Enter the ‘petro’: Venezuela to launch oil-backed cryptocurrency

Venezuelan President Nicolas Maduro looked to the world of digital currency to circumvent U.S.-led financial sanctions, the launch of the “petro” backed by oil reserves to shore up a collapsed economy.

The leftist leader offered few specifics about the currency launch or how the struggling OPEC member would pull off such a feat, but he declared to cheers that “the 21st century has arrived!”

“Venezuela will create a cryptocurrency,” backed by oil, gas, gold and diamond reserves, Maduro said in his regular Sunday televised broadcast, a five-hour showcase of Christmas songs and dancing.

The petro, he said, would help Venezuela “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade.”

Opposition leaders derided the announcement, which they said needed congressional approval, and some cast doubt on whether the digital currency would ever see the light of day in the midst of turmoil. The real currency, the bolivar, is in freefall, and the country is sorely lacking in basic needs like food and medicine.

Still, the announcement highlights how sanctions enacted this year by U.S. President Donald Trump’s administration are hurting Venezuela’s ability to move money through international banks.

The purpose of Petro will be to advance the country’s monetary sovereignty, to carry out financial transactions and to defeat the financial blockade against the country.

The value of the new cryptocurrency will be pegged to the country’s vast reserves of oil and gas as well as its mineral wealth, including gold.
With the new cryptocurrency, Venezuela hopes it can overcome the economic blockade which the U.S. has put on the country. The blockade has caused the country’s national currency, the Bolivar, to lose around 57% of its value in the last four weeks.

While it’s great to see yet another country deciding to set up a national cryptocurrency, Venezuela will likely garner some friction from the U.S. over the move. The Trump administration has already been railing against Venezuela and its socialist leadership in-between tirades against Iran and North Korea.

What do you need to know about the cryptocurrencies?

Founded as a peer-to-peer electronic payment system, cryptocurrencies enable transfer of money between parties, without going through a banking system. These digital payment systems are based on cryptographic proof of the chain of transactions, deriving their name, Cryptocurrency. These employ cryptographic algorithms and functions to ensure anonymity (privacy) of the users (who are identified by an alphanumeric public key), security of the transactions and integrity of the payment systems. “Decentralised Digital Currency” or “Virtual Currency” is also interchangeably used for a cryptocurrency.

How are they used?

Cryptocurrency is fundamentally a decentralised digital currency transferred directly between peers and the transactions are confirmed in a public ledger, accessible to all the users. The process of maintaining this ledger and validating the transactions, better known as mining, is carried out in a decentralised manner. The underlying principle of the authenticity of the present to historical transactions is cryptographic proof, instead of trust; different from how it happens in the case of traditional banking systems.

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