The cryptocurrency world has come a very long way from its early days with just Bitcoin (BTC) on the market, where it was viewed as some geeks-only idea that was going to fizzle out, so when it began gaining a reputation as the currency of choice for the illegal dark web markets. The industry has grown over the years and exponentially multiplied in both number of products and in market value cleaning its image as time went on, and just last year, the industry saw one of its biggest rises in value, spearheaded by Bitcoin itself.
The blockchain technology which fuels the whole crypto world is definitely the number one marvel of the 21st century as it is the first manmade product that has been proven times without number to be uncompromisable, and counterfeit-proof. The blockchain technology has made huge inroads into sectors of life and business, from financial services to dental care that it looks as though there is no sphere of life for which it cannot be applied on.
Just recently it would seem, the blockchain technology has finally caught its first state big fish in Venezuela, whose President no less announced that the country will be launching its own crypto exchange which it hopes to use to avoid crippling sanctions it is facing in order to sell its oil.
The PETRO Token will be Venezuela’s answer to the cryptocurrency world, where Bitcoin has mostly replaced the country’s official Bolivar currency for months now as the national legal tender lost its value against the dollar through the course of its economic and social crisis.
PETRO uses Ethereum (ETH), which rivals that of Bitcoin (BTC). PETRO tokens utilize the NEM blockchain, which means that they are non-minable digital cards and only issued through smart contracts on the platform. The PETRO white paper confirms that, initially, it will exist as a token on top of Ethereum, which means it will be relying on the ERC20 token standard.
So what does the PETRO Stand for and what would it mean in the end? In this piece, we will go over its strengths and weaknesses and weigh whether the currency does have a future that investors can be on.
The PETRO being a cryptocurrency in its concept has a number of strengths, some of which include:
- Asset-Backed: Unlike almost every other cryptocurrency we have known so far, the PETRO will be a currency much like fiat, in that in principle will be backed by real tangible assets, and in this case the Venezuelan oil as well as its huge gold and diamond reserve. Every PETRO the investor buys in principle can be exchanged (if they wish to), with a barrel of Venezuelan oil or an equivalent amount of bullion gold or other precious natural assets the country has
- High Initial Value: According to the President of Venezuela, the PETRO in its first days will be issued at a price of $59, again in a break with the rest of the crypto industry where coins and tokens are usually released through ICOs at very low prices usually sub-dollars or even sub-pennies at other times. The fact that the currency will start at $59 gives it a big head start and a commanding presence on the market. The PETRO is rumored to have a market capitalization of over $260 billion on release which will make it the biggest cryptocurrency by market share and finally dethrone Bitcoin at the top of the pyramid.
- Demystify Sanctions: Venezuela as a country stands to gain a whole lot with this currency, as international sanctions are usually enforced with the complicity of big international banks that facilitate payments to countries. By its leveraging on the anonymity of the cryptocurrency world, the government gives its investors a cover, in that they can now purchase their oil or do other business with the Venezuelan authorities using the PETRO without fear of any backlash as transactions will remain hidden from sanctions enforcement blocs. Venezuela is in terrible need of liquidity and a strong currency that will help it solve its domestic crisis and the PETRO so far seems like its best bet at the moment.
- Legitimization Of Cryptocurrencies: The Venezuelan experiment with PETRO is not an entirely bad thing for the cryptocurrency industry, as a state actor’s entry into the industry with other more powerful countries like Russia also mulling over their own might be the last straw that will force the de facto legitimization of cryptocurrencies around the world. With a highly fluid market and exchanges being the go-to places to buy and sell crypto assets, governments releasing their own cryptos to compete with the present industry might be the final straw that will avert any perceived clash that might happen between governments and the crypto world when it comes to regulations.
The weaknesses of the PETRO idea might suffer from include:
- Centralization: For any commodity (especially on the crypto universe) to flourish, the buying public must feel it is something they can put their trust in, which the decentralization idea of the industry guarantees. With a state-owned currency, and more so from a country that has antecedents of nationalizing assets owned by foreign investors, the PETRO’s biggest challenge will be convincing the current crypto markets that they can trust it to play fair and that the technology behind it cannot be tampered with for selfish purposes.
- Politics Prone: Another potential weakness for the PETRO is that its prices will be widely swayed by political happenings around the world and in Venezuela to be specific. This is a contrast to the rest of the industry which is largely immune to news of a potential war in the Middle East or news of sanctions from the UN Security Council.
- Dying Out Oil Sector: With the push for a cleaner world and the going mainstream of electric cars, petrol and the wider oil sector is fast losing relevance which will affect the PETRO long-term, as oil is the main commodity that backs the digital currency. Even major consumers like China are planning to scrap the production of internal combustion engine-run vehicles in less than 20 years which does not bode well for any oil-backed currency.
The PETRO token is truly breaking new grounds for the cryptocurrency world as the coming of a state-owned digital currency is one that opens up limitless possibilities for the industry. State power, as well as the backing of tangible assets, might set the standards for state-owned currencies like this going into the future, but the PETRO has its work cut out in convincing the industry that it can be trusted to play fair and will be here for the long-term.
For investors, the main lure of this currency might be in doing business with the country. But there are other concerns as the political sphere of Venezuela is not very stable as of yet with opposition figures criticizing the PETRO initiative for not going through Congress.
Overall like every other crypto investment, it is a high reward and high risks game and as such, it is ultimately up to the investor to consider the strengths and potential gains against the risks they feel comfortable to bear, in making their decision.