Sunday, January 14, 2018

Venezuela's Petro: Really cryptocurrency? Or too real to be crypto? Or not currency enough to be currency?

"Cryptocurrency" is an interesting neologism. (At least it's relatively "neo" for me.) It's used to refer to digital currencies like Bitcoin and Ether. One implication of the "crypto" in the name is related to "encryption," which implies a high level of security.

But another meaning of "crypto-" as the first part of a word is also "semi-" or "phony." Cryptozoology is the study of animals that don't exist, e.g., a contemporary Tyrannosaurus Rex in some obscure jungle, or Chupacabra, or the Loch Ness Monster.

Mirriam-Webster Online defines the adjective "crypto" this way: "not openly avowed or declared —often used in combination [e.g.,] crypto-fascist"

Frances Coppola invokes both meanings of "cryptocurrency" in Venezuela's 'Cryptocurrency' Isn't Really A Cryptocurrency At All Forbes 01/08/2018.

So, does she mean that it's a real currency? Or that it's a crypto-cryptocurrency?

She explains her usage by noting, "The whole point of cryptocurrencies like Bitcoin is that they aren’t 'issued' by any government, central bank or other 'authority.' No-one controls them. They are decentralized, anonymous and subversive."

In that perspective, cryptocurrency is not only encrypted in the software. It's also not a "real" currency like one backed by the government.

The Venezualan digital instrument is called a "Petro." As she explains, the Venezuelan government of Nicolás Maduro "is planning to issue a Venezuelan government cryptocurrency, backed by the country’s reserves of oil, gas, gold and diamonds. One unit of the new cryptocurrency – the 'petro' – will be backed by one barrel from Venezuela’s Orinoco oilfield, currently valued at $59." (Criptomoneda is the Spanish for cryptocurrency. Moneda virtual for digital currency.)

She argues that because it's in fact issued by the government and regulated by the government in a centralized way, it shouldn't be regarded as a cryptocurrency. It's more like a second currency, or an auxiliary currency, or, as she plausibly argues, a "digital oil-backed security":
Online cryptocurrency magazines report that over 860,000 Venezuelans have registered with Venezuela’s new Registry of Cryptocurrency Miners, which is the only portal through which the petro can be mined. Yes, you read that right - in Venezuela, government licenses its cryptocurrency miners, just as it licenses its banks. Furthermore, the operation of the new currency will be supervised by the Superintendency of Cryptocurrencies and Related Assets. Government controls mining, government supervises operations, government sets the price … the petro is looking less and less like a real cryptocurrency, isn’t it?
It can't a "real cryptocurrency" if it's not actually a currency. Or not actually "crypto" in the sense of being issued independently of governments, who are the ones who issue real currency. Could we say that a cryptocurrrency isn't one if it's not really "crypto"?
In fact, why are we calling this a cryptocurrency at all? Really, it’s a digital oil-backed security. Recording transactions on a blockchain and adding some cryptography doesn’t make it a cryptocurrency. It isn’t decentralized, it isn’t anonymous, and it isn’t going to be used to buy and sell goods and services in Venezuela, although there are suggestions that it could be used to pay international suppliers. And above all, its value depends on the trustworthiness of a government already in default on its international obligations. [my emphasis]
An economics question for the 2010s.

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