The Venezuelan government launches their own cryptocurrency… wait a minute…

To avoid defaulting on the country’s $60B debt, the Venezuelan president opened up trading of a cryptocurrency supposedly backed by the country’s oil.

So, you mean just a currency, then? In a last-ditch effort to avoid defaulting on the country’s $60B debt, Venezuelan President Nicolas Maduro opened up trading of the “petro” last week: a cryptocurrency supposedly backed by the country’s oil (one token = one barrel).

The petro is the first cryptocurrency officially controlled by the feds, but it’s not regulated by a central bank like the country’s official currency, the bolivar — so pretty much the worst of both worlds here.

Maduro is touting the “ICO” as a massive success, reportedly raising $735m in the first day. Meanwhile, industry experts are questioning whether this is really an effective way to rebuild trust in the economy, and whether Maduro actually knows how cryptocurrencies work.

Well, how does the petro work?

According to the ICO documents, the government will issue 100m petros, each backed by a barrel of oil, at $60 a coin. That amounts to about $6B, according to the Financial Times, about two-thirds of the country’s international debts due this year.

The cryptocurrency will only be available digitally as a “pre-mined currency,” meaning that the government will produce and sell it instead of individual miners.

Proponents point to the fact that the petro is backed by a commodity, making it more stable than other cryptocurrencies, but it’s still unclear how buyers are able to cash out and whether they’ll be able to claim rights over the barrels of oil behind each coin.

And oil doesn’t grow on trees

It’s deep underground, requiring a ton of resources to extract it. Venezuela is sitting on one of the largest crude oil reserves in the world, but the country’s production is at an all-time low, and according to estimates, the cost of extracting a barrel for every petro would likely be over $8B.

Not to mention, people can only purchase petros in US dollars, euros, and coins like Bitcoin and Ether — AKA, not bolivars. In other words, Venezuela’s own citizens will be unable to buy it (the country forbids citizens from buying foreign currency).

Satoshi Nakamoto would be rolling over in his — wherever he is right now.

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