Venezuela lives under economic pressure from the U.S., which, although not expressed in a full embargo, creates significant problems for the country’s economy. The first sanctions against Venezuela’s military-industrial complex were imposed back in 2005, since then they have been constantly expanding, and by 2017 almost the entire extractive industry and the entire financial sector of the country were on the US blacklist.
During this time, Venezuela has become one of the least developed countries on the continent, and its economy has shrunk by a record 80%, primarily due to its low diversification and the extreme effectiveness of U.S. sanctions in view of this fact. The country’s mismanagement under Hugo Chavez has also had an impact, although it was US sanctions that made the main contribution to the economic decline.
Oil production, the main export commodity, has almost quadrupled, and inflation reached a record 130,000% in 2018, according to the IMF. The main problems the country has faced are finding new markets for its oil outside the American continent and repatriating foreign currency earnings for that oil. It was to solve these problems, in the same year of 2018, that Venezuela launched its cryptocurrency Petro, effectively becoming the first country in the world to issue its national token and a pioneer in tokenizing commodities.
Petro
The Venezuelan token Petro is a state-issued cryptocurrency issued by the Venezuelan government on February 20, 2018, initially backed by its oil and mineral reserves, in order to offer the population an alternative to the depreciating national currency, the bolivar, as well as to attempt to circumvent U.S. sanctions imposed on the country’s financial sector.
The Petro was originally conceived as a coin that was virtually immune to inflation and intended to stop inflation within the country. Its rate was linked to the price of one barrel of oil and did not imply new issues of tokens after the initial issue.
The token was given the status of official means of payment, government agencies were ordered to accept it on a par with the bolivar, and in the foreign policy arena Venezuela also tried to promote it for oil and gold trade.
However, Petro faced a number of problems and controversies. There were constant doubts about its design and issuance, as the whitepaper changed frequently and the link to oil reserves could not be verified due to transparency. As of January 15, 2024, the Petro project was shut down and all coins were forcibly converted to bolivars.
Despite the fact that the token never took root, it marked Venezuela’s attempt to explore alternative forms of financing trade transactions and circumvent sanctions with the help of tokenized assets. At the same time, despite all of Petro’s problems, there is a feeling that it did not become popular not so much because of them, but because it could not withstand competition with bitcoin and other cryptocurrencies.
Cryptocurrencies in Venezuela
The development of cryptocurrency regulation in the country was directly related to the creation of a legal framework for Petro, which the government announced in December 2017 in Decree No. 3196. This Decree also laid the foundation for the legal regulation of mining, cryptocurrency exchange and its use in economic activities. The Decree, further, was crucial in recognizing cryptocurrencies as legal, providing a clear legal framework for transactions involving them. It also established parameters for the licensing and operation of crypto exchanges and introduced mechanisms for monitoring and controlling crypto activities. At the same time, a supervisory body, SUPCACVEN, was also established.
In 2019, the regulatory framework was finalized with the adoption of a new presidential decree, where, albeit in the interest of the newly issued Petro, the rules for the issuance, circulation and use of cryptoassets were spelled out in even more detail. SUPCACVEN was reformed into the National Cryptocurrency Control Bureau (SUNACRIP), which was given the broadest powers to control any activity related to cryptocurrencies.
For the population, as in many developing countries, cryptocurrencies have become a way to fight inflation and a convenient means of payment. Currently, more than 2.9 million people in the country, or 10.3% of the population, own and regularly use cryptocurrencies for payments. Cryptocurrencies are accepted as a means of payment in most major businesses, including the capital’s Simón Bolívar International Airport, the Simón Bolívar International Airport, and the Simón Bolívar network. Cryptocurrencies are accepted as a means of payment in most major businesses, including the Simón Bolívar International Airport in the capital, chain cafes, casinos, as well as cellular operators and supermarkets.
Mining
On September 21, 2020, Venezuela legalized bitcoin mining, listing the activity as subject to licensing and creating the Registro Integral de Mineros (RIM), which contains data on mining companies and the equipment they use. Simultaneously with the legalization of bitcoin mining, the National Mining Pool (NMP) was created, a government consortium whose participation is mandatory for all miners, ensuring that their activities remain transparent and in compliance with legal regulations.
Venezuela has some of the lowest electricity prices in the world, making it an attractive location for cryptocurrency mining. The low cost of electricity significantly reduces the operating costs of miners, and the country receives “green” bitcoin, which can be both sold and used to pay for goods.
Virtual Asset Service Providers (VASPs)
Bitcoin and other cryptocurrencies can be bought in a variety of ways, as both large international exchanges and local cryptocurrency exchange services operate in the country. P2P trading has become widely popular, primarily through groups in popular messengers.
Some local businesses such as supermarkets and retail outlets also provide cryptocurrency exchange services, allowing citizens to easily buy and sell cryptocurrency. Bitcoin has become the most popular, and the development of the Lightning network has simplified small transactions and facilitated its use not only in business but also for people-to-people transactions.
As a conclusion
Due to inflation, sanctions, depreciation of the national currency, and thanks to government reforms, cryptocurrency is widely used in Venezuela, both by citizens and businesses. And probably this fact, as well as the increasing use of cryptocurrencies in international trade, has left Petro no place in the world of finance.