the economy will be saved and the Petro is being proposed as part of the answer.
Why has this been done?
Essentially this is a cynical attempt by the Venezuelan government to raise money through an ICO. The Venezuelan economy is in very poor condition. Unemployment is sky high, poverty is widespread and industry is struggling. Hard currency is badly needed.
In addition to this the country is subject to US economic sanctions after the disastrous decision by a previous president of Venezuela, Hugo Chavez, to seize the assets of foreign oil companies. The country cannot raise money on international bond markets to assist in its funding shortage due to these sanctions.
Is investing in the Petro a good idea?
Well supporting it would probably mean you would be breaking US economic sanctions. So not a good idea on that front.
In addition Venezuela is a country with a history of defaulting on foreign debts, seizing foreign assets and just general financial mismanagement, again putting any money in this looks like a bad idea.
How they will garner the resources to develop an innovative Crypto is very unclear, so expect a token issued on an existing platform like Litecoin. Essentially something you could do yourself and probably no more technically sophisticated than a lot of the ‘junk coins’ out there at the moment.
Expect more basket case economies to try this over the coming months.
What does this say about Crypto?
Crypto has many positive uses and of course like fiat currency it can be also used for bad. This attempt by the Venezuelan government says something more though.
There are a lot of people investing in slickly marketed ICO’s where the underlying coin is just a basic token issued on an existing platform. The use case is spurious with the creation of the coin probably taking less than an hour.
These ICO’s are slickly marketed with pop up ads on Facebook, Reddit and various blogs. Then there are the paid YouTube videos from coin shills who next month will have moved on to peddling some other form of snake oil scheme.
The people handing over their money for these coins often have no idea really what they are doing but have seen the value of Bitcoin sky rocket, heard something about Blockchain and see spending $100 on an ICO as a harmless gamble.
A lot of the time you have no idea who is behind these ICO’s. Once the money is in and the coin is live they can essentially sit back and do nothing happy with their weekends work. Its easy money. You have no comeback if they just sit on their hands, ICO’s are completely unregulated.
This is what the government of Venezuela sees anyway. An easy way to take money from gullible westerners that they never have to pay back, raise a couple of million dollars for a weekends work and give people the opportunity to annoy the United States. Maybe win a few more votes in the next election.
One of the biggest threats to the adoption of Crypto and innovation with Blockchain technology is the success of these junk coin ICO’s.
Investors will get nothing back and will not return, either to use Crypto or support innovation for some time to come.
This would be a great shame.