A New Cryptocurrency Just Came Out That’s as Bold as Bitcoin (but Probably Not a Good Investment)
A lot of initial coin offerings are criticized as cynical cash grabs. Now an entire country may be trying to get a piece of that action.
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Bitcoin was launched in the wake of the financial crisis of 2008 as an alternative to the existing monetary system controlled by governments and corporate banks. Now, a decade later, Bitcoin is big news and a government is launching a cryptocurrency of its own as an alternative to its own existing monetary system.
The government of Venezuela launched the pre-sale of its national cryptocurrency, the Petro, officially on Tuesday. The Ethereum-based token will be similar to numerous other ERC20 tokens running on the Ethereum network that have launched via hyped initial coin offerings (ICOs) in recent months.
But President Nicolas Maduro says the Petro will be backed by the nation's oil reserves, a claim that has led critics to label it a form of national debt more than a currency and seen it declared illegal by Venezuela's Congress.
It's enough controversy to make the debut of Petro nearly as bold as the original launch of Bitcoin itself.
However, boldness alone is not necessarily enough to guarantee success. And in this case, the Petro seems to be a bold cash grab like so many other sketchy ICOs from an administration that has run its economy into the ground.
"There is no reason why a rational investor should put money into it," says Daniele Bianchi, a professor of finance at Warwick Business School who researches cryptocurrencies. "The country is fighting quadruple digit inflation with crude oil production down about 29 percent in 2017. Venezuela is arguably defaulting on its debts, and unless one really believes that this is merely due to outside financial sanctions, there is no reason why this could not happen with the Petro as well."
The Petro is widely seen as a way to circumvent U.S. and European sanctions against the country, which has been wracked by hyperinflation and allegations of corruption.
Bianchi points out that it represents the biggest ICO ever proposed, with hopes of raising $5 billion, which would represent around 5 percent of all Ethereum in circulation if that cap is reached.
"The Petro experiment certainly represents another milestone event in the ICO universe. However, as of now at least, it looks more an attempt to raise funds out of desperation than an actual attempt to re-introduce a digital currency backed by a hard commodity."
Like I learned with many science experiments in school, a good rule of thumb may apply here: look, but don't touch.