VENEZUELA HAS A LEGAL FRAMEWORK FOR CRYPTOCURRENCY. IS IT USEFUL?
One of the few States that has provided a legal framework (which in theory) comprehensively regulates the mining of crypto assets is the Venezuelan State. As of 2018, using a decree with the rank and force of law, Venezuela adhered to its legal system regulating financial activities regarding cryptocurrencies. What is the significance of the regulation in this matter in a country experiencing the worst economic crisis worldwide?
Constituent Decree of Cryptoassets
The Constituent Decree on Cryptoassets constitutes the general legal framework that formally and expressly allows the creation, circulation, use and exchange of cryptoassets, by natural and legal persons, from the public or private sector, whether or not they are residents of Venezuela, including in particular the cryptocurrency called Petro.
In this regard, the Cryptoassets Constituent Decree empowers the National Executive, in a generic and broad manner, to: (a) regulate the constitution, issuance, organization, operation and use of cryptoassets, (b) create and issue cryptoassets, (c) allow the operation of virtual exchange houses (exchanges) in Venezuela that operate with cryptoassets created by the National Executive, (d) regulate the cryptoassets market in Venezuela, the use and creation of virtual wallets, entities dedicated to virtual savings and intermediation of cryptoassets, and virtual mining activities.
Additionally, the Cryptoassets Constituent Decree establishes that the competent governmental authority shall approve the creation of cryptoasset genres, regulate their economic and financial aspects, and regulate this decree.
How does the system work?
The first thing we must take into account in this analysis is that the most outstanding feature is that the mining of crypto assets by individuals is not an activity that can be carried out with complete freedom, even when crypto-assets are being given legal tender force, and even when there is a cryptocurrency launched to the market by the Venezuelan State itself (the Petro); it happens that the State centralizes all mining activity at the national level through an institution called SUNACRIP.
SUNACRIP keeps a registry of all persons who deal in crypto assets in Venezuela and all transactions they carry out. However, it is essential to note that this may be perceived as a way for the Venezuelan government to gain access to information from transactions that, by their nature, should be highly anonymous. Consequently, it is reported that few cryptocurrency miners transact under the tutelage of SUNACRIP, as distrust in the Venezuelan government is undoubtedly an element that cannot be ignored.
The petro was supposed to be the cryptocurrency with which Venezuela was going to "overcome the financial blockade", according to the president of that country, Nicolás Maduro. But two and a half years after its debut, economic analysts, members of the cryptocurrency industry, and many Venezuelans are unaware of the real situation of the cryptocurrency.
"It doesn't exist" or "it was a scam" are usually the first answers you get when you ask cryptocurrency experts about the petro. The reason: the petro is absent in all significant international exchanges or exchange houses, those digital platforms like Binance or Coinbase where users buy and sell bitcoins, ethers, litecoins, or any of the more than 2,300 cryptocurrencies that exist in the market.
However, the Venezuelan government keeps announcing new uses for the petro: importing, paying taxes, hotel rooms, passport fees... In addition, during the last year, it has awarded extra bonuses in Petros to pensioners, to holders of the carnet de la Patria (an optional identity document that the opposition considers a political instrument) and at the end of June Maduro "ordered" to open a million wallets (digital wallets in which cryptocurrencies are stored) in Petros for young people.
Reality or myth?
Outside the region, even the existence of this cryptocurrency is doubted.
"I don't know of anyone who has ever owned or used a petro," said Joe Waltman, executive director of GiveCrypto, the Coinbase NGO that helps Venezuelans by giving them cryptocurrencies and encouraging their use in local businesses. "Our organization is probably the one that has worked the most with cryptocurrencies in Venezuela, and I had already forgotten that the petro existed," he told BBC Mundo in an interview.
"We saw it quite a lot initially, but after that, what I understand, and maybe I'm wrong, is that it has not been used," said Francisco Rodriguez, director of the economic analysis firm for the Latin American market Torino Economics.
Tom Robinson, co-founder of blockchain analytics company Elliptic, also lost track of it: "In the industry, everyone considers the petro to be a bit of a joke, they don't think it's a real cryptocurrency. They think it's a hoax," he told BBC Mundo in an interview.
A tool against hyperinflation?
It has been proven that Petro does have blockchain technology. But its control is centralized.
You can only buy in certain places: with bolivars at the headquarters of the National Superintendence of Crypto-assets and Related Activities (Sunacrip), with cryptocurrencies in Venezuelan exchange houses authorized by the government, and with bitcoins, litecoins or dashes on the website http://www.petro.gob.ve.
Lack of confidence
The problem with PetroShop is mistrust. According to experts, this is the big problem with the petro in general.
"Every currency depends on trust..... So the concept behind the petro is more than valid; the problem is the way they do it: it requires a high level of trust in the audit of its underlying assets, and that trust does not exist," Rodolfo Andragnes, executive director of the NGO Bitcoin Argentina, told Al Jazeera in an interview.
"The country of Venezuela and its leaders are not trustworthy, so whatever they generate, they can manipulate later... They can modify as they have already done because, in the beginning, they said oil reserves backed it. Then, no, oil plus I don't know what else. So, it depends on the laws not changing, and in Venezuela, nothing is written in stone. The reality is that building trust in the petro is null... It will end badly: they change the government, Maduro leaves, and declare that the petro is unconstitutional and ceases to exist... There are thousands of reasons why the petro could fail. It may not: it will fail," adds Rodolfo Andragnes.
Actually, the petro has already been declared unconstitutional... But by the Supreme Court of Justice (TSJ) in exile, a body made up of magistrates who have fled the country, whom the opposition considers legitimate, and the government finds usurpers. Despite being abroad, they continue to hold trials and issue rulings that, they hope, will one day be enforced.
It was to this institution that the Venezuelan lawyer specialized in property law Franklin Hoet Linares went when he was surprised to find that the Autonomous Service of Intellectual Property (Sapi) was requiring its foreign clients to pay the rights to their trademarks and patents in Petros. "Paying in Petros is a crime; the United States prohibits it," he recalls. In March of last year, the government of Donald Trump vetoed transactions in petro to Americans and those who were within its territory. According to the authorities of that country, the cryptocurrency was an attempt to circumvent the economic sanctions imposed on Venezuela.
The TSJ in exile ruled in favor of Hoet Linares, who knows that this entity is not recognized in Venezuela, but hopes that the international institutions to which he plans to appeal - such as the World Intellectual Property Organization (WIPO) and the International Trademark Association (INTA) - will consider the ruling valid.
As it can be seen, the biggest market for cryptocurrency in Latin America seems to be much more efficient, operating outside its own country's legal system than under those laws. Not surprisingly, any business related to the Venezuelan government is plagued with uncertainty and difficulties. And trading in cryptocurrency is not the exception.