A Complete Guide to Petro - Venezuela’s Crypto currency you need to know

What is Petro? By definition, Petro is a cryptocurrency proposed by Venezuelan President Nicolas Maduro in December 2017. The value of petro would be based on the country’s oil, natural gas, and mineral reserves.

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What Is a Cryptocurrency?

A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.

Understanding Cryptocurrencies

Cryptocurrencies are systems that enable secure online payments that are denominated in virtual "tokens" represented by system-internal general ledger entries. "Crypto" refers to the various encryption algorithms and cryptographic techniques that protect this input, such as Encryption with elliptic curves, public-private key pairs, and hash functions. an example of cryptocurrency is petro.

Types of Cryptocurrency

The first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular and most valuable. Today, there are thousands of alternate cryptocurrencies with various functions and specifications. Some of these are clones or forks of Bitcoin, while others are new currencies that were built from scratch.

Bitcoin was launched in 2009 by an individual or group known by the pseudonym "Satoshi Nakamoto." As of Nov. 2019, there were over 18 million bitcoins in circulation with a total market value of around $146 billion.

Some of the competing cryptocurrencies spawned by Bitcoin’s success, known as "altcoins," include Litecoin, Peercoin, and Namecoin, as well as Ethereum, Cardano, and EOS. Today, the aggregate value of all the cryptocurrencies in existence is around $214 billion—Bitcoin currently represents more than 68% of the total value.

Thus, in Venezuela, The announcement of the proposed new digital currency follows a rapid rise in the value of Bitcoin. The Venezuelan government likely expects the financial community to see Petro as an investment opportunity, with strong demand keeping the currency stable at a time when the value of the country's official currency, the bolivar, has declined due to high rates of inflation. An unstable currency made it difficult for Venezuela to service its debts.

What you Need to Know About Petro - Venezuela’s Cryptocurrency

Venezuela has one of the largest oil reserves in the world, but after years of financial mismanagement and political turmoil, the country's economy is in free fall. The low price of oil - a commodity that accounts for half of the country's GDP - has severely affected the country's ability to repay international creditors, and the country has flirted with bankruptcy in recent months. High rates of inflation coupled with the shortage of raw materials due to price controls have undermined the country's productivity and plunged the economy into a prolonged recession.

International observers believe the main motivation for announcing the petro-digital currency is to evade US sanctions. These were taken in response to the worsening political situation in Venezuela, as the government failed to hold free and fair elections, undermined democratic institutions, and imprisoned opposition leaders. Sanctions prevent the country from being able to easily use international financial institutions, which now have to carefully examine the source of funding in order to meet the requirements. This can lead to late payments and a technical failure of the country, as was the case in November 2017 when payments to government bondholders were delayed.

Cryptocurrencies have been criticized by some in the international community as a tool that enables individuals to launder illegal revenue by circumventing currency controls and regulations. For example, the United States has punished several Venezuelan politicians and business leaders for their expected involvement in drug sales and the suppression of democracy. If the petro is formalized, sanctioned individuals could transfer money out of the country. This would be done by buying Petros, selling Petros for a more stable currency like the dollar or the euro, and then depositing those currencies outside of Venezuela.

Petro's announcement confused cryptocurrency supporters. Among other things, cryptocurrencies like Bitcoin are popular because they have not yet been issued by governments. The fact that the government directly controls the digital currency not only contradicts the basic principles of the cryptocurrency movement, it can also undermine the value of the currency. Before buying Petro, investors should know how its value is calculated and how trustworthy it would be. Since the government is not seen as reliable or stable, investing in oil would likely be a risky proposition.

Criticism of Cryptocurrency 

Since market prices for cryptocurrencies are based on supply and demand, the rate at which one cryptocurrency can be exchanged for another currency can fluctuate significantly as the design of many cryptocurrencies guarantees a certain degree of high scarcity.

Bitcoin saw a rapid rise and fall in value, hitting as high as $ 19,000 per bitcoin in December 2017, before falling to around $ 7,000 in the following months. Cryptocurrencies are therefore viewed by some economists as a fad or short-lived speculative bubble.

There are concerns that cryptocurrencies like Bitcoin are ingrained in physical assets. However, some research has found that the cost of producing Bitcoin, which uses increasingly more energy, is directly related to the market price.

CONCLUSION:

Cryptocurrency blockchains are very secure, but other aspects of a cryptocurrency ecosystem, including exchanges and wallets, are not immune to the threat of hacking. In Bitcoin's 10-year history, several online exchanges have been the subject of hackers and theft, sometimes with millions of dollars of "coins" stolen.

Still, many observers see potential benefits in cryptocurrencies, such as the ability to maintain the value against inflation and facilitate trading while being easier to transport and split than precious metals and to exist outside of the control of central banks and governments.