Venezuela’s bad economy has led this central-American country to become one of the most crypto-friendly places in the world. However, many remain skeptical due to an array of crypto-related controversies.

Venezuela’s Bad Economy

Today, Venezuela is considered by many to be one of the foremost countries in the world when it comes to crypto business transactions and deals. However, a lot of people continue to mistrust it, and with the number of crypto-related controversies, whether it be crypto scams or security concerns, who can blame them?

Venezuela started its journey down the metaphorical crypto path at the end of last year. The country’s president, Nicolas Maduro, was personally responsible for leading the country down this path, as he was desperate to garner excess amounts of capital. After years of bad economic decisions, which were inspired by his economic advisors, where Maduro continued to take Wall Street loans in order to keep the economy running, the country was hit by an amassment of sanctions. Because of this, the country’s economy was cut off from both the US and the EU, and due to Venezuela’s growing debt, trading from country-to-country was brought to a near-halt.

At the same time, the world saw a massive increase in the popularity of cryptocurrencies, and scammy ICOs became the unfortunate new trend. This is when Maduro came up with a new idea, which was to start offering a new crypto asset backed by the government. The crypto asset would be the first one ever to be issued by a country’s government, and it would be backed by Venezuela’s oil supplies. And so, the Petro came to be.

What Is The Petro?

There are many factors that are determining the value of crypto, but among the biggest ones is their usefulness — what are they good for, and how can they contribute? When it comes to Bitcoin (BTC), it is resistant to censorship and manipulation, and its transparency makes it a safe way to transfer funds. Ethereum (ETH) allows its holders to use it for paying for decentralized computations.

However, when it comes to the Petro, it did not offer usefulness in a way similar to the cryptos aforementioned. Instead, president Maduro stated that Petro represents the country’s oil supplies, with each coin being a single barrel of Venezuela’s crude oil supply. However, people started to wonder if they can trust the government that cannot afford to pay its own debts. If they can’t take care of their own monetary policy issues, how can they ever make you, as a potential Petro holder, rich?

This is when many started to dig deeper and find out the truth about Petro and what the government is actually offering. This is when Vitalik Buterin, one of Ethereum’s co-founders, realized that Venezuela isn’t really promising its oil. After closely studying the wording, he realized that, instead of oil, the country is offering the number of bolivars that would be influenced by the prices of its oil.

Particularly, I recall the whitepaper says it doesn't offer oil, it offers bolivars based on the oil price. On top of risk of total default, this gives them opportunity to do a partial default by manipulating the official bolivar rate, which they have a history of doing. — Vitalik Non-giver of Ether (@VitalikButerin) February 21, 2018

However, the country’s fiat currency is pretty much worthless these days, and even at the time, its price was dropping by almost 80% per month. Obviously, not a lot of people were happy to find this out. Instead of getting a crypto backed by actual oil, they would buy a coin backed by a hyper-inflated currency that has no real value, and cannot even be used reliably. Additionally, the country’s oil guru, Francisco Monaldi, added that the country cannot exploit oil fields that they promised as a source to back the Petro cryptocurrency.

Can Cryptos Really Work in Venezuela?

Despite the dismal state of Venezuela’s economy, or maybe exactly because of it, the country still did achieve one thing, and that is high levels of crypto acceptance. Of course, Petro has been a disaster ever since it came out, and many continue to claim that it is nothing more than a scam or money grab. However, the country still became an excellent place for cryptos, their creation, development, trade, and the like.

Not only that, but many around the world have started viewing Venezuela as a window into the future, trying to determine what the world would look like if the fiat currencies were to be eliminated in day-to-day use. With a situation like this occurring, an array of crypto projects came to Venezuela, as well as many crypto-dealing companies. Byteball and DASH are currently promoting themselves as a valid alternative to Venezuela’s hyper-inflated bolivars.

A "post-fiat world" is emerging in #Venezuela with locals increasingly using #crypto to hedge economic volatility, and the government moving to peg all financial activity to its $Petro. https://t.co/iY8NR6L0VD @BreakerMag pic.twitter.com/5E0LHAFG8d — Bancor (@Bancor) August 19, 2018

Through DASH, locals can buy goods and services, while a large number of Venezuelan entrepreneurs have recently begun to accept digital money. While the rest of the world continues to complain about crypto’s volatility, Venezuela views them as a relatively stable alternative to their fiat currency. Because of that, DASH is organizing educational events in order to make it easier for the locals to use the coin and make their lives easier.

Despite the general mistrust surrounding crypto, there were some blockchain developers that decided that Petro has a chance and that it could, in fact, cure hyperinflation. However, this belief was only shared by a few, and even the negotiations with Middle Eastern countries all failed due to mistrust in Venezuela’s plans.

Troubles With Petro’s Release

All of these issues came even before Petro was released. However, this was not the end of it. Just before the release of the coin’s white paper, its developers received numerous threats, which forced them to give up on using Ethereum for their coin’s development. Instead, they had to switch to NEM blockchain, which is home to a lesser-known alternative method to issue assets, but also easier to manipulate. This also meant the abandonment of the project’s decentralized version.

Later, in March of this year, a new website was deployed by a team of Russian developers. The website allowed everyone to send ETH, BTC, or XEM to government addresses. However, the buyers did not know how many Petros they would receive. The entire project was surrounded by uncertainty, lack of explanations, and the entire situation was shady at best.

The biggest twist came when it turned out that Venezuela’s locals were completely unimpressed by all of this. The reports from the country itself claimed that the citizens of the country were simply too busy trying to survive in Venezuela’s bad economy, and nobody really cared for the crypto situation. A lot of them still to this day do not understand Petro, and so they choose to ignore it, despite the fact that the country is claiming that it is a solution to all of their problems.

Some of the president’s advisors state that banning cryptos and completely giving up on the entire scheme would be the best course of action. However, it doesn’t seem like it is going to happen. In fact, the country’s crypto enthusiasts are being targeted more than ever.