This February Venezuela launched the world first national cryptocurrency called Petro. While many say it is the next step for digital money and celebrate the success, opposite opinions become stronger every day. To be able to discuss why the government-controlled cryptocurrency is necessary and whether it is necessary at all, we need first to understand what is going on in Venezuela.

For many it is just a country, one of many in Southern America, with beautiful nature and economical problems. But the term “economical problems” doesn’t convey even remotely the depth of the crisis the country is suffering from.

The country has amazing landscapes:

Also Venezuela has the largest oil reserves in the world and the highest inflation rate in the world. How did this happen? The authoritative way the president Nicolas Maduro governs the country, the corruption that penetrated in all spheres of economy — all this led the country, that has been facing economic problems for decades, to even worse crisis. In the last 12 month the inflation of Venezuela reached 4,115% and the national currency bolivar lost 96% of value. There is no trust in money, only panic and fear — after getting paid those lucky ones that have a job go directly to the shop and buy everything they can (and there is not that much of choice what to buy as shelves are half-empty). First people queue in front of ATM where they can cash out no more than 30,000 bolivars at a time, and then queue in the supermarket, where peanut butter costs 80,000 bolivars. If they don’t buy today, tomorrow they may not be able to buy anything, as currency rate falls literally every day.

President of Venezuela Nicolas Maduro

The official exchange rate set by government is 1 dollar to 10 bolivars, and only president and his allies have access to it. It sounds like a bad joke for ordinary Venezuelans, who buy dollars at the black market with the rate of 10,000 bolivars for 1 dollar.

Military, who control food supply, import food at official rate and sell at black market, profiting from the crisis.

Refugees are flooding the neighboring countries. More than 600,000 people have already influxed to Colombia, and more are arriving every week. Brazil also suffers from the inflow of migrants, so the government decided to double the number of troops on its border with Venezuela.

Country produces only oil and imports everything else. And it can’t even profit much from deposits of natural resources — deficit of equipment and technological know-how locks huge masses of oil in the earth.

Hospitals are out of the simplest, yet essential things like gloves and bandages.

During National Survey of Living Conditions nearly 75% of people acknowledged that they have lost at least 19 pounds during a year not getting enough meal.

Food shortage, daily riots, fear of tomorrow — that’s how Venezuelans live.

The man is strolling along half-empty shelves in the supermarket

People are waiting in line to buy goods of daily use

We won’t look deep into the history to understand how rich country with fertile soil and large oil reserves ended up destroyed and desolated with no economy or infrastructure. But the real situation is — people are not sure if they have will meal tomorrow.

And here, in such difficult times, exhausted people are offered the cryptocurrency as a salvation. Not the desire to implement innovative technologies, but desperation led to launching national cryptocurrency. Why not? Maybe the usage of fintech innovations is exactly what will help the country to build completely new, stable and successful economy?

But in reality everything is not so simple.

What do we know about Petro, Venezuelan national cryptocurrency? It represents a barrel of oil from the country’s Orinoco oil belt. Pre-sale has already started, and investors can buy tokens at $60 that then can be exchanged for Petros during ICO in March. Petro can be bought in Bitcoin, Ethereum and fiat money like dollar and euro — but not in the Venezuelan national currency bolivar. According to Venezuelan president Nicolas Maduro, the project raised $735 million in the first day.

The symbol of Venezuela’s national cryptocurrency Petro

But there are a lot of issues regarding launching of Petro, here are just some of them:

There are serious doubts, that Petro is really backed up by oil. In the Whitepaper there is no clear statement about this. The formula that is offered to determine the Petro-bolivar exchange rate references to the oil price and the rate that is offered by the official exchanges — that means that in reality there is no stable price for Petro and the government will accept it at whatever price they want.

The launching of cryptocurrency was terribly disorganised. On Tuesday Whitepaper said that Petro would be ERC-20 token. On Wednesday all mentionings of this were erased, and Petro now adheres to NEM blockchain system. It is the crucial issue, that must have been accurately thought through and decided months ago before launching crypto. If there is a mess even in such fundamental questions, what about the other aspects of Petro structure?

How can Petro be spent? Despite spreading of Bitcoin and altcoins and its decade-history, there is still not so many places where you can directly spend them — even in the most economically and technologically advanced countries. How people will be able to spend crypto in Venezuela? Wouldn’t it be better to spend money on hospitals’ equipment instead of installation hardware and software for cryptocurrencies?

Why Petros can’t be bought for Venezuelan Bolivars? What are people supposed to do? Buy virtual coins with dollars that were exchanged at extremely high rate at the black market? The national currency won’t gain any value, when it is not accepted even in the government’s project.

People will buy Petros from those who acquired them during ICO. Only serious investors have access to cryptocurrency pre-sale, so ordinary people are supposed to buy it not from the government directly, but at the secondary market. Even if the launching of cryptocurrency is successful and people want to buy it, won’t this purchasing give the space for speculations?

The National Assembly of Venezuela declared Petro illegal. President Maduro is accused of trying to circumvent the U.S. sanctions and get investors from America. So if any shift in power occurs, and Maduro is not in power any more, Petro most likely will become outlawed and worth nothing.

It seems like no tokens have been distributed yet, despite announcement of raising $735 million in one day. 38.4 units of Petro-presale token were created on the NEM blockchain, but still no transactions involving Petros are shown. The creator of these tokens still own every of 38.4 million tokens.

In the Whitepaper it is said that one of the Petro’s use cases is to become a mean of exchange — to be used to actually purchase goods and services. It is the most important facet for Venezuelans, but the first thing that needs to be understood — most people don’t know what crypto is and how it works, for them some virtual things that can’t be touched has no value. For people, who live in countries with difficult economic situation, such as Venezuela, cryptocurrency is extremely hard to be explained. They don’t even trust money — they trust only goods: food, medicine, clothes — something that have practical use and can’t lose value tomorrow. It’s doubtful, that people in Venezuela will rush to buy crypto, spending money that they have earned with hard work. They’ve been deceived too much to believe everything they are told by the government. People will use crypto only in one situation: if they are sure that tomorrow they can buy with it whatever they want at the nearest shop, but can government guarantee that?

But even if people do want to use crypto, where is guarantee that the rate will be stable? The reason why Venezuela is currently in such crisis is inefficient, corruptive government, and that same government is now launching the cryptocurrency. Traditional currency was substituted with cryptocurrency — but the cause of the problem stays the same, nothing was changed.

It is painful to see the country with incredible nature and the richest oil reserves in such condition. But cryptocurrency is not a magic pill, that cures all problems. It is a modern, improved financial instrument, but it will not stabilize destroyed economy in some wonderful way. As much as we believe in the cryptocurrency and the future, as much we understand that economy, infrastructure, industry and all other important spheres must be managed and work efficiently to make country prosperous. We can’t pretend that everything will be alright once cryptocurrency has come into scene. Government can’t return trust by just offering new financial instrument.

The initial aim of cryptocurrency is not to help rich become richer, but to help ordinary people depend less on government and banks. Despite all above-mentioned, we hope, that money gained from the launching of national cryptocurrency won’t settle in the pockets of officials, but will help Venezuelans to make their life better and easier. If government use this chance right, serious investors, and, consequently, inflow of money, will help Venezuela.