With the stroke of a pen, President Donald Trump may have just accomplished what most observers thought impossible: he’s made the Petro relevant. The Petro is the Venezuelan government’s “cryptocurrency,” rolled out in February of this year and replacing the radically decentralized governance structure of Bitcoin and Ethereum with the radically centralized guidance of President Nicolas Maduro’s regime.
I use quotes above because nobody is quite sure what to believe about the petro. It’s ostensibly backed by the regime’s gold, diamond, oil and gas reserves, but such backing has proven difficult to veryify. Observers initially thought it was run on something resembling a blockchain, except that all the nodes of the network were controlled by the regime. But then the next draft of the Petro’s white paper said it would live on the Ethereum blockchain, as do many other cryptocurrencies and tokens. And then the next draft deleted all references to Ethereum and said it would instead use NEM, another blockchain protocol.
I know what you’re thinking: “a digital currency run by one of the most disastrous regimes in the world with dubious backing and unclear methods of operation? Where do I sign up?” But the Petro did have at least one undeniable source of value, as a tool for the Venezuelan government to do business beyond its borders while avoiding global sanctions. And at least on paper, that was the American government’s concern.
President Trump’s executive order states that “in light of recent actions taken by the Maduro regime to attempt to circumvent U.S. sanctions by issuing a digital currency… all transactions related to, provision of financing for, and other dealings in, by a United States person or within the United States, any digital currency, digital coin, or digital token, that was issued by, for, or on behalf of the Government of Venezuela on or after January 9, 2018, are prohibited as of the effective date of this order.”
The initial response of the crypto community to the executive order is rightfully focused not on the Petro itself, but on what it says for the likelihood and viability of potential future bans on cryptocurrencies that people actually want. It’s not a big leap in legal terms from this ban to an executive order banning something like Bitcoin.
Fully enforcing such a ban would likely be prohibitively difficult, but as Will Luther, Director of the Sound Money Project, has written, “Governments might not be able to prevent all cryptocurrency transactions, but they can significantly discourage their use.” Government bans would impose significant costs on users of Bitcoin and other cryptocurrencies that might cripple them, especially in their current formative stage.
Bitcoin users must, therefore, sound the alarm on the Petro ban, despite that specific digital currency’s flaws. But they also must do more to reconcile the idea that Bitcoin will one day triumph over government fiat currencies with its current vulnerability to potential government bans. If it’s just a matter of Bitcoin use reaching a critical mass before the writing is on the wall for fiat currencies, then it’s a safe bet that governments will take action before that critical mass is reached.
In addition to developing robust resistance to such a ban, it’s also possible to be more pragmatic, and develop cryptocurrency applications that provide value while existing alongside the current order. That may not be what Bitcoin’s most devoted early adopters want, but it’s an outcome worth at least preparing for.
Cryptocurrencies challenge that “just ban it” mentality that says if something is bad, the government can and should make it go away. Were demand high enough, it’s not clear that a government ban on a cryptocurrency would even be possible. But that’s almost certainly not the case with the Petro, and likely not yet the case at the current level of adoption for Bitcoin and other real cryptocurrencies. The best response is to both cultivate public opinion against this and any future cryptocurrency bans, while also thinking about ways that multiple types of money can coexist.
The Petro may be largely a punchline, but banning it raises many real issues.