Why Venezuela Should Worry About a National Crypto

While a lot is still unclear about Venezuela's state-backed "petro" token, what is apparent is that many feel it's potentially harmful for its people.

Feb 23, 2018 at 9:00 a.m. UTC
Updated Sep 13, 2021 at 7:36 a.m. UTC
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While not many things are clear about Venezuela's new state-backed cryptocurrency, the petro, what is apparent is that many think it's potentially harmful for the country's people.

Hard and fast details have been sparse about the crypto token launched by Venezuelan President Nicolas Maduro on Feb. 20. But, from its inception, the cryptocurrency was touted by the leader as a way to bypass financial sanctions (last month alone, the U.S. Treasury Department sanctioned four Venezuelan generals for corruption).

Amid those concerns about the oil-backed crypto, which supposedly raised $735 million on the first day of its pre-sale, many former and current government officials are uneasy about the thought of a potential Orwellian disaster that it might bring, too.

"Cryptocurrencies combine convenience and freedom of cash with the potential of total control of all operations," according to Artem Duvanov, the director of Moscow Exchange Group's National Settlement Depository, which is experimenting with blockchain for a number of use cases.

"If the government wants to introduce some control on operations done via crypto on its territory, it does make a lot of sense to issue its own cryptocurrency," he said.

These fears of a crypto-powered Big Brother are notable, since the original cryptocurrency, bitcoin, was heralded as a way for anyone to anonymously transact and sidestep government scrutiny.

But as the industry has matured, some blockchains – the permanent records of transactions that cryptocurrencies are built on – have started to conflict with that notion.

And what's so concerning to some about the petro's blockchain is that it's been instigated by one man, Maduro, and his party, who have a long history of corruption and human rights abuses, as well as a track record of stoking hyperinflation.

Yaya Fanusie, the director of analysis at the Center of Sanctions and Illicit Finance within Washington, D.C.-based think tank, the Foundation for the Defense of Democracy (FDD), told CoinDesk that cryptocurrency in the hands of Maduro's regime should be worrisome.

"With the Maduro regime’s record of corruption and abuses, this is something to be really concerned about," he said.

Fanusie, who is a former CIA analyst, went on:

"Assuming people really do use the petro for daily transactions, it would give the government an acute awareness of citizens’ personal finances."

Double-edged sword

The FDD is so concerned about the potential nefarious uses of cryptocurrency by nation states that a new joint research project has been launched within Fanusie's department to better understand how Maduro's petro could undermine democracy.

The new project, which is being conducted in partnership with the FDD's Latin America project and the Cyber-Enabled Economic Warfare project, is starting its work by using the same transparency that threatens Venezuelans.

While it's still unclear exactly which blockchain the petro is being built on top of – the petro's white paper states ethereum, but the buyer's manual claims NEM – both of those cryptocurrencies have public ledgers that FDD researchers can watch.

Specifically, the project will employ a combination of open-source blockchain explorers, data analysis tools and custom built tools to look for what Fanusie calls "aggregate" patterns in the flow of data.

"What we're setting up is a way for when those coins start moving to see how many petro coins are being used," said Fanusie.

And with this research, Michaela Frai, a research associate for the Latin America project, who is now helping manage the petro-focused project, hopes the groups can glean insightful data that can be used to fight corruption in Venezuela.

She told CoinDesk:

"My concern is that the petrol is going to continue to perpetuate this fake democracy, and only support the authoritarian dictatorship, and Big Brother the people around the country."

Skipping sanctions

On the other hand, some actors are very keen on the prospect that Venezuela will be successful in circumventing sanctions with the petro.

Just a few blocks from the DFF, another think tank, the Center for a New American Security (CNAS), is paying close attention to Venezuela in that regard.

"We are engaged in active research projects on these topics," said Edoardo Saravalle, a researcher for the CNAS Energy, Economics and Security Program, who co-authored a report last year on the use of bitcoin by terrorists.

Saravalle explained that his organization has been soliciting the knowledge of cryptocurrency experts and those in the know about how the technology could be used for nefarious activity.

While still in the earliest stages of that work, there's already a number of concerns he's identified. For instance, even if Venezuela's efforts to avoid sanctions end up failing, he believes other countries are watching, in an effort to learn how to adapt the model to succeed.

Already, a number of nations who have recently been issued sanctions have begun to explore state-backed cryptocurrencies. As recently as yesterday, a senior member of the Iranian government floated the same idea, following the People's Bank of China and the Russian deputy prime minister announcing similar endeavours.

Saravalle told CoinDesk:

"If it doesn't work in Venezuela, someone in another country might make it work, and that is very disconcerting. It creates an incentive for countries to look around at cryptocurrencies in case they are ever sanctioned."

Protest in Venezuela image via Shutterstock

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