Venezuela to Become the World’s First State to Issue a Currency on Ethereum’s Blockchain

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The Venezuelan government has revealed they are hoping to raise around $5 billion by issuing an Ethereum Based ECR20 token called Petro in an ICO.

In a whitepaper that follows the same sort of structure and focus as other ICO whitepapers, the Venezuelan government says:

“Petro will be a sovereign crypto asset backed by oil assets and issued by the Venezuelan State as a spearhead for the development of an independent, transparent and open digital economy open to direct participation of citizens.

It will also serve as a platform for the growth of a fairer financial system that contributes to development, autonomy and trade between emerging economies.”

How exactly the token will be backed by their oil reserves – which are the biggest in the world – they do not clarify with it so planned to be tradable on exchanges as well as them stating the token “will have the necessary characteristics to carry out direct exchanges (Atomic Swaps).”

What they do clarify is in some ways its legal status through which they might manage a peg of sorts as this will be a fully backed state issued government token running on top of Ethereum:

“The Bolivarian Republic of Venezuela guarantees that it will accept Petro’s as a form of payment of national taxes, fees, contributions and public services, taking as a reference the price of the barrel of the Venezuelan basket of the previous day with a percentage discount of Dv.

In this wat [sic], it is guaranteed that the purchaser always has a recovery value adjusted to the investment.”

Petro’s oil backing formula.

The Venezuelan government says they will promote Petro’s use within the country and outside while also allowing its citizens to accept benefits in Petros:

“The Venezuelan government is committed to promoting the use of Petro in the domestic market and making efforts to stimulate its acceptance throughout the world.”

They are hoping to raise around $5 billion at $60 per token in a pre-sale, beginning February, to be followed by a public initial coin offering.

Some 55% of the funds, at $2.5 billion if all tokens are sold, are to go to the Venezuelan government itself in a sovereign fund which is “destined to the Republic for the support given to the use of Petro.”

Petro token sale funds distribution.

Their stated aim for engaging in this activity is: “Due to the imposition of the US dollar as the international backing currency and the subsequent replacement of the gold standard with the fiduciary model, the world economy has suffered from uncertainty and instability caused by the foundation in a currency without a gold backing, which has been particularly harmful to emerging economies.”

This is probably the most controversial project in this space and by nature very polarizing within and outside of Venezuela, a country which has experienced extreme hyperinflation leading to a desperate situation.

But by the nature of decentralization and its peer to peer set up, the blockchain technology necessarily has to be neutral in such situation, so leaving high politics to appropriate institutions.

One of them is the Presidency of the United States itself which, under both Republican and Democrat control, has imposed sanctions on Venezuela for a number of stated actions, including:

“Serious abuses of human rights and fundamental freedoms; responsibility for the deepening humanitarian crisis in Venezuela; establishment of an illegitimate Constituent Assembly, which has usurped the power of the democratically elected National Assembly and other branches of the Government of Venezuela; rampant public corruption; and ongoing repression and persecution of, and violence toward, the political opposition.”

As far as we are aware, however, the US government trades with Venezuela on oil, which does not appear to be subject to sanctions, New York Times reports:

“The administration stopped short of prohibiting imports of Venezuelan crude oil to American refineries, which would almost certainly be a crippling step. American refiners have lobbied hard against sanctions against oil imports, arguing that they would raise fuel prices, slash profit margins and potentially cost oil company jobs along the Gulf Coast.”

Whether the token is in effect buying oil, and thus outside of the sanctions, is probably a matter of legal interpretation, but can ethereum technically handle a country level currency running on top of it?

The answer right now is no. The network is hard at work addressing scalability, but that won’t be for at best another year and more realistically another two years or more.

Until then, the network can only handle a limited amount of transactions, currently at around 1.2 million, which could perhaps gradually increase to ten million a day or thereabout with gradual protocol optimizations, but not much more until the full solutions of Sharding and, to some extent, Casper.

The project therefore is probably slightly pre-mature on a technical level, but ignoring the politics and the potential legal constraints on the token, it would be quite an interesting experiment from a technical point of view to see how the cryptocurrency would operate at probably gradual commercial activity that spans a country.

 

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Steve

No mention of Raiden Network as a scaling solution for Ethereum, almost out of bug bounty (est. one week). That could help settle transactions off chain faster and cheaper than Casper or Sharding ever could handle.