I think the idea of issuing a new cryptocurrency backed by Venezuela’s oil reserves is very interesting. The present state of the proposal may have some problems. But it’s a good start.
For one, it probably can’t be worse than the existing currency of Venezuela. That currency is called the “bolivar fuerte” That means “strong bolivar” when translated from Spanish. This particular currency has a history of only 10 years. It replaces the original bolivar at a rate of 1000 to 1, so as to cope with inflation.
Unfortunately, this “strong” bolivar has turned out to be very weak as well. The inflation rate is through the roof. And this currency is the least valued on the world based on black market exchange rates, and the second least valued based on the unrealistic exchange rate set by the government.
Looking at the Petro whitepaper, we find that there will be 100 million units issued. But that number can be increased. The condition for “extraordinary issues” would be a vote of Petro holders. The whitepaper doesn’t explain how such a vote would be held or who would be in charge of counting the votes.
In contrast, Bitcoin has no mechanism for increasing the 21 million limit, since anyone involved would reject that idea anyway. This is one of the most important reasons Bitcoin is sound money, in contrast to the “bolivar forte”, the euro, the yen or the dollar, all of which have no supply limit whatsoever.
I won’t be investing any money in this proposal, since I would need to trust the government of Venezuela to keep their promise of not inflating the supply. Their record at managing currency impresses me as rather lacking compared to Bitcoin.
But I am sure many citizens of Venezuela will jump at the chance of using the Petro instead of the World’s worst currency they are stuck with right now. And even if the response is underwhelming, the government will be going ahead with this. At the very least, it will be an interesting experiment. As far as I know, Venezuela is the first country trying their hand at issuing a cryptocurrency.
Therefore, I for one wish them the best of luck with their project.
One reason for that is the oil connection. The Petro is advertised as being “backed by oil”. The meaning of that is rather unclear, except that the project wants to sell one unit for about the price of a barrel of oil (around $60).
Page 9 of the white paper gives an overview of proven oil reserves. Venezuela leads the world, with 300.9 billion barrels. Saudi Arabia comes in second, at 266.5 billion.
So here’s a simple idea for joining the Phaseout Profit idea with a cryptocurrency.
Find out which is the most stable and reliable base layer cryptocurrency (hint: that would be Bitcoin).
Build an application coin on top of that. I’ll call it “Petro Fuerte” here, but you can call it whatever you want.
Issue 300 billion units, premined as in the Petro project. Have the government hold all of them initially. Have auctions each quarter selling them to the market at whatever price the auction yields.
Then, require anyone who wants to export one barrel of oil to burn one unit by sending it to an unspendable address. That works just like an export tariff.
That way, you have a simple and clear link to the 300 billion barrel oil reserves. That will serve as a minimum source of demand.
Have a schedule of auctioning off these coins to the market similar to the Bitcoin schedule (that is, issue most of them early and decrease the number issued every four years).
That would make that coin deflationary. Since coins would be burned all the time, the supply would go down. That in turn would lead, all things equal, to increasing prices.
And it would be a practical scheme to put “Phaseout Profit” theory to a real life test. People would be able to buy up future export quotas expecting their value to go up in a world with less oil supply. Hodling these coins would decrease the amount available for export now, increasing prices for the coins (and revenue for the next quarter’s auction).
Something like this may well be the missing piece changing Phaseout Profit theory to a real world game changer in the race to keep the global warming meltdown in check.
We sure could use such a game changer in the next couple of years.