Tag Archives: Petro

Some Good Things About the Petro

I’ve been bashing the Petro a lot lately, including in my very last blog post just a few days ago.  I am still not a fan, not even a little bit.  But, I have started to realize a few good things that may come from the Petro launch.  Before I take that turn towards the positive, let me be clear about why the Petro is crypto-garbage:

  • It is not really backed by oil
  • Even if it was backed by oil, there is no reason to trust the Venezuelan government to honor it
  • The white paper shows that the Venezuelan government can set the value of the Petro to whatever they want
  • The Petro has no blockchain yet, and only the most basic technical details have been announced
  • The Venezuelan government made a last-minute and suspicious switch of blockchains

So, what good could I possibly see in this mess of a digital asset?  Here are four things:

(1) The Petro is bringing new international attention to the situation in Venezuela.

Part of that attention is coming from the cryptocurrency and blockchain community, much of which is interested in developing real solutions for countries like Venezuela that have failed currencies.  That audience will see right through the Petro-crap and will hopefully be inspired to provide legitimate ideas for Venezuela and other countries that live under oppressive and incompetent governments. 

Also, since the Petro will (at least initially) be on the NEM blockchain, it will allow for an unprecedented level of transparency into the actions of the Venezuelan government. It may be that by making this move the Maduro regime will reveal more than they intended.  (Note that as of this writing, the actual asset on the NEM blockchain has not yet been officially identified, although there is a “mosaic” that seems to fit the description.)

(2) It has helped to educate crypto newcomers.

The Petro has led to a lot of discussion that should help educate some of the masses who entered the cryptocurrency space recently.  Key points include:

  • The simple fact that just because something is on a blockchain doesn’t make it good.  There are plenty of bad ideas in the space, and also plenty of outright scams.
  • There is a difference between “native” cryptocurrencies like Ether, XEM, and Bitcoin versus “tokens” that are issued via smart contracts on blockchains like Ethereum or NEM.  (The current Petro is a token on the NEM blockchain with a promise to transition to a native currency on its own blockchain in the future.)
  • Putting something on a blockchain doesn’t mean it is decentralized.  Any person, entity or authority can use smart contracts to issue and distribute digital assets with centralized control.
  • The censorship-resistant nature of decentralized blockchains like Ethereum and NEM applies to anyone who wishes to use them.  In other words, we must accept that they may be used by people we don’t like and those people may do things we don’t approve of.  What makes the technology revolutionary also makes it potentially dangerous.

(3) Everyone has a chance to experience Madurismo if they want.

The Petro does have some highly vocal supporters.  Most of those supporters fall into one of a few buckets:

  • Venezuelan government cronies (hint, their pro-Petro arguments tend to focus on history and political rhetoric rather than technical facts)
  • “Armchair socialists” from around the world who see the Maduro regime as a force that is fighting a class or economic war with the US / Europe / wherever
  • Speculators who may see the pushback on the Petro as a “bad PR” opportunity.

The Petro will eventually give all those groups a valuable lesson about the real nature of the Venezuelan regime.  It may be that the Petro (if and when it is actually distributed) will spike in price much like almost every ICO did in 2017.  But, once the promises start falling apart it will collapse quickly. (Petroconnect?!?) Hopefully learning that lesson the hard way will help to change some minds.  Welcome to the Petrolivar.

(4) Arepacoin!

As part of my Petro-bashing, I got the idea that we should have an Arepacoin instead of the Petro. (An arepa is the centerpiece of Venezuelan cuisine – if you haven’t tried one, go now!) I had been reading up on ERC20 tokens, and that joke inspired me to give one a try.  So, I created an “Arepacoin” on the Ethereum blockchain.  It’s symbol is “ARPA” and you can see the contract here.

I used tokenfactory.surge.sh to make the contract using Metamask and Chrome.  Now that I’ve taken that first step, I plan to learn about designing, coding and deploying more complex tokens.  It was a great learning experience and has made for some fun jokes and jabs at the Petro.  It also helped me make some new connections online, and together we want to use Arepacoin as a sort of “protest token” to help raise awareness for the situation in Venezuela.

Note:  Since I created my Arepacoin ERC20 token I’ve become aware that there is an existing Arepacoin project with it’s own blockchain. It is not clear to me the status of that project or where that Arepacoin might be traded, but it is completely separate from my Arepacoin ERC20 token (ARPA).

Problems with the Petro

I recently made a post on bitcointalk.org outlining the issues I see with Venezuela’s announced Petro cryptocurrency.  Below is an edited re-post of those thoughts with some extra links to official information and other good sources of discussion.

I have some strong opinions on the Maduro government, but I’ve tried to keep this argument tied to the facts that are known about the Petro.  Many of those facts come directly from the official information that has been made available by the Venezuelan government.  That information has been changing over time, but I kept copies so here are three sources for the white paper:

Since the switch to the NEM blockchain, there has been no official announcement giving the specifics of the Petro pre-sale token.  @SrMiguelV spotted this set of “mosaics” on the NEM blockchain that fit the description.  But, without confirmation there is no way to know for certain that is the authentic Petro token.  As of this writing, none of the tokens have yet been transferred.

Having read the Petro Whitepaper (all of the versions above) as well as the announcements coming from Maduro and other government officials, I can’t imagine why anyone would invest in the Petro unless it’s to make a political statement.  There are too many good opportunities out there, and the Petro shows too many signs of a poorly-engineered play to take in hard fiat currency and cryptocurrency in exchange for vague promises of an asset-based cryptocurrency.  The biggest problems with this coin are:

(1) It’s not really backed by oil.

The Maduro regime says the Petro “backed by oil” and that claim is being repeated by those following the story, but there is no official communication on how that backing works.  There seems to be a perception that one Petro will be equal to one barrel of crude oil, but I can’t find anything from the Venezuelan government that explicitly makes that commitment.  In fact, there is a formula in the white paper for the redemption value in Bolivares and that equation has a “Dv” discount factor that is set by the Venezuelan government.  In other words, they set the value of the Petro.  To actually back the Petro in oil it must be directly redeemable.  Not necessarily by individual investors, but as an example – if China were buying 1mm barrels of crude oil from Venezuela and paying in Petros, the price should be 1mm Petros.  There is no document that makes that commitment.

(2) Even if it were backed by oil now, there is no reason to believe it would stay that way.

Even if there was some specific commitment to peg the Petro to some amount of oil, who would hold the Venezuelan government accountable?  Their typical pattern would be to start off with a commitment like that and then declare some sort of emergency or economic warfare that means they need to devalue the coin.  No matter what you think about the politics and the truth behind those stories, the fact of the matter will be that the Petro gets devalued and investors will lose money.

(3) There is almost no technical information available about the Petro blockchain.

The idea is that the current pre-sale tokens will be converted to a Petro that will run on it’s own own blockchain. But, that blockchain does not yet exist and the only technical details available about its design are a few vague lines in the whitepaper.

What we do know from the white paper is that it won’t be mineable, meaning the government issues all the coins.  That is not the way any successful blockchain so far has been built – mining (or forging for proof of stake currencies) is what provides the incentive to run nodes and create a decentralized self-policing infrastructure.  There is a vague statement that proof of stake might be supported, but that would be at the discretion of the Venezuelan government as well.

What is being sold right now is a promise to convert the NEM token into some future cryptocurrency on a blockchain that we know very, very little about.  Without publicly available code for the blockchain, there is no way to know what it is that you are buying.

(4) There have already been technical shenanigans.

The Petro website and white paper both specifically said that the token would be issued on the Ethereum blockchain.  Then, the day of the resale it was announced that it would instead be on the NEM blockchain.  At that point the white paper and website still said Ethereum.  (See the links above.)  I’m not an expert on the details, but going from one blockchain to another for a major token release is not something you just switch last-minute.  The NEM plan was in place for some time in advance for reasons unknown and unexplained.  It’s another clear example of the lack of transparency around this cryptocurrency.

(5) The team behind it is incompetent.

This coin is brought to you by the same team that manages the Bolivar which has collapsed in value.  They have also run pretty much every sector of the Venezuelan economy into the ground, including the PDVSA oil company which was once a source of national wealth.  You can debate whose fault that is all you want, but the fact of the matter is that if you have been holding Bolivars for the past few years your investment is now near-worthless.  Since the Petro is not really backed by hard assets and the regime has explicitly stated that they will set it’s value (in the white paper) there is no reason to think that its value will hold any better.  For more of my thoughts on the Maduro regime’s money management skills, see my post here.

I do think that some good may come from this crypto-scam.  Now non-Venezuelans who believe in the Maduro regime can invest in the Petro and experience a little bit of what Venezuelans (both pro-Maduro and opposition) have suffered for many years.  When people start losing their money, it may start to change some minds.

I obviously have some strong opinions on this given that my wife is from Venezuela.  But, no matter which side of the politics you are on I can’t see a rational reason to invest in this coin.  There are too many options available that are truly decentralized, transparent, and proven.

If you’re interested to read more, here are a few good articles and sources for information on the Petro:

The Venezuelan Bolivar: One Reason I’m a Crypto-believer

Among the reasons that I’m a believer in the long-term potential of cryptocurrencies is the story of the Venezuelan Bolivar.  Venezuela is my wife’s homeland, so it’s something I’ve been aware of for many years – since well before the dawn of cryptocurrency.  In fact, when I first heard about Bitcoin, this is one of the first use cases that came to mind – a replacement option for countries with failed currencies.

I ran across a few Venezuelan bills that we have from trips over the years.   Especially for us with a Dollar/Euro/other-major-curency perspective, they serve as a  good reminder of the massive demand in countries like Venezuela where the official currency is horribly mismanaged.  I also think they are fascinating works of art, despite their negligible current value.

All but the largest 2,000B$ note are now out of circulation.   Late last year, the country rolled out a new 100,000B$ note.  The Venezuelan regime maintains some official exchange rates.  But, as with any pegged rate those don’t reflect the actual value of the currency.  The black market represents the real value, and people there keep track using sites like DollarToday and BolivarCucuta.  As of now, that rate is at around 240,000B$ per US dollar.  With Bitcoin around $8,700, the notes you see here would be worth:

  • 2,000B$ = $0.0083 (or just under 1 cent.) = ~96 Satoshi
  • 100B$ = $0.00042 (less than 1/10 of 1 cent) = ~5 Satoshi
  • 5B$ = 0.000021 (about 1/500 of a cent) = ~0.25 Satoshi
  • 2B$ = 0.000008 (just under 1/1000 of a cent) = ~0.1 Satoshi

The smallest two bills are worth less than the smallest possible division of a Bitcoin.  Those valuations may seem a bit funny, but it’s really a sad situation.  At one time these bills were “real money” that people depended on as a medium of exchange and a store of value (at least for the short-term.)  Now things are so bad that whenever Venezuelans receive payments of Bolivares, they rush to spend them as quickly as possible.  Even household goods like dried pasta and toilet paper are better stores of value than the Bolivar.

So, from the Venezuelan perspective the big fluctuations in Bitcoin’s price are not much of a worry.  That is especially true since Bitcoin has generally increased in value.  The Bolivar has done nothing but decline, and there is no reason to think that trend will ever reverse.  Instead, it seems more likely that the regime will keep printing more new bills with more zeros on them.   Dollars and Euros are probably still the first choices as safe havens for Venezuelans, but they are not easily available.  Cryptocurrencies represent an important new option for hedging against hyperinflation.

Speaking of “new options”, these bills also remind me of a cautionary lesson in this new world: not all cryptocurrencies are created equal. The crypto marketplace is filled with many poorly considered ideas and outright scams.  The case in point here is the Petro, which is brought to you by the same brain trust that managed this “Bolivar Fuerte” (“strong Bolivar”) from it’s launch in 2007 (done by removing 3 zeros from the “weak Bolivar”) through a 99.9991% decline in value over the last 10 years.  Since it’s a high-profile cryptocurrency launch, I wouldn’t be shocked if the Petro shoots up after its initial offering.  But, I’d give it’s long-term chances of delivering value at about the same as I give these elegant pieces of worthless paper.