Venezuelan President Nicolás Maduro is trying to save his country’s worthless fiat currency by backing it with a questionable cryptocurrency.
Maduro issued a new fiat currency called the “sovereign Bolivar” backed by the oil-based altcoin known as the Petro, CNBC reported. Maduro apparently took the action on May 21 or May 22. Disgustingly, they named the Bolivar for one of the world’s greatest heroes; South American liberator Simon Bolivar.
The idea behind the Sovereign Bolivar is to fight hyperinflation and foreign cryptocurrencies like Dash (DASH). The World Monetary Fund has forecast Venezuela’s inflation rate to hit one million percent this year.
Venezuela backs Fiat Currency with Cryptocurrency
Not surprisingly, 200 Venezuelans a month are signing up to accept DASH, Business Insider claimed. DASH;, the cryptocurrency formerly known as Dark Coin, makes it easy to move cash in and out of Venezuela. By using DASH merchants avoid the risk of inflation.
“We are seeing tens of thousands of wallet downloads from the country each month,” Ryan Taylor, the CEO of the Dash Core Group, told Business Insider. “Earlier this year, Venezuela became our No. 2 market, even ahead of China and Russia, which are huge into cryptocurrency right now.”
Tellingly Dash (DASH) reached a Coin Price of $138.35; a Market Capitalization of $1.145 billion, and a 24-Hour Market Volume of $221.536 million on August 24, 2018. There were 8.275 billion DASH altcoins in circulation and a Maximum Supply of 18.9 billion DASH on that date.
Everybody in Venezuela including Maduro has apparently become a cryptocurrency geek. Maduro claimed to have raised $735 million through the February Initial Coin Offering (ICO) of the Petro.
Maduro’s Free Printing Press
The Petro is a very questionable cryptocurrency; the US Justice Department has banned Americans from trading it. Venezuela’s parliament labeled the Petro unconstitutional. ICOindex.com called the Petro a scam.
The Justice Department and parliament fear Maduro will use the Petro to issue debt to shore up his sorry regime. Backing the Petro would give Maduro the ability to issue unlimited amounts of money without paying for printing.
News stories indicate Venezuela had trouble paying its bill to the British currency trader De La Rue, (LON: DLAR) in 2016. Like most countries Venezuela outsources its currency printing to a foreign company. Cryptocurrency gives Maduro a free printing press he will not have to pay for.
How Maduro can use Cryptocurrency to cash out
A major danger is that Maduro and his henchmen will use the Petro to buy other cryptocurrencies such as DASH or Bitcoin (BTC). That would enable them to move all their cash out of the country before the revolution.
Maduro and company would get lots of money they can spend. Average Venezuelans will get the shaft.
The country’s economy is in chaos, restaurants no longer prices on menus and supermarkets no longer display prices on shelves, The Guardian reported. An obvious reason for the lack of prices is to encourage people to buy with cryptocurrency or foreign currencies such as the US dollar.
The Petro lets Maduro’s government convert the country’s only remaining; assets oil and precious metals such as gold, into something far more liquid–cryptocurrency. Unlike oil, the cryptocurrency can be moved out of the country at the touch of a button. Altcoins can be stored in hardware wallets, a person can carry in his pocket.
The Dark Side of Cryptocurrency
Venezuela is showing us the Dark Side of cryptocurrency. Maduro is abusing a marvelous technology to enrich a few greedy ideologues.
Hopefully, Maduro’s excesses will not turn the world against cryptocurrency. Altcoins have the potential to do a great deal of good for average people in the right hands.
For example; the International Monetary Fund or the US Treasury can send cryptocurrency to hyperinflation victims in Venezuela to buy food with. The victims would use digital wallets to receive the cryptocurrency.
A grave danger is that Venezuela will end up with two economies a cryptocurrency for the rich and educated and barter or paper for everybody else. Wealthy Venezuelans use altcoin which be hard for Maduro’s thugs to steal. Poor Venezuelans will use the US dollar or gold; which Maduro’s police can easily appropriate at gunpoint.
The Rise of the Cryptocurrency Elite
A frightening possibility is the rise of a “cryptocurrency elite” which will totally dominate Venezuela’s economy through access to altcoins. Anecdotal evidence shows that elite is already developing.
“If you actually look on the ground at what’s going on, it’s the dollar and it’s gold,” Steve Hanke said of Venezuela in a Slate interview. “The cryptos are a minor thing.”
Hanke is a professor applied economics at Johns Hopkins University. He is also a hyperinflation expert who advised Venezuela’s government in the 1990s.
The small number of people with access to cryptocurrency will dominate the country. For example; a cryptocurrency millionaire could hire unpaid soldiers or police to form a private army and set himself up as a warlord.
The cryptocurrency barons could control the flow of goods into the country and foreign trade. A true nightmare would be cryptocurrency gangsters in control of the food supply and the inflow of vital goods like medicine. Average people would have to go along with their rule in order to eat.
The Danger of a Cryptocurrency Plutocracy
Renaissance Italy provides a historical precedent to cryptocurrency barons. The only people on the Peninsula with access to money were wealthy bankers such as the Medici family. The Medici based their power on new financial technologies; banking and accounting, which nobody had access to.
The Medici eventually seized control of the city of Florence; Italy’s banking center and even bought the Papacy. They could hire large armies of foreign mercenaries, mostly Englishmen, to terrorize the countryside and wipeout their enemies.
Hopefully, that history will not repeat itself in Venezuela. The last thing our world needs is a cryptocurrency plutocracy. Disturbingly, Venezeula is apparently developing such an altcoin aristocracy now.
We need to watch Venezuela carefully because cryptocurrency is the future of currency. Those who control it may gain means to dominate the economy and the political system.
A grave danger to national sovereignty is digital nations based on encryption and cryptocurrency. Telegram founders Pavel and Nikolai Durov are trying to build such a nation with their TON ICO, Bloomberg View’s Leonid Bershidsky observed.
Hopefully that nation will not become a cryptocurrency plutocracy that will dominate national economies. The Durovs hope their technology will enhance human freedom. Unfortunately, Venezuela shows that cryptocurrency can become a tool of