There is a lot of misleading info on social media and news sites about the Petro cryptocurrency from Venezuela, portraying it as a miracle solution, as good for the venezuelan people and as great for the crypto space in general. Nothing can be further from the truth, so the purpose of this article is to do and in-depth analysis of what it is and the real story behind this lunacy.

First things first, let’s deal with the theory and official marketing, straight up from the government’s website, let’s dive into the Petro Whitepaper.

It’s dated from January 2018. On the first page we have the official logo and two smaller ones, one for the Venezuelan Government and one from a government entity called SUPCACVEN, which stands for “Venezuelan Superintendency of Cryptocurrency and Related Activities”, a new government branch dealing with Cryptocurrencies. I point this out because later they will be key to understand premine allocations and more.

The executive summary talks about its history, Petro is the brainchild of the almighty Hugo Chávez, who in his omnipotence thought about a strong currency backed on raw materials and meant to replace the hegemony of the US Dollar. We can take an educated guess that he must have never heard of Gold, Silver, Salt, Seashells and countless raw materials that served as money before the Fiat system, almost since the very beginnings of the human race. We already had strong, hard money all throughout history, so this is not an original idea. To make a decentralized, scarce hard money like Bitcoin is also a very sound idea but Petro is nothing like this and the people behind it are no Satoshi Nakamoto’s.

The summary and intro are written by a very decent team of copywriters and marketers, they use all the buzzwords in existence and try really hard to sell this stuff. To make a long story short, Petro in theory is a cryptoasset backed by the venezuelan government and pegged to the country’s oil reserves, which are proven to be the biggest in the world. It is supposed to bring stability, independence, progress, development, autonomy and an open economy to the country, its people and even help to make a fairer financial trade system for emerging economies.

You have to take into account that this whitepaper was written for the presale and ICO (Initial Coin Offering) of the token, and like most ICOs, on paper they all sound fantastic, this is the tech that will disrupt everything and the world will be a better place.

The intro finishes off with the following outlook, let’s dissect it, bullet by bulletpoint (Whitepaper text in italics).

Petro is breaking in with a promising outlook, taking advantage of:

• A market of more than thirty million people eager for savings, investment and exchange international instruments

Venezuela is a developing country with around 32 million people, about a couple million of those have already fled the country trying to escape inflation, corruption, hunger, insecurity, disease, lack of basic services and state violence. Recent unofficial data puts the number closer to 4 million and Venezuela is actually the largest growing immigrant population in most of its closest countries (Colombia, Brazil, Panama, Peru and Ecuador to name a few).

Internet penetration in Venezuela is at about 50% of the population, putting the actual number of maximum people that could benefit from this at around 17 million, providing they have internet access and electricity, which are not constant, especially in rural areas. Adding to that is the fact that a regular internet connection runs at about 4 to 6 MB/s, imagine downloading and syncing a blockchain the size of Bitcoin or Ethereum on that!. So this bullet point is not only an exaggeration but a blatant lie, there is no 30+ million people internal market for Petro.

• A world-renowned oil industry

Venezuela was a world-renowed oil industry when it was producing more than 3 million barrels of oil per day and the state oil company was run by the most competent and qualified people possible. Since the beginning of this regime (about 18 years ago), dropped out military and corrupt politicians have been mis-managing and robbing everywhere possible, they stopped key investments, they didn’t provide service or repairs to aging technology, machinery, ships and all the qualified engineers and technicians that ran the company where outed for political reasons or have already fled the country.

This has resulted in a dramatic fall in production were they are barely struggling to produce 800.000 barrels per day. The industry is on a downward spiral, the situation is so bad that they are having trouble issuing bonds and getting international investors, nobody trusts the government and corruption is so bad that most government officials even have international sanctions and bans. So, good luck investing on a token pegged to a failing oil industry on a non-productive economy that sits in a world that is slowly transitioning to renewable and clean energy.

• The early maturity of blockchain technology

Robust well thought blockchains like Bitcoin have proven to be mature and trustworthy. The open-source nature of its system brought thousands of copycats and forks that are not as secure and not as trustworthy, even worse is the fact that most of them are complete scams, made to take money out from unqualified investors into the hands of unscrupulous scammers chasing to get insanely rich quick. Petro falls into this third group, it’s a complete scam and we will go into detail on this from a technological and economical perspective, but let’s finish this intro first.

• The participation of allied governments as enthusiastic promoters of cryptocurrency for the development of a new worldwide economy

Allied governments of Venezuela are basically Cuba and Iran. Russia and China have provided extensive loans and military equipment, that Venezuela is paying with oil and oil exploitation rights. Beyond those four countries, Venezuela has no enthusiastic promoters of cryptocurrencies, Russia and China are developing their own systems, they won’t back the Petro once they are ready. Right now Petro mostly serves as an experiment to bypass international sanctions and regulations, of course all rogue states and players are obviously interested.

Petro fundamentals and Economics

The whitepaper describes Petro as serving three purposes, a) Medium of exchange, b) Digital platform, c) Savings and investment instrument.

In order for it to be a medium of exchange, it needs mass adoption. As we explained before, half of the people in Venezuela do not have internet access and suffer daily electricity blackouts. The people that do have internet, are mostly illiterate regarding cryptocurrencies, setting up wallets, dealing with the complexity of security, passphrases and private keys. The only way to have adoption would be to force it onto the population, which is exactly what the government is doing as it recently announced that the country’s fiat money, the Bolívar, will be pegged to the Petro and salaries from now on will be expressed in Petro.

To outsiders this might seem like a bold government move, trying to protect its citizens by making a transition to cryptocurrency but don’t let this rhetoric fool you, this is very bad for the venezuelan people and an economic lunacy.

First, what happens to the 50% people without internet access or that are technical illiterate? Second, how can this serve as medium of exchange if it’s pegged to the oil reserves, and dependant to oil prices? All of those things constantly move in value, they trade on open markets where supply and demand rule. People can have a monthly income of 100 Petro and that means maybe 600 USD today, 60 tomorrow, 85 the next week, who knows!. Petro is a moving asset that it is also intended to be internationally traded on exchanges, can you already feel the sound of this trainwreck?.

The second purpose is a “Digital Platform”, the whitepaper describes this as an e-commodity, serving as a digital representation of merchandise or raw materials. The way I understand this is as a stock or contract, for instance they could say a Petro represents some unit of steel, fabrics, flour or milk and give those in exchange to the tenant but I really don’t get why to explicitly point it out since all money serves this purpose, you can buy, sell or trade anything with it. Unless they are doing it to force its adoption, since everything now has to be expressed in Petro.

The whitepaper also points out that the Digital Platform serves as a scaffolding to create other digital instruments for trading and finance. Here they are basically saying they want this to be the venezuelan Ethereum, a smart contract platform on top of which you can build more tokens, trade, etc. They are opening the doors to more scams they can profit from and help build momentum for the currency.

The third and final purpose of Petro is as a savings and investment instrument. They want Petro to be a store of value and that would make kinda sense, since oil reserves are scarce and will run out at some point, so pegging it to them gives it a hard money angle. My objection to this has to do with three things: 1) liquidity, 2) volatility and 3) that Petro is 100% centralised and premined, the venezuelan government controls it and sits on top of most of it.

History shows what happens to anything controlled by the venezuelan government, it fails, having the biggest oil prices boom of a century they managed to break all industries and productive capabilities. While nations on the same oil boom built cities like Dubai, Abu Dhabi, Bahrain, Qatar, Baku, etc., Venezuela broke down its own economy and left its people starving, without medicines and basic services, bringing it to par with warzones like Syria where most of the people that can, run away from that nightmare.

The whitepaper describes Petro as having an initial issue of one hundred million, of which there will not be additional issues. In layman’s terms this means they printed their own money, there is no work, no mining, no rewards, this is just a smart contract on the NEM platform that issued 100,000,000 tokens out of thin air. It was originally supposed to launch on the Ethereum platform but was later changed citing higher fees and slower transactions as a motive, but we can suspect there is missing data and that’s not the whole story. I highly doubt the Ethereum Foundation or Vitalik giving the go to having the platform tied to an authoritarian government like Venezuela, who has quite a few human right violation cases going on.

Of the 100,000,000 tokens, 38.4% where offered on a private presale, interestingly giving you an ERC-20 token, to be redeemable later for Petro on the ICO. The ICO had 44% of the tokens, and the government entity SUPCACVEN holds a retained fund of 17.6% of the tokens. So let’s do basic numbers here:

38,400,000 tokens were issued on a “private presale”, private means this is probably all government individuals and friends.

44,400,000 tokens were issued on an public ICO, these were sold to mostly unqualified investors, both national and international. The ICO was a monumental failure, they raised about 735 million USD but government propaganda puts the number at 4 Billion, they must have used the same accounting system they have for voting, were 1000 people vote and somehow they become a million.

17,600,000 tokens are reserved for the government entity controlling crypto (SUPCACVEN).

Petro’s Distribution

All this means that the government, both individuals and entities have control of about 56% of all Petros in existence, although we can suspect the number is a lot higher since the ICO thankfully didn’t go as planned and they sit on a lot more. Since Petro is centralised and government controlled, nothing could stop them from changing the rules, printing more in the future or completely stopping the network and grabbing everyone’s value with it.

The biggest irony of this nonsensical thing is that it is supposed to “free the people” from the hegemony of the US Dollar but it is backed on oil reserves, that trade on international markets, which are dependant on the US Dollar. They went the whole circle around to end at the same point. Petro is pegged to the USD in the end, since the only way to trade oil is in it. So we have a Bolívar Soberano, backed in Petro, backed in oil reserves, sold in USD. Is this a true cryptoasset?

As beautiful as a libertarian/leftist dream Petro sounds in paper, it is nothing like it. It is an authoritarian-government issued, centralised, premined SHITCOIN whose only purpose of existence is to take what little money is left from the citizens, to the hands of government and corrupt government officials. Also it is the only way they can get around international sanctions and bans.

Never forget that the Venezuelan government is responsible, not only of the complete destruction of its economics and productivity, on the place where the most abundant world oil reserves sit, but also of stuff like this.

“In law a man is guilty when he violates the rights of others. In ethics he is guilty if he only thinks of doing so.” - Immanuel Kant

This crooked vile group of failed human beings in charge of the venezuelan government is guilty both by law and ethics, they only think about this, how to mantain the illusion of power. This is my problem with Petro and this is why people in Venezuela must rebel against this and transition to sound, hard, decentralised money like Bitcoin.

- A concerned venezuelan.