“We need a balanced, fair and diverse system where the dollar plays an important role, but that is not used as a mechanism of coercion against the people because it is illegal,” Venezuela’s president Nicolás Maduro said after a meeting with Vladimir Putin.
Russia currently buys its oil in yuan rather than dollars, according to Maduro, who suggested to Putin that he could buy oil in Petro, a crypto like token running on the hybrid private-public NEM blockchain.
“The Caribbean country proposed the possibilities and potential of the Petro, which ‘already enters the study, the economic work map for the next six years’ that will work in the Joint Bilateral Commission in March 2019,” local media says according to a rough translation.
This comes at a time when Russia’s central bank is telling smaller banks that rely on correspondent (intermediary) banks when making international payments, to find a second partner just in case they get cut off according to a business daily Russian paper.
Putin has personally studied blockchain tech last year and he has told his officials to basically race towards the utilization of the blockchain as he believes whoever is first “controls” the tech or more correctly perhaps becomes a centre of expertise.
A Russian official, for example, told last year his American counterpart that the US controls the internet, but the blockchain belongs to Russia.
The most astute move so far by Putin or his allies has been the announcement of Petro. Conceptually the idea is very radical and a transformation in state level financing.
Instead of issuing paper bonds to mainly banks and other financiers, the idea was to utilize the public blockchain to sell tokenized oil backed bonds to the global public directly.
We of course have to be neutral because the technology has been designed to be neutral, so without commenting on the politics and the rest, the idea sounds brilliant on its face, ushering the beginning of a new role for finance.
The problem is its execution or the lack of it. At first, it was announced the Petro would be issued on ethereum’s blockchain, which obviously gets an A+. Then it was moved to NEM, for which F- would be too kind.
Then nothing happened. There were words and claims, one of them being that about $5 billion has been raised in May. Blockchain analysis shows “only” about one billion has been raised according to Reuters.
There were claims that this would have to be accepted in shops, that it is legal tender, that it has to be accepted for payment of debts, that taxes can be paid with it, that airlines or refineries have to buy or sell their oil in Petro and so on.
Words. In actions, it looks like nothing has happened so far. In fact, it looks like the Petro doesn’t quite exist in any meaningful sense. Instead, some tokens were created in May 2018, and that’s that, with no transaction since.
In October, Maduro said: “from November the 5th, the Petro will go on sale to the Venezuelan public in sovereign bolivars.”
That’s not happened in a meaningful sense because no token has moved. According to an August report by Reuters, Hugbel Roa, a cabinet minister involved in the project, said “buyers have made ‘reservations’ to purchase petros, but that no coins have been released.”
Apparently this is work in progress. “Nobody has been able to make use of the petro… nor have any resources been received,” Roa added.
Nor is it clear whether they will ever be received in a proper form as they’re now apparently planning a third pivot, a “national” blockchain.
There is of course no greater oxymoron than a blockchain which is limited within a nation especially when it concerns tokenized state debt bonds.
That’s because it sounds like a database where you control who transacts with who and who has admin rights (runs a node). Something which may well have uses, but for a nation on its knees that needs to restore trust in its monetary system, a new “token” that can be printed at will as their fiat paper has been printed, would court no trust whatever.
Had there been a smart contract, where we can see and read the rules, then there would have still been the question: is this oil backed; but there would have been no doubt that it can’t be printed at will if so the smart contract was designed.
Instead what we appear to have, or what they appear to be planning, is basically a fiat token. Maybe understandably. Perhaps a proper state token was too radical even for Venezuela. Or maybe it’s too early.
From the limited information we have, however, and thus limited to informed guessing, we would say this is a sign of incompetence.
It appears that Putin’s astuteness in this space has been overestimated, either because this is all so new that those under him simply don’t have the skills and plainly have no clue, or because he now wants us to underestimate him, or because he just doesn’t get it, at least so far.
Where code and programming is concerned, it does look like they have the capabilities, but if we can put it this way, they might be first class, but not excellent.
Where Venezuela is concerned, the first pivot was probably because they realized some months after it became very plain that ethereum doesn’t quite yet have the capacity for national level usage.
If we were the coder advising, we would have said the ambition to use this in shops and to force them to accept it is for now far too great and not in line with what the tech can handle.
Maybe in half a decade, but for now the token can have a limited use in effectively tapping global markets with transactions mainly limited to speculators while at the same time there can be some actual uses, such as big purchases of oil.
In short, we would have told them the public blockchain for now can be used like SWIFT, rather than like Visa or Mastercard.
Had they been told so and had they listened, then there would have been a different story. Instead those in charge probably told the devs, if the devs were smart in any event to advise properly, to go find a blockchain that does scale. Maybe to the tone of: don’t care how you do it, just do it.
If only high maths was that easy. Their move to NEM, instead, was perhaps the beginning of the end of the Petro story. No one likes NEM. No one even knows what it is except some weird hybrid public-private blockchain.
An expected choice, however, for someone who wants control. It appears that level of control was not sufficient, so now they’re seemingly going fully private blockchain.
In a private or “national” blockchain there are say ten administrators/nodes, all of whom are identifiable. So Maduro can go to them and say print x tokens or freeze this transaction or reverse history or hide transactions or even show fake transactions.
The problem then is that you can’t quite connect to this private blockchain. With a public blockchain, you just download the node. With a private one, at best you’d have a very simple wallet. Fine perhaps for an ordinary person, but an exchange would need far greater security guarantees.
Then obviously there’s the most important point. No one trusts Maduro’s money, hence why Venezuela is in a mess. You put it on a public blockchain, and there is no longer a question of trust. You put it on a private blockchain, and this is basically Bolivar which no one wants.
At a fundamental level, this story may have developed as it has because presidents want to maintain control. Yet, the whole point of public blockchains is that you can’t control it.
This is perhaps what Putin may have not quite understood. Iran, for example, gave many hints that led to much speculation. We thought at one point they might launch a token on eth backed by oil or whatever.
Instead they turned around to say they were to create a new digital currency that runs on a private blockchain and somehow they were going to bypass US sanctions through that database.
Again this may have its uses, but is nothing compared to a frictionless public token that needs thousands of nodes to collude in order to tamper with it.
Now that inability to manipulate the token may well be their concern, but you can’t quite have it both ways unless you have a DAI like peg to real.
Making this all quite an interesting case study of how new technology develops with many dead ends and many attempts to go the easy way of basically scanning paper to make it “digital.”
That scanned paper obviously has its uses, but it is quite different from running code or say a website.
However, at the beginning of the internet, a website was basically a brochure, a leaflet, or indeed a scanned paper. Then people found out you can do a lot of other things on it, with those people being young, smart, usually men or boys, rather than old presidents from a century long gone.
So we perhaps expected too much innovation from a generation that in many ways gave us all these problems we are now trying to address. Like no man or woman with admin rights over our money, but only we all collectively so.