What is the Petro? Venezuela's digital currency

The Petro is a central bank digital currency created by Venezuela using blockchain technology. The main objective of its creation was to allow an economic restart to the South American nation and at the same time establish itself as a rival against the dollar. 

LThe arrival of Bitcoin aroused the curiosity of the world to create new cryptocurrencies and one of those cryptocurrencies is the Petro, the first cryptocurrency launched by a central bank, in this case that of Venezuela, a path that many other central banks are now following with their own CBDC.

The Petro is a project on which the current Venezuelan government wanted to put aside its precarious exchange situation and reactivate its economy, which has been in decline for 10 years. To do this, the project sought to design a unique cryptocurrency for the country that would shield its economy and open new investment doors. However, the reality of the project is much more complex than most know.

What is the Petro?

The Petro is a currency of Venezuela. A CBDC, or purely digital currency issued by a central bank and using some aspects of Blockchain technology. It is the pioneer in this regard worldwide whose sovereign creation has placed Venezuela at the epicenter of innovation in this type of technology. This digital currency derives its name from this country's greatest wealth: oil.

In fact, the Venezuelan government maintains that the Petro and its value are supported not only by its immense oil wealth, but also by the vast mineral wealth of the nation. To do this, the Petro in its whitepaper, indicates that the value of the Petro will be stabilized by a basket of commodities or raw materials that the nation has. Among these raw materials are oil, gold, iron, diamonds, coltan and gas. All this through a mathematical formulation that will dictate the price of the cryptoactive at all times.

This theory is quite different from other CBDCs, such as the cryptoeuro (EUROChain) or crypto yuan (DCEP)In this case, despite continuing to be a purely centralized currency based on trust, it seeks to support the value in one or more raw materials.

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Origins of the Petro

The origins of the Petro begin in 2009, when the then President Hugo Chávez raised the increase in oil prices to alleviate the economic crisis that was already affecting his nation.

In an event with the OPEC countries, he raised the idea of ​​creating an international currency called the Petro. His idea was to support said currency with the oil reserves of some OPEC member countries. The currency, in principle, would be a fiat currency that would circulate among the OPEC countries and those that accept it as a means of payment.

This was not the first time that Hugo Chávez raised the idea of ​​creating alternative currencies to the dollar for international trade exchanges, with the aim of eliminating the United States' ability to subdue other countries due to the supremacy of its currency.

Another idea prior to the Petro was, SUCRE (Unitary System of Regional Compensation), created in 2008. This currency and unit of account was adopted by the countries that were part of the Bolivarian Alliance for the Americas (ALBA), plus Ecuador. However, since 2016 the system has fallen into disuse, to the point that no management reports have been issued since that year. Furthermore, the only central banks that still use the system are the Central Bank of Cuba and the Central Bank of Venezuela.

Despite the constant push from then-president Hugo Chávez and his replacement, Nicolás Maduro, the Petro idea took time to materialize. In fact, it was not until December 8, 2017 when the project really took shape with the exit of Decree 3.196. This decree enabled the creation of the Superintendency of Venezuelan Crypto Assets and Related Activities (SUNACRIP). The creation of this entity sought to regulate mining activities and the use of cryptocurrencies in the South American nation, becoming the first country in the region with a legal entity of this type.

The SUNACRIP enabled for this type of task began to work to finally develop the Petro. At first, there was talk that the Petro would be a network-based token Ethereum. Then the perspective changed and there was talk that it would be based on the technology of NEM. Finally, the project had the support of elements of the DASH Venezuela community, and the Petro would then be a derivative of Dash. These changes in forms and technologies were the genesis of many criticisms of the project, but finally the Petro was a reality, with a whitepaper identical to Dash, without a tokenomic clear and many dark spots, the project became a reality.

Economic origin of the Petro

However, the origin of the Petro also has an important economic point. Surely you know that Venezuela is the country with the largest oil reserves in the world. This makes the South American nation a development pole in the region, with enormous potential.

However, the reality of the country is quite different. Since 2006, the country has faced a tough economic situation and a sharp decline in productivity in all its industries. The attacks of this situation had not reached the population with force due to the oil bonanza, a highly subsidized economy, and a State that gave and printed large amounts of money.

The economic situation of the country worsened in the years 2008-2009. At that time, Hugo Chávez was looking for ways to have greater exchange control in the nation. Control at that time was limited by the dollar and other foreign currencies, so he looked for a way to create international economic mechanisms that were outside the control of the dollar.

The SUCRE and the Petro were his trump cards in this international economic game. However, the low use of the SUCRE and the initial failure of the Petro led the government to reject these ideas. The death of President Hugo Chávez in 2013 was just another variable that completely sunk the idea of ​​creating a currency of these characteristics. This despite the enormous economic difficulties that the nation was already going through.

But since the death of Hugo Chávez in 2013 and until 2017, the government of Nicolás Maduro, in its study for the search for better economic conditions for the country, would make the Petro resume. A series of situations made it necessary to work on the problem from another perspective:

1. The exchange rate tightening, which made it increasingly difficult for companies to acquire foreign currency and import the materials they needed for their operation.
2. The enormous public spending, with a State that employs more than 80% of the active population and offers them great financial aid.
3. The suffocating bank reserve requirements, which discourages banks from making loans or granting credits.
4. The large issuance of money by the Central Bank of Venezuela, reaching the situation that citizens preferred to use the banknotes to make crafts.
5. A huge and growing internal and external debt of the nation due to the increase in inflation, low economic production and the inability to pay interest on the debt.
6. The drop in oil prices, which left the nation without its main source of income.
7. Low oil production, from which PDVSA has been suffering since 2007 due to an erroneous extraction plan that led to the abandonment of its light oil wells in favor of its heavy oil wells.
8. The fall in agricultural and livestock production.
9. The low wages of most of the population.
10. The massive exodus and internal immigration of its inhabitants.
11. A sustained decline in the quality of public and private services in the nation.
12. The arrival of sanctions from the United States and the European Union due to the violation of human rights, support for drug trafficking, terrorism

Faced with all these situations, the government chose to launch the Petro but, to the surprise of many, in the form of CBDC, under the premise that being a digital currency they could retain control of it, bypass the United States blockades, and have at your disposal a means of payment of international scope. With all that in mind, the creation of the Petro began in order to face all the negative economic conditions of the nation.

Objectives after the creation of the Petro

The objectives that led to the creation of the Petro are quite complex and diverse. The truth is that there are several components, but the most important are the following:

An ideological component

In the middle of the "War against Imperialism", la "Fight against the Economic War" and "Criminal Dollar", the Government of Venezuela urged the creation of the Petro to overthrow the hegemony of the dollar and impose a new model for the peoples. In the middle of that fight, there is the censorship of sites like Dollar today (a website that shows the price of the parallel dollar taking as a reference the exchange rate in exchanges in Colombia). As well as the tight exchange control and the creation of the Foreign Exchange Law that penalized transactions in foreign currency. This ideological component is in line with the practices that the Government has applied from 2003 to the present.

A reset for the economy

The Venezuelan economy has a clear mirror in the exchange rate of its currency with respect to foreign currencies. Since 2003, and despite the oil boom, the Venezuelan economy has been in decline except for the oil industry, which maintained the nation's expenses. However, from that moment the exchange rates of the bolivar against the dollar soared, to the point that there were two reconversions. In the first reconversion (2007), 3 zeros were removed from the currency, and in the second (2018), 5 zeros were removed from the currency. Despite these measures and others that sought to stop the hyperinflationary avalanche that was being experienced, the currency continues to devalue rapidly, amid an uncontrolled issuance of money by the same Government.

In this scenario, the creation of the Petro sought to stop this by creating a double accounting system that would put a stop to the rise of the dollar. The mechanism was simple, the Petro was going to be used as a reference to the dollar, and that reference was going to be anchored to a certain amount of Bs, making the Petro an economic stabilizer. This should serve to give the economy a chance to make a “reboot”Enhanced by other government plans.

Avoid penalties

Another objective that led to the creation of the Petro was to create an international exchange mechanism to avoid sanctions from the United States and the European Union. In the words of economist Vladimir Adrianza, the objective is to turn Venezuela into an economy not dependent on the dollar.

«The idea is that this allows capital goods to be brought to the country, in other words, machinery, technology that allows the production of as many things as possible to be done locally (…) that is a path that tends to give a bypass to look for other paths with respect to what is the economy dependent on the US dollar»

Vladimir Adrianza, Economist from the Central University of Venezuela (UCV).

Petro technical data

Of the Petro technical data, we only know those that have been published in its official whitepaper. Beyond that, absolutely nothing else is known, there are no details about the cryptographic technology used in its digital signatures, nor the size of its blockchain, nor how many nodes exist on the network.

Clearly, the development of the Petro is a national secret and beyond the data made public, nothing else is known. Of all these data we can give you a condensation of them in the following table.

In light of this data it is clear that Petro is based on DASH software. Structures such as nodes, miners and masternodes are an essential part of the Petro network. But all these data are classified by the Government, and nobody has said anything official about them.

What is known is that several Governments, institutions and the Central Bank of Venezuela practice cryptocurrency mining, including Petro and Bitcoin, but again public data on these actions are unknown despite the fact that they are carried out by government institutions and by therefore they must be declared publicly.

Where can I buy the Petro?

The only way to buy the Petro is by going to the official Petro website or the Venezuelan exchanges enabled for this task. The purchase can be made using cryptocurrencies such as Bitcoin, Bitcoin Cash, Ethereum, Dash, euro, rubles or yuan directly. It is also possible to buy the Petro in person at the only national box office located at the SUNACRIP headquarters in Caracas.

Of all these means, the most renowned exchanges for the purchase of Petros are:

1. Italchange
2. Antwerp Coin
3. Dig Blockchain
4. Valoralta Brokerage House
5. Cryptiaexchange
6. Cryptolago
7. Cryptoasset Bancar CA

Trying to buy Petros by other means is highly risky and even by these means, there is already a great risk of losing your money due to malfunctions.

The realities of the Petro: the “cryptocurrency” that is not a cryptocurrency

Now the Petro despite being a good initiative, the truth is that it leaves much to be desired. In this section we will examine how harsh reality has led the Petro to be a project that everyone goes through and prefers to stay away from. First of all, it must be said that the Petro is not like Bitcoin, that is, it is not a cryptocurrency, it is a CBDC. But beyond that, there are other realities that we will discuss below:

Nobody knows who developed the Petro, nor is the roadmap to improve the technology known

In the crypto community we are used to cryptocurrency developments having a clearly identified group of people, even with pseudonyms or digital identities that they use to protect their real identity. These people bear the responsibility and have important roles in the development of these cryptocurrencies. But above all, we have access to the source code of the cryptocurrency.

However, in Petro we have none of that. The only thing that is known is that the Petro was created by SUNACRIP, there are no names, there is no software repository and it knows absolutely nothing about the actual operation of the Petro.

Petro is a completely centralized digital currency, the development of which is completely closed. That said, it is also worth clarifying that, being the Petro a closed development, it violates Venezuelan law, since the nation's digital developments must be free software due to the Infogvernment Law, in its Article # 34. However, from SUNACRIP they ignore this detail and refuse to provide information about it.

On the other hand, there are currently no open interfaces or APIs with which to create third-party applications that allow the use of Petro. The only active API is a price inquiry system, and it cannot be said to be open or transparent.

False data of the pre-sale and its ICO

A curious fact about the Petro is related to the pre-sale and the Petro ICO. In the case of its pre-sale, it apparently began on February 20, 2018 at 08:30 a.m. In this pre-sale a total of 38.400.000 available tokens were sold with a reference value of $ 60 USD each. In total, the presale reached 2,3 billion dollars. However, this pre-sale data cannot be verified by any means and there is no evidence that such purchases have been made at any time.

The March 20 of 2018, the initial coin offering of a token on Ethereum was carried out. At that time, 44.000.000 petros were offered for sale with a reference sale price of 60 USD. However, there is no evidence of this sale either.

In the absence of evidence both in characters declaring the purchase and in off-chain and on-chain transfers, the community has taken this data as a mere act of propaganda for the currency, something that is not new in cryptocurrency ICOs.

Is the Petro a Stablecoin?

Another curious point of the Petro is whether we are facing a stablecoin or not. This question is answered by looking at the cryptocurrency whitepaper, where the way in which the price of this cryptocurrency is set is established.

In the whitepaper we can see the following formulation to calculate its price:

The formulation shows us that the price of Petro reacts to the prices of the commodities that support it. In other words, the price of oil, gold, diamonds, gas, iron and coltan affect the true value of the Petro.

However, the reality is very different. President Nicolás Maduro has modified the price of the cryptocurrency, its calculation method and even the anchoring and issuance policies of this currency at will.

A cryptocurrency that cannot be mined, although its whitepaper says yes

On the other hand, the Petro was created in order to enable cryptocurrency mining and staking, that is clearly stipulated in its whitepaper. However, all these factors changed due to an announcement by Venezuelan President Nicolás Maduro. In the announcement, he states that the coin cannot be mined and that it will maintain a stable price of $ 60 USD per token, thus avoiding speculation with the price of the cryptocurrency. In addition, the emission will be controlled directly by the economic cabinet of the nation.

A unit of account, two different prices and an anchor that is not met

One of the most curious facts about the Petro is that it seeks to become the currency of daily use in the country. That is, the Petro is designed to displace or coexist with the bolivar as legal tender and unit of account. However, the currency presents serious usability problems, especially due to its defined price, since in principle there are two prices: a fixed value and free value.

In the first place, the free value of the Petro had an initial value of 3.600 bolívares in November 2018. This value in Bs was used as an internal reference for Venezuelans, and at that time, 3.600 Bs were $ 60. But by August 2019, that price stood at 700.000 bolivars, a devaluation of more than 19.400% in value in less than a year. And currently, August 2020, the price of Petro is located at 17.988.193,92 bolivars, a devaluation of more than 499.600% in less than two years. This is a clear sign that the free value price continues to mark the deep depreciation of the Bs against other international currencies such as the euro, the yuan, the ruble and even against the Petro itself.

For its part, the fixed price was eliminated in 2020. This fixed price was the one that defined the nation's tax and wage payments. By eliminating this unit of account, workers' wages are left in limbo because there is no clear wage table system to define wages. This, however, has only affected salaries since taxes and other State services are collected using the free price of Petro. Hence the enormous price difference between the services provided by the Government and the salary of the majority of workers in the country. In fact, the average monthly salary of a worker in Venezuela is about $ 8.

A block explorer that doesn't work

Petro's block explorer has been another "cryptocurrency" soft spot. From dates that date back to 1970, constant errors in its operation, access limitations, transactions that never appear to phantom transactions that make no sense, everything is possible in the Petro explorer.

A cryptocurrency that restarts its blockchain

When we talk about blockchain we talk about a highly secure technology that gives us the certainty that every transaction will withstand even the worst of catastrophes due to its decentralization and the way in which this technology has been designed. However, this is an unattainable fantasy with the Petro.

At the end of April 2020, a series of problems began to be seen within the PetroApp platform, which ended up affecting the operation of it and all the exchanges. The problems were fixed in the first week of May, but many users of the Petro currency (especially those who had transferred their balances to PetroApp and Banco de Venezuela) reported that their balances had completely disappeared and that their transactions did not appear in the blockchain.

The Venezuelan crypto community investigated the fact and discovered what happened: the Petro blockchain was reset from 0. Any transaction that took place before May 6, 2020 simply does not exist. In fact, all those blocks never existed because the new genesis block of the cryptocurrency is from May 5, 2020. From a single strange event, almost two years of blockchain history were erased, and no one reported the event. You can access the Petro genesis block here, but you can only do it through a VPN with IP from Venezuela, because this website blocks international access.

The fact is extremely delicate since many of those affected were businesses that accepted Petros as a form of payment through the Bank of Venezuela and with this fact all this transaction history has been erased, leaving the merchants without the corresponding payment for their merchandise .

A full copy of DASH

On the other hand, the Petro is, according to its whitepaper, a copy of DASH, to the extent that functions such as X11 mining, InstantSend and the Masternodes and staking model follow the same DASH work system.

Despite this, the transactions carried out from the PetroApp, the Petro's only purse or wallet, does not use InstantSend to perform instant operations between its parties. In fact, petro operations typically take an average of 5-10 minutes to fully become effective.

Exchanges and price spreads

Exchanges are another red flag within the Petro ecosystem. There are several exchange houses that exchange Petros for cryptocurrencies such as Bitcoin, Dash, Bitcoin Cash, Ethereum, or even fiat currencies such as the Euro. Among those exchanges we have Criptolago (from the Government of Zulia), Antwerp Coin, Cryptia Exchange, Bancar and Cave Blockchain, they are also other options.

Of all these exchanges, the only one that does not present problems in its operation is Antwerp Coin, where you can withdraw the amount of money you want and there is some liquidity. However, the price of the Petro on this exchange does not exceed 4 million bs, compared to the 13 million that the government says the Petro is worth. On the other hand, exchanges such as Criptolago offer better exchange prices, but limit withdrawals to only 300 thousand bs a day, which at the moment is equivalent to just over 1 euro.

The sanctioned currency

The Petro is certainly the first cryptocurrency of a nation, and it is also the world's first sanctioned cryptocurrency. On March 19, 2018, the United States government issued a sanction against the Petro, establishing a ban on operating with the aforementioned cryptocurrency.

The sanction of the United States government was quickly accompanied by a reaction from the exchange community that quickly described it as a scam, due to the false information that had been given about its presale and ICO. All this led to the cryptocurrency not being taken into account to be listed in international exchange houses such as Bit2Me.

The unconstitutional currency and outside the law

A serious problem that has also held back other international exchanges to take cryptocurrency into account is the immense legal vacuum and the broken legal framework in which the Petro manages.

First, the existence of the Petro is illegal because the Venezuelan Constitution prohibits the use of the nation's natural resources as a past, present or future endorsement of the issuance of a currency or unit of account. In other words, the Petro cannot be backed with oil bond issues as the government of Nicolás Maduro has done because that is illegal in the nation. Not only that, the process by which the Government has carried out all these actions breaks all the laws of the nation and is rather a parallel legal framework with vices and gray areas open to interpretation by the State.

That is a situation that no exchange wants to be in because it lends itself to actions that could contravene its economic interests in case the State takes any action against it.

The objectives of its creation were never met

Perhaps the worst problem with the Petro as a project is the fact that none of the objectives that led to its creation were met.

In the first place, its ideological component was forgotten. The fight against the "Criminal Dollar" has fallen to the point where the government itself demands that operations be carried out with dollars, such as the payment of gasoline at service stations. Not only that, most public companies in any of their forms, now carry out operations traded in dollars, euros, bitcoin, petros and bolivars. Another ideological fight against parallel price markers such as DolarToday also fell into oblivion, especially since the Central Bank of Venezuela itself has established a price higher than that website for the official dollar on several occasions.

On the other hand, the economic restart never happened. Government plans (called Economic Engines) never worked and the country's economic situation became increasingly precarious. The stabilization that was sought with the Petro was maintained for a prudent time, but the interest rate adjustments and bank reserve requirements threw all that to the ground. Additionally, Venezuela's economic allies such as Russia, China, and India flatly refused to use the Petro for their transactions, leaving Venezuela with millions of currencies that no one wanted to use. And remember that if Bitcoin succeeds it is because of the network effect it achieves, where millions of people agree to use it. That is the most important.

Finally, avoiding the sanctions of the United States and the European Union only apply to figures from the Government and various institutions that represent it, such as the SEBIN, CICPC and the Army. Due to this, the majority of the country's citizens have the ability to make purchases internationally, which they have done and maintained, but their economy has declined due to the drop in the price of oil and low production.

Huge potential with bad direction

Despite the project's great potential and intentions on paper, the implementation and the result have been a complete disaster. One point on which many activists in the Venezuelan crypto community have been very emphatic is; that the Petro had the potential to greatly help the country's economic recovery.

Creating a cryptocurrency with a well-defined economic model, with a more open development and a clear evolutionary roadmap, would undoubtedly help the cryptocurrency improve its presence at a national and international level.

In addition, the creation of an open system would call on the developers of the community to address the problems of mass use by building an open and free financial platform that facilitates the use of cryptocurrency. Another important point is that it would promote technological innovation, creating tools and new exchanges.

Lastly, a clear legal framework, with no gray areas, would help other foreign exchanges and investors feel confident to invest in crypto platforms and services in the nation.

These are just a few of the potential benefits that the community has highlighted, yet the leadership behind the Petro has made decisions in the opposite direction. Not only have they applied more controls, but they have left many of them in the hands of organizations of dubious legal quality. For example, SUNACRIP has superjudicial legal powers that it can use at its discretion without appealing such decisions.

In that sense, the misdirection and management of a resource such as a CBDC like Petro, with a potential of 30 million users, is completely done by land.

The United States, the great warlord, with its monopoly on the dollar and much of the world's technological innovation, with the ability to say who to block and who not to, leads many countries to be subdued or revealed. Those who reveal themselves pay the consequences. This is something known to all, and Bitcoin offers a solution to all of it. Be Petro, USD, Euro, ... everything is part of the same: fiat currencies. Against this, millions of people have given way to Bitcoin, a fair and transparent money where politicians do not play with our lives.