Petro (PTR)

What Is Petro (PTR)?

Petro is a cryptocurrency proposed by Venezuelan President Nicolas Maduro in December 2017. It is purportedly backed by the country’s oil, natural gas, and mineral reserves. The Petro was launched in 2018 but has so far failed to gain traction or help solve the country's economic problems.

Understanding Petro

The Petro was proposed as a means for the Venezuelan government to raise capital by leveraging the country's natural resources. Venezuela has one of the world’s largest oil reserves, but the economy has struggled due to financial mismanagement and political turmoil. U.S-led sanctions, combined with the low price of oil, have severely damaged the country’s ability to pay back international creditors, and the country has flirted with bankruptcy. High rates of inflation, coupled with shortages of many basic goods due to price controls, have sapped the country’s productivity and sent the economy into a prolonged recession.

The proposal for a new digital currency came on the heels of a rapid rise in the value of Bitcoin and Ether. The Venezuelan government expected the financial community to consider the Petro as an investment opportunity, providing a much-needed cash flow at a time when the country's official currency, the Bolivar, had plummeted due to high rates of inflation. An unstable currency had made it difficult for Venezuela to service its international debt.

Concerns About Petro

Some international observers believe that the primary goal of the Petro digital currency is to circumvent U.S.-led sanctions, which prevent Venezuela from borrowing funds in international markets.

Cryptocurrencies have been criticized as a tool to launder illicit gains by bypassing currency controls and regulations. The United States, for example, has sanctioned several prominent politicians and business leaders in Venezuela for their alleged involvement in the narcotics trade and suppression of the country's opposition. If the Petro were successful, it could allow sanctioned individuals to move money out of the country by buying Petros in Venezuela and selling them outside the country for euros or dollars.

How Is Petro Different from other Cryptocurrencies?

The announcement of the Petro received a mixed reaction in the cryptocurrency community. One of the major selling points for Bitcoin and other cryptocurrencies was decentralization: no single actor could control or censor blockchain transactions. Having a national government directly control a digital asset would not only go against the principles of the cryptocurrency movement, but also undermine the value of the currency.

It is not clear to what extent the government controls the Petro, including the ability to halt or reverse transactions. In 2020, the Petro ledger was shut down for "maintenance" — which would be impossible on a true blockchain. Mining nodes are registered with the Venezuelan government, and it is also not clear how — or if — Petros can be redeemed for their underlying assets.

How Has the Petro Fared?

The response to the Petro in international markets has been underwhelming. A 2018 Reuters report detailed problems with the cryptocurrency, from lack of users within Venezuela to an absence of international investors. Venezuelan President Nicolas Maduro had promised to "petrolize" the country's economy, by making the crypto widely available for transactions. However, actual use remains low.

The amount raised by Petro in its international offering is also suspect and claims range from $3.3 billion to $735 million. Some even claim that investors only committed to buy the cryptocurrency and have not actually purchased it. In 2019, Maduro said that the Petro would be backed by 30 million barrels of oil, instead of the original five billion announced during the launch.

Despite the lackluster reception, Maduro has continued to push for Petro adoption. In a 2020 speech to the Constituent Assembly, he announced that airlines flying from Caracas would be required to pay for fuel in Petros, presumably boosting the currency's utilization. The following year, he again pledged a "revival" of the moribund digital currency.