We’re used to the ‘bizarre’ in the cryptocurrency world. Crazy ideas come and go, some are so crazy they work. But it doesn’t come much crazier than the strange story of Venezuela’s President Nicolas Maduro and his move to create a government backed cryptocurrency. The Petro ICO reportedly raised a huge sum of money, all on the back of an inconsistent and loose whitepaper. But the differentiating factor comes from the perceived legitimacy provided by a figure such as President Maduro. This adds a new dimension to the pumping and dumping ‘characters’ we’re used to: a promise of actual legislative action.
However, recently it became apparent that Venezuelan legislators are not on board, and without them, there is no Petro. A few weeks ago, the Venezuela's Asamblea Nacional – a group of political figures opposed to the President’s plan – made an official statement that its members would not allow the Petro to become a reality.
The statement went as far as to say that the Petro was a genuine investment danger, fraudulent in operation, and notwithstanding; unconstitutional.
With that, the Petro is dead. Yet it’s the odd intergovernmental relationship that ‘may have been’ that has commentators wondering what will happen when (not if, but when) such a cryptocurrency does pass a nation’s legislature.
To put a final nail in the coffin, US president Donald Trump also signed an executive order issued March 19th, prohibiting transactions involving "any digital currency issued by... the Government of Venezuela".
But it's likely that discussion on the legislative status of State-backed digital currencies have just begun.
We’re currently bound by the definitions of currency set out in various legislative acts. Over the last 5 years or so, a new category has been created: the ‘digital currency’. It was the Canadian government to first pass the term into law, but the rest of the West soon followed (in some capacity or another). But the legislative mechanism for cryptocurrency has, within the West, been confined to Anti-Terrorism laws. This author opines that this is due to the fluidity at which Anti-Terrorism legislation can be quickly and easily amended: the pillars of ‘currency’ legislation have stood in place in many countries for decades. Any alteration to 'currency' legislation would be subject to scrutiny and debate, requiring a real form of action by government to address what they perceive as the ‘cryptocurrency conundrum’.
But Anti-Terrorism laws change nearly quarterly. Any politician to oppose the changes to such legislation are attacked like a leper on a busy street. It’s political suicide to go against ‘national security’, and the thin line from cryptocurrency to a threat on national security has been drawn, regardless of the legitimacy of this connection.
With such adversity in the West to changing currency legislation to incorporate cryptocurrency, what if the Petro was above the water? What if President Maduro had the Venezuela's Asamblea Nacional’s backing and the Petro became the first real State backed cryptocurrency?
First, cryptocurrency would be taking a positive step into the future. However, this is where we as a collective need to decide just how much impact ‘blockchain’ (in its growth) has on ‘cryptocurrency’ (decentralized peer to peer currency). To put it another way: blockchain is clearly incorporated into corporate and governmental futures, but blockchain does not equal cryptocurrency (and certainly blockchain adoption doesn’t equate to cryptocurrency value gains).
Arguably, with State backed ‘cryptocurrency’, all other cryptocurrencies will be seen as a better alternative to whatever the State provides since it's bound to be 'centralized'. This differs from the current path in that traditional fiat banks are already incorporating blockchain into its backbones, and there is a huge emphasis on keeping cryptocurrency as an asset class, not as a currency.
Under currency legislation, there is generally a provision pertaining to the classification of foreign currency (with specific mention to how such a currency is treated for taxation reasons). Foreign currency is generally defined as a currency used by another country and State backed. This is where cryptocurrencies like bitcoin fall down and stay down when applied to these thresholds. But what if the Petro proceeded?
It’s arguable that the Petro would have somehow broken through the ceiling of this pigeonholed definition and in a strange turn of events become the first cryptocurrency to receive international currency recognition status. It would create a toppling over event that may have become a logistical nightmare.
Our counties need to take the initiative. The Petro might have happened, and the effect might have implications on the view of cryptocurrency.
The Petro might be dead, but the option for a State backed coin is waiting dormant in the wings. The fact remains that traditional currency laws open the door for foreign currencies, and foreign currencies are loosely defined as national currencies backed by a State. Cryptocurrency isn’t so far away from breaking through the currency classification barrier inadvertently – and all because the legislators in the West have thus far refused to address cryptocurrency for what it is once and for all: a highly liquid asset class that has more in common with today’s (largely digital and unreal) version of fiat than that of a ‘tradeable good’.
Featured image from Shutterstock
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Con’s a writer. His education background is law, where he’s published in law journals on the legal issues of crypto-currency. His opinion editorials tend to focus the relationship between people and technology, as well as the societal challenges technology can present. He’s consulted for non-profit privacy and digital rights groups, aiding governmental submissions. His passion is for information security, technology and the intertwining legal issues.