Venezuela's New Cryptocurrency Is A Scam

in bitcoin •  last year 

by James Corbett
corbettreport.com
February 24, 2018

A perfectly predictable thing happened when the Great Oil Price Plunge of 2014 pulled the rug out from Venezuela's oilconomy: Foreign creditors stopped lending to Venezuela, the debt-saddled government devalued the currency to cover budget deficits, inflation spiraled out of control (entering a death spiral last November), and, perhaps inevitably, the government defaulted on some of its $US bonds. (And all this amidst devastating US sanctions of the country).

The result, as anyone who has been even casually following the headlines coming out of Venezuela has no doubt noted, has also been predictable: Chaos. Pandemonium. Desperation. People eating zoo animals. As I say, we've all heard the horror stories.

Another predictable outcome of this economic collapse: People started turning away from the bolivar and the increasingly-pricey US dollar as their preferred medium of exchange.

But here's where things get interesting. When faced with this crisis, Venezuelans didn't trade in their increasingly worthless government-issued fiat for gold and silver and other precious metals, but bitcoin. That's right, as the prices started to rocket out of the stratosphere, people found the loophole in the system (as they always do). Everything you need to survive in Venezuela is now cripplingly expensive: Food, clothing, medicine. But not electricity. Because of the country's socialist policies, electricity is practically free. And practically free electricity in an inflation-ravaged country in this day and age can mean only one thing: Bitcoin mining!

And so it was that thousands of Venezuelans took to mining the cryptocurrency just as it was rocketing toward all-time highs, with a miner running powerful enough equipment able to make as much as $500/month via the operation, a small fortune in Venezuela in the early part of 2017 and a sizable fortune today.

Unsurprisingly, the government reacted to this development in the way that tyrants always react when a threat arises to their monopoly of power: They cracked down. In this case, the crackdown took the form of arrests and show trials of bitcoin miners, and now a national registry for all cryptocurrency miners (which, as you might imagine, is not being taken very seriously by the kinds of people who are turning to a central bank-less, borderless, decentralized online currency in the first place).

And now the Venezuelan government is pulling another tool out of its totalitarian toolbox. In the spirit of "If you can't beat 'em, join 'em," the government of Venezuela has just launched its very own cryptocurrency, the "Petro." And while you're still wrapping your head around that, there are reports that there's a second cryptocurrency on the way next week!

As James Evan Pilato is often heard to remark on his own podcast: "What could go right?"

Yes, cryptocurrency, that electronic payment innovation that was specifically brought into the world on the back of its promise to circumvent the central banks and their fiat funny money regime is now being used by central banks to raise more fiat funny money to fund their nation's regime. (Exactly as predicted, I might add.)

Specifically, Caracas is hoping to raise US$5 billion from the intitial sale of Petro tokens, and if the first day of pre-sale for the new currency is anything to go by, they're off to a good start. A $735 million start, if Venezuelan President Maduro is to be believed.

So what's the Petro's selling point? From the Petro's whitepaper:

Petro (PTR) will be a sovereign crypto asset backed by oil assets and issued by the Bolivarian Republic of Venezuela on a blockchain platform. Its launch will spearhead the promotion of an independent, transparent digital economy, open to direct citizen participation, which will serve as a platform for the development of crypto assets and innovation in Venezuela and other emerging countries with great potential.

Oooh, a "crypto asset" which is backed by a perennially valued commodity? Sounds amazing! Where do I sign up?!

Wait, do you think we should read the fine print? Oh, OK. So, what exactly does "backed by oil assets" mean, then? Well, as the very next section of the whitepaper makes clear, it means absolutely nothing!

It [the Petro] may be used to purchase goods or services and will be redeemable for fiat money and other crypto assets or cryptocurrencies through digital exchange houses.

Ah, right, so this "crypto asset" is "backed by oil assets" and redeemable in...fiat and other crypto assets? I want my oil, dammit! But hey, "The Bolivarian Republic of Venezuela guarantees that it will accept Petro’s [sic] as a form of payment of national taxes, fees, contributions and public services, taking as a reference the price of the barrel of the Venezuelan [oil] basket [sic] of the previous day with a percentage discount." So I guess you can take solace when paying your taxes in Petros that the value of your coin is tied to the price of oil. Right?

Oh, and there's that pesky little issue of government surveillance of the whole economy. I mean, to actually hold Petros you'll need a government-developed, government-issued Petro wallet, which will of course tie every transaction you ever make with the coin back to you personally! And all of this lovingly presided over by the Bolivarian Republic of Venezuela!

Of course, such a wonderful deal does come with some restrictions...

However, it should be noted that digital exchange houses will play a fundamental role in monitoring the prevention of illicit activities and combating money laundering, thus constituting the ideal means for commercial, industrial and business activities of international trade in which Petro interacts with fiduciary coins or other cryptoassets or cryptocurrencies.

So, what are we left with? A state-issued scam coin that is not "backed by oil" but by the government's willingness to accept it for taxes and "services" (in Venezuela only, of course) and which will help Venezuelan tax collectors track down every transaction in the country's digital economy. In other words, a $735 million-in-one-day hit with investors.

Still interested? Then you're in luck, because Maduro has now promised to duplicate the scam! Enter "Petro Oro," which, as you might have guessed from the name, will (not) be "backed by gold" in the same way the Petro is (not) "backed by oil."

Now there may be money to be made here for crypto investors who are looking to do a quick flip on a fast rising coin, or at least a hot pre-sale token. But I care about making a quick buck in the crypto markets even less than I care about making a quick buck on the central bank-pumped phoney baloney stock market. As always, buyer beware...especially since the legal status of Americans buying this Venezuelan state-issued "asset" is very much up in the air. The SEC might not take kindly to US dollars going to the sanctioned Venezuelan government, and since there's even less anonymity associated with the Petro then there is in most online activity, a knock on the door from the fuzz is not out of the question for American investors.

But the bottom line is that this is not a revolution in government finance or a bold new move to subvert the supremacy of the US dollar. Instead, it is exactly in line with what the oligarchs are greedily lusting after: The complete subversion of the cryptocurrency movement into a central bank-issued, government surveilled police state tool.

Happy investing!

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You gotta feel for the people of Venezuela, they need a crypto currency to help them escape the issues of their failing currency and then they get hit with a scam coin.

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Yeah, no joke. A pretty cynical move by the Ven. government, but many other govts will follow, confusing people en mass as they are designed to do. Everyone in the know about real cryptocurrencies bears the responsibility to inform those around them so that when these shitcoins come to their countries, they know how to react.

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They voted at least once for the insanity of Communism. I have no compassion for them.

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Muchos nunca votamos por eso.

Wow I had no idea the corbettreport is on steemit, awesome!

Curated for #informationwar (by @truthforce)
Relevance: Exposing Corrupt Venezuela Government
Our Purpose

I agree this is a scam coin. Doesn’t seem right to me that they’re literally creating money out of thin air. He’s known to have scammed people in his government plenty of times before as well.

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"creating money out of thin air" is not only standard practice in the global financial industry, it's basically the only way the industry sustains itself. For reference, read up on fractional reserve banking.

This is a warning of things to come in the crypto world. I feel like we're lucky to get a real world example of what "governments" all over the world will want to do with blockchian technology. I pray that the world will take notice of the Maduro "governments" eventual abuse of this crypto assets built in ability to moniter & controle the peoples day to day transactions as a way to crack down on "less than desireable conduct". The state WILL rear it's ugly head, revealing it's self for what it truley is, a life/wealth sucking monster who pines for absolute rule over every aspect of the peoples lives. So long as we're there to document the abuse & shine light on it for the world to see, we'll have a good chance to get "citizens" of nations all across the globe to reject their life/wealth sucking monsters machinations for a similar tool of tyrany. Thank's @corbettreport, I think we'll get something good for the rest of the world out of this unfortunate development in Venezula...a bad example for the rest of us to avoid like the plauge.

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Agreed @bibleanarchist, I feel we are lucky that this is happening now and moving forward nice and swiftly, this is yet another opportunity for people to see just how disgusting govts can and will behave. I hope this gets lots of media attention and captures the interest of average people so that they can learn a little more about the insidious nature of centralized monetary systems. This is a good thing for people in the broad sense. For Venezuelans, this is just adding more misery upon misery which is incredibly sad and one can't help but feel bad for the Venezuelan people. A suggestion....find Venezuelans here on Steemit creating good content, upvote the shit out of it...let's help flow some good money into a country filled with completely broken fiat. Isn't that the promise of crypto?

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I like the idea of sending good money into a broken economy. Won't Greshams law take effect & the bad money will run the good money out of the economy? No easy answers here but all of us doing something will have an effect. Now to track down those Venezuelans here on steemit.com.

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I don't know the answer for certain, but my thought is that Gresham's law is possibly outdated for this stage in our technologically-oriented monetary progression. Crypto is a new, nonphysical money paradigm that doesn't really give a damn about borders. It doesn't really need to have a pairing or any association with a fiat currency or any other form of money. It seems as though it should be able to exist as a parallel money system that wouldn't be polluted/diminished/destroyed by any other fiat system. Of course this is theoretical at this stage in the crypto game as few nations (perhaps only japan) recognize any crypto as legal tender. However, in the purest argument, law is essentially moot since real crypto (full decentralized, etc) is beyond the reach of law and can pretty easily operate in the underground economy. Now in the real economies of the world, who knows...we'll see how cryptos and nations coexist.

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I've got a feeling that as things develop in the crypto space they may outgrow the effects of Gresham's economic law. I think we can kind of see the effects of this economic "law" (Gresham's) in the spending/hodl patterns of the market today. People don't want to spend their deflationary crypto when they've got trash cash (fiat) that folks will still take. That's one of the reason hodl is so popular. So I feel like we're seeing the bad money (fiat trash cash) chasing the good money (crypto) out of the market, in my opinion. But with all of the options out there in crypto...maybe as fiat goes the way of the Do-Do, we'll see less of this with competing cryptos. I doubt it but, you may be correct.

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Hmm, I see what you are saying. As a counter though, my views of the spending/hodl phenomenon are a little different. I think the majority of people are not spending their crypto simply because the tech has not yet matured and quite simply it is not easy to spend for the vast majority of goods people buy (grocery stores, gas stations, online shopping, and on and on). I think of the hodl mentality mostly as a speculative phenomenon where people believe the tech is so nascent and hasn't come close to realizing its real market value as of yet. So, instead of taking the risk of actively trading the ups and the downs, people choose to hodl believing that, in the long run, price appreciation will happen due to a number of factors including new market entrants, tech advancing, institutional money entering market, etc. However, it plays out, certainly is fascinating to watch...such a dynamic situation!

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Yes sir, indeed. Crypto must gain market velocity inorder to truley challenge the fiat fraud. I have faith in the people will get it in the nick of time & we'll see peace & prosparity. The likes of which this world has never seen.

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  ·  last year (edited)

"Greshams law" is not alone, got an logical extension for some time now .... So, bad money run the good money out of the shit economy to a premium, elite, economy by reverse of Greshams law, thiers law:

https://mirror.explodie.org/bitcoin-breaches-greshams-law.pdf and https://en.wikipedia.org/wiki/Gresham%27s_law#Reverse_of_Gresham's_Law_(Thiers'_Law)

This could be a sanctioned test case or experiment, for centralised crypto.

One thing that should also be noted is that buying Petro cryptocurrency could land you in jail if you're in the US. You would be in violation of US sanctions against Venezuela.

Well written article though, I'm happy to see more people being critical of this dictatorship issued crypto-coin.

thanks for update sir @corbettreport

good post i like your post thanks for sharing post @corbettreport

Decentralized -government- backed by oil-monitored...
Hmm. These words together are confusing.

Love your wry sense of humor, James !

  ·  last year (edited)

I always find your posts refreshful and immaculately clean of the contrived eagerness of some Steemit advocates and honestly filled with genuine enthusiasm. Thanks

It is big risk investing in somethink like this... But who knows ;)

Anytime a currency is backed by something tangible, it needs to be centralized by the people that say they will back it.

Sadly your approach to the Venezuelan issue is align more to the mainstream media than to what is really happening there. Venezuela, despite you like it or not, is the most democratic country in all Americas, including USA.

At least they still have Socialism to keep them warm at night. The people understand it doesn't work, when will the government catch up. It's a lot easier to rape people financially when they have something to take!!!

I've been telling everyone how this coin was going to set the bar for the other cyrptos by being backed by the countries commodities but I can't believe it's all just a sham. That's really too bad for the people of Venezuela. I wonder how they're going to turn that country around...

  ·  last year (edited)

It's more complicated than that.

Petro=Debt-based Money laundering coin. The government will probably get the funds they need to launch the coin and stuff. Actually they will launch "Petro-gold", as a coin that will be supported with the gold reserves in the country. The thing is that main investors will probably be druglords and people that enriched themselves with corruption. Now, we have to aware honest people that are thinking about investing in it:

If Maduro regime falls or the world sanctions deepen more, these people's funds will be hurt.

I don't know how anyone could think this is not a Shitcoin

  ·  last year (edited)

I am almost sold to the cryptocurrency hype. Good thing I read James' report. I think I am a bit more wiser. I believe all cryptocurrencies fail and it is just a matter of time. I do not want to be the gullible ones that I will be taxed and turned over to the U.S. tax authorities and the Venezuelan government for buying their worthless money. see this article: https://www.zerohedge.com/news/2018-02-25/bitcoin-slides-coinbase-informs-13000-customers-imminent-data-handover-irs. Best of luck and happy trading!

Have you heard of monkeycoin. They are trying to work in Venezuela, they don't seem to have no state sponsor. Could be big, could be nothing, something to check out.

Of course this is merely an electronic turd and doesn't deserve the moniker "crypto currency" and any fool that purchases it deserves to lose every single cent invested. But the fact that it is coming from Venezuela is irrelevant for the most part and barrels of oil, or chucks of metal or any other sort of backing is meant only to confuse the uninformed. To be clear my first sentence applies to any government with a centrally planned economy, hence a national fiat currency associated with said economy. The reality is, the world is changing, governments see this, and they want to create the illusion that they are onboard with this change. Make no mistake, if a "crypto" is issued by a government and it not full decentralized it is not a crypto. It is a different format of the exact same fiat bullshit. Let's all call a spade a spade people.

So fine, Venezuela happens to be the first to launch their fake crypto, so be it. Some country had to be first, thank you Venezuela for stepping to the plate and initiating this particular phase in the evolution of the future of money. Plenty of other governments are on standby waiting to issue theirs as well. Stupid people will buy them and continue to propagate the fraudulent monetary systems of the host countries. The informed will buy legitimate cryptos and continue the good fight.

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They are on board with this changes! Make no mistakes, a big part of features can be moved to traditional financial system with little work: http://www.sepaforcorporates.com/sepa-payments/11-things-need-know-sepa-instant-payments/

This means instant, realtime fiat payments in all eurozone. Can be done ... now ... What about zero interest rates for any fiat credit!? CAN BE DONE NOW! Fiat money is not dead but as usual competition is a good thing even in the money world