VENEZUELA is caught in a triple-pinch. Oil production is falling, hyperinflation is undermining its currency, the bolivar, and foreign reserves to pay for imports are dwindling. Against this backdrop, President Nicolás Maduro went on TV last month to encourage citizens to invest in the petro, a national cryptocurrency launched in February. Can it succeed where the bolivar has failed?

Venezuela needs to raise US dollars, but is frozen out of international financial markets after defaulting on its loans. Its answer, it seems, is to mint petro tokens and sell them in exchange for foreign currency. Maduro claims they are like an “oil voucher”, representing oil from a particular region. This way the petro, notionally backed by real resources and foreign reserves, can be linked to the bolivar, arresting its slide.

The crypto community already has a reputation for harbouring opportunists. It is common practice for them to generate tokens, give them a catchy name, and then try to sell them for dollars. If anything, Maduro is just following a well-established formula. Holding a petro seems not to give the holder the right to redeem it for either oil or oil revenues, which suggests Maduro’s link between the petro and oil exists in words alone.

“The libertarian core of the crypto community has been riled by this state-controlled cryptocurrency”

The libertarian core of the crypto community has been riled by this state-controlled cryptocurrency. But they are prone to seeing the world as a battle between two monolithic forces – states and markets – and they fail to recognise that not all states are equal. Countries like Venezuela occupy the lower rungs of the world’s geopolitical hierarchy. They are supposed to play nicely within the global financial system and produce oil for the advanced nations. Maduro and former president Hugo Chavez have refused to play along.

Post-colonial governments have long tried to achieve financial independence from neo-imperialist powers, but doing so invites sanctions and attempts at regime change. Cryptocurrencies were explicitly intended to free the underdog from the influence of big banks. Venezuela is hoping the petro can make that promise a reality.

This article appeared in print under the headline “Petro dollars”

Recently, a group of Bitcoin purists, who believe the policy-advocacy group Bitcoin Foundation is kowtowing to government regulation, splintered off and launched , a software platform for Bitcoin transactions that they claim “serves The People over enterprise and government interests”. This schism leaves Bitcoin at a crossroads, and those who can influence its fate – core software developers, online exchanges and policy advocates – have a choice. Will the currency establish an informal existence in the black-market economy, or should it seek legitimacy by behaving like a model citizen of the financial world, gaining acceptance from authorities by showing a willingness to be regulated and taxed?

Adding to the uncertainty is Bitcoin’s lack of an economic anchor. Our sense of the pound’s value is anchored to a geographically constrained network of real goods and services, and the point of holding pounds is to gain access to that network. If a coffee shop in the UK charged £10 for an espresso, for example, most people would reject that as being overpriced. That’s because there is a huge array of other goods also priced in pounds – such as a beer that costs £3 – against which we can compare the coffee’s price. Bitcoin has no such association, which is partly why its value relative to national currencies can fluctuate wildly.

All this makes it tough to forecast Bitcoin’s future. Here though, are three possible scenarios.

Scenario 1

It’s not a currency, it’s a payments infrastructure

Silicon Valley, for all its talk of disrupting the status quo, lives by a code of profit-seeking pragmatism. Venture capitalists want Bitcoin enthusiasts to stop pitching hard-to-monetise utopian projects and focus on how Bitcoin could profitably fit in within the existing system.

In this scenario, Bitcoin does not have a future as a currency of its own. Instead, it becomes a financial service of sorts, competing with the likes of Paypal and Visa on online shopping platforms or low-cost money-transfer services.

Scenario 2

Hijacking by a desperate nation

Bitcoin could gain an economic anchor in this (admittedly far-out) scenario.

Imagine a country – let’s hypothetically say Chile – begins to experience a collapse in its currency. In a panic, citizens begin to convert into Bitcoin. A populist politician emerges and runs with the tide, making bitcoins legal tender. To obtain more of the cryptocurrency, Chilean authorities begin to demand payment in Bitcoin for their key exports, like copper. Bitcoin’s value becomes anchored to its use in a particular national economy that supplies a crucial global commodity. So much for the libertarian dream of a stateless currency.

Scenario 3

A revolutionary break              

To my mind, the core innovation of Bitcoin goes beyond currency – its ledger, the block chain, is essentially a way for a community to bypass officials that would otherwise be required to verify transactions, a role normally taken by commercial banks.

This same concept can securely record everything from patent filings to real estate sales: mountains of third-party documentation, verification, and associated fees could cease to exist. The vision of the creators of Dark Wallet is of a decentralised techno-utopia free from the red tape we currently navigate. That’s still a long way off, but not at all beyond the realms of possibility.

Read more: “ Bitcoin and beyond: What you need to know“

Profile

is a campaigner, journalist and a former derivatives broker. His book, The Heretic’s Guide to Global Finance: Hacking the future of money, was published in 2013. He is a fellow at The Finance Innovation Lab in London

This article appeared in print under the headline “Many possible paths”