Venezuela was the first in the world to issue a national cryptocurrency back in 2018. What is the status now?
Economy of Venezuela
Venezuela has been in the midst of its worst economic crisis in its history for the past seven years. The Venezuelan government stopped publishing official inflation numbers in 2016, but the opposition claims that prices in the country rose by more than two thousand percent in 2017; inflation exceed 13 thousand percent in 2018. Food and medication are in short supply in Venezuela, and 80 percent of the country’s population lives in poverty.
Economists say the Venezuelan crisis developed as a result of years of government control over the bolivar exchange rate and prices, but President Nicolas Maduro blames everything on “economic war.” The Venezuelan opposition is said to have launched a campaign against him, as well as the “financial blockade” imposed by US sanctions.
In mid-February 2021, the central bank of Venezuela reported that inflation in the country at the end of 2020 was almost 3,000%. For comparison, in 2019 inflation was 9585.5%. In 2020, the minimum price increase was recorded in March (13.3%), and the maximum in December (77.5%). The crisis in Venezuela is due to the devaluation of the national currency, the outflow of the able-bodied population and the shortage of essential goods. The oil-rich country is mired in the worst economic crisis in its modern history and has been in recession for the seventh year in a row. Venezuelans are facing severe shortages of food and medicine, and even basic necessities like soap and toilet paper. The economic crisis that has been going on in the country for the past few years has been exacerbated by the political one, and in the spring of 2020, the United States imposed sanctions against more than 40 ships carrying oil from Venezuela. As a result, oil production in the country fell to a minimum.
Faced with the collapse of oil production and the consequences of US sanctions, the government of President Nicolas Maduro has turned to the sale of monetary gold as a source of income. During 2020, reserves from the central bank vaults in Caracas fell by 19 tons. Seizures accelerated in the second half of the year, when 12 tons were exported. As a result, according to the data of the national regulator, in 2020 the gold reserves of the Central Bank of Venezuela fell to 86 tons, a record low over the past 50 years.
The first stage of the sale of Venezuela’s national cryptocurrency, Petro, began on February 20, 2018. Its value was supported by the country’s natural resource reserves, and the price is set in relation to the price of a barrel of oil. The Venezuelan administration hoped to bypass US sanctions with the help of Petro in order to attract billions of dollars in investment and resolve the country’s economic crisis. However, because it is the world’s first national cryptocurrency, international experts advised against investing in it.
The national cryptocurrency of Venezuela is built on a blockchain platform. It can be used for settlements within the country and exchanged for other cryptocurrencies, according to the official website of Petro. To use cryptocurrency, you need to have an electronic wallet; it will generate a unique email address with which it will be possible to conduct transactions. In total, Venezuela issued 100 million Petro, but only 82 million went on sale – the rest is kept by the Venezuelan government.
The Venezuelan government promised that the national cryptocurrency would be backed by the country’s oil, gas, and diamond deposits (albeit Petro cannot be exchanged for oil or diamonds), and that its value would be set to the price of a barrel of oil, with each token costing $60. As a result, they planned to win $6 billion for 100 million tokens. However, due to concerns that the price of Petro is too high, it was decided to sell the majority of the tokens at a discount, exceeding 60%. Maduro said that the first day of the token pre-sale brought in $735 million, but his claim cannot be validated.
Another problem is that Venezuelans cannot purchase the Petro. Initially, the cryptocurrency was sold only for dollars, euros, and then yuan and rubles were added to them. But this did not affect the opportunities of Venezuelan citizens in any way, because they are legally prohibited from buying foreign currency. You can get the national cryptocurrency on the black market, but it will cost several times more.
The Venezuelan Congress, which is dominated by the opposition, considers Petro illegal. Its representatives claim that this is not a cryptocurrency, but an ordinary oil-backed loan. The country’s constitution states that the government cannot borrow without the permission of Congress. This clause really outlaws Petro.
In early February 2020, retailers in Venezuela stopped accepting payments in El Petro, a local cryptocurrency, as hyperinflation triggered a massive devaluation. Meanwhile, the country’s government reintroduced the position of price control inspector to force stores to accept the national digital currency. It turned out that merchants stopped accepting cryptocurrencies due to the extremely low exchange rate at the country’s central bank. They call El Petro a scam. The reason for this significant devaluation is that the central bank exchanges El Petro for bolivar at the buying rate. Due to the fact that in 2019 the country’s currency, the bolivar, lost almost 99% of its value, investments in digital money have practically depreciated.
Josefina Salvatierra, executive director of Consecomercio, Venezuela’s National Council of Commerce and Services, noted that merchants accepting El Petro payments are at great risk given the massive hyperinflation in the country. Mara Carolina Uzcátegui, the former president of Consecomercio, branded the cryptocurrency a rip-off.
LocalBitcoins is one place where you may sell El Petro. However, the El Petro cryptocurrency’s rate differs from its face value of $60, and it can only be exchanged for half the price. Furthermore, the Maduro administration is resurrecting the “price police,” which is a blow to Venezuelan businessmen. In order to combat hyperinflation, the government has tasked a team of inspectors with enforcing price restrictions across the country. The Maduro administration has attempted to push the national cryptocurrency program from the beginning, but considering the current situation, the plan can hardly be described as effective.
Other cryptocurrencies in Venezuela
Venezuela is one of the countries with the highest amount of cryptocurrency transactions in the world.
According to Chainalysis, it ranked seventh in terms of overall aggregate cryptocurrency adoption and sixth in terms of trade volumes on decentralized P2P electronic marketplaces as of August 2021. According to similarweb, the traffic of the Binance cryptocurrency exchange by Venezuelans (22nd place among all electronic resources) exceeds the traffic of the Tiktok website (36th place), telegram (29th place) and other well-known sites. The average time spent on binance.com is 11 minutes. 16 sec. per day. In addition, coinmarketcap.org is in the top 50 most visited resources.
Another marker of a high crypto activity in a region is a fact that Chinese crypto exchange Huobi Global announced the acquisition of one of the oldest Latin American trading platforms, Bitex, in order to expand its presence in the region. First of all, this will concern Chile, Peru, Paraguay and Uruguay, where Bitex feels confident, but the Chinese will stretch their tentacles across the continent. China is very interested in this crypto-fertile region, where the crypto-currency market has grown more than 13 times in two years.
Cryptocurrency mining requests the availability of both equipment and electricity in order to function. The cost of a kWh of electricity for the population is one of the lowest in the world. This leads to high efficiency of cryptocurrency mining and its growing popularity in the region. Venezuela is among the top five most desirable countries for this process, according to several rankings, and it is second only to Argentina in Latin America in terms of attractiveness and mining efficiency.
In the fall of 2020, mining became legal, making Venezuela the first country in the world to fully legalize such activity. SUNACRIP is in charge of licensing.
The largest mining pool in Latin America Doctorminer.com with a capacity of 20 Ph/s (Petahesh per second) with more than 1.5 thousand miners remotely connected is also located in Venezuela
With low confidence in the national currency and hyperinflation in the country, the main cryptocurrencies are the most acceptable form of retailing after the US dollar. Persons who are in Venezuela and have cryptocurrencies can provide themselves with a fairly comfortable stay without fiat cash / non-cash funds. In almost all areas, there is the growing possibility of paying for cryptocurrency.
The situation with the introduction of cryptocurrencies into everyday life in Venezuela tends to develop. The country is one of the leaders in the region in terms of mining and cryptocurrency turnover. But the government does not have a detailed plan on this issue.