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PHOTO: REUTERS / Marco Bello

The Petro, the Venezuelan cryptocurrency. Legal considerations.

The current economic crisis in Venezuela has generated opinions and actions on the part of the National Government as well as its detractors. As part of the economic strategy proposed by the State, a digital currency (the Petro) was created, backed by the Venezuelan nation and its wealth in crude oil reserves.

The announcement of its creation was given by the National Executive on December 3, 2017, and arises from the need to face the "international economic blockade" that, according to President Nicolás Maduro, is maintained by the main powers of the world against Venezuela. The official website of the new currency justifies the appearance of the Petro in the devaluation of the national currency, the Bolivar.

"The Petro will be the foundation of a policy of development, creation of technological infrastructure and training of young people in electronic mining, programming, cryptography, network security and economy 4.0 that will allow to take advantage of the value of the most valuable assets of Venezuela and developing countries in a new world of transparent, decentralized and manipulation-free markets."reads on the digital currency's website. Thus, it seems that this measure adopted by the State is intended to allow Venezuela to access new international financing alternatives.

Following the announcement of the National Executive, on December 8, 2017, Presidential Decree No. 3,196 was published in the Extraordinary Official Gazette No. 3,346.whose object is "...establish within the policies of the integral development of the Nation and in a lawful manner, the regulatory conditions provided for in the Venezuelan Civil Code the purchase/sale of financial assets, application, use and development of Blockchain technologies, mining, development of new cryptocurrencies in the country...."This same Decree authorized the creation of the Venezuelan Superintendence of Crypto-assets and related activities, " a decentralized service without legal personality, administered, supervised and integrated to the Office of the Vice President of the Republic...".

Finally, on January 31, 2017, the Petro White Paper was published.. An official document detailing the economic and technical policy that will regulate the operation of the national cryptocurrency. According to this document, the launching of the Petro consists of two phases: a first pre-sale phase, which was to start, according to the aforementioned instruction manual on February 20, through the sale of an ERC20 token; and a second phase of Initial Offering that will start next March 20.

Keys to the Petro

  • The value of the Token in the pre-sale phase and the value of the Petro in the Initial Offering phase, is the equivalent to the commercial price of a barrel of Venezuelan oil, calculated in the second week of January 2018 at 60$ per barrel.
  • The Petro's network is guaranteed in the value of 5,342 million barrels of crude oil from Field No. 1 of the Ayacucho Block of the Orinoco Oil Belt.
  • The international sale of the cryptocurrency will be promoted through Petróleos de Venezuela (PDVSA) and other state-owned companies. Public entities will also promote the use of the asset for the payment of foreign debt or the fulfillment of commitments in the domestic market.
  • The Superintendence of Cryptoassets will take the necessary actions to promote the exchange of the Petro in digital currency exchange houses.
  • The Petro can also be purchased by any person through the official website
  • The Petro will only be mined by the Venezuelan government. Unlike other digital currencies whose mining is free. To achieve this condition, the Venezuelan State will offer a pre-mined issue to be offered for sale.
  • It will not be able to be acquired with Bolivars, but through cryptocurrencies or foreign currencies, however, in a secondary market, the Petro holder will be able to make the exchange for equivalent in another currency or in Bolivars at the market exchange rate published by the national cryptoasset exchange houses.
  • The digital currency is expected to coexist with the Bolivar, with the intention of optimizing national finances.
  • The Petro seeks to evade financial sanctions imposed by the United States against the sale of PDVSA bonds.
  • Consular services at all embassies and consulates in the country will have to be paid through the digital currency, as well as fuel, airline-related services and tourist services.
  • Venezuela will issue and offer for sale a total of one hundred million (100,000,000) Petros. There will be no extraordinary issues.
  • The initial offering of the Petro will begin on March 20, 2018 and will culminate when the forty-four million (44,000,000) petros earmarked for this first stage have been placed.
  • On January 9, 2018, the Venezuelan National Assembly declared the nullity of the national cryptocurrency by considering it outside the Law and alerted potential investors about this legal situation.
  • The U.S. Treasury Department recommended its citizens and organizations not to engage in the negotiations of the Venezuelan digital currency due to the sanctions against the Venezuelan government.

Legal challenges of the Petro

The centralization of the Petro in the Venezuelan government and the limitations to operate freely have generated suspicion in the market.. Likewise, its operation without complying with Venezuelan laws would imply the violation of the national statute through the Law of the Central Bank of Venezuela, the Constitution of the Bolivarian Republic of Venezuela and the Law of Foreign Exchange Crimes, which prohibit the use of any currency other than the Bolivar in the national territory.

Because it is backed by the Venezuelan State, the Petro does not comply with with the nature of a digital currencyas pointed out by several experts. The purpose of a cryptocurrency is to employ a value exchange system based on an electronic currency. Without the intervention of government agencies. It is a currency that is not perceptible by human senses and serves to exchange goods and services exclusively through electronic channels.

What does the constitution and the hydrocarbons law say?

On the other hand, the fact that the Petro is guaranteed by the State's oil reserves goes against what has been established in Articles 12 of the Constitution of the Bolivarian Republic of Venezuela and Article 3 of the Organic Law of Hydrocarbons, since both normative texts establish the inalienable and imprescriptible nature of the hydrocarbon deposits existing in the national territory, in view of the fact that they belong to the Republic and are of public domain, which means that the State may not carry out any act of disposition over such reserves.

Cryptocurrencies propose an efficient, reliable and easily exchangeable monetary system. which does not allow the generation of inflation, since the network itself is responsible for issuing them in a decentralized manner based solely on actual demand. Their verification is subject to a computational power that allows the certification of transactions without violating the system.

However, as with any system requires clear and explicit legal regulations. In several countries around the world where the use of other digital currencies is being implemented, it has become evident the need to adjust laws and promote a robust legal status for their use.

Some experts in the area agree that due to its characteristics, the Petro looks like digital money, since it is being backed by the national government.

Sources consulted