February 21, 2018 / 10:07 PM / in a month

Venezuela aims for crypto alchemy with new 'petro gold' token

CARACAS (Reuters) - Venezuela is preparing a new cryptocurrency called “petro gold” that will be backed by precious metals, President Nicolas Maduro said on Wednesday, a day after launching an oil-backed token that has been panned as a pipe dream by blockchain experts.

Venezuela's President Nicolas Maduro reads a document during the event launching the new Venezuelan cryptocurrency "Petro" in Caracas, Venezuela February 20, 2018. REUTERS/Marco Bello

Maduro is hoping cryptocurrencies will help Venezuela skirt U.S. financial sanctions as it struggles under hyperinflation and a collapsing socialist economy.

On Tuesday, he said the newly launched petro cryptocurrency raised $735 million in the first day of a pre-sale.

Opposition leaders call the state-backed cryptocurrency an illegal debt issue, and investors have questioned its value given concerns about Venezuela’s solvency and transparency.

“Next week I’m going to launch the petro gold, backed by gold, which is even more powerful, that will strengthen the petro,” Maduro said in a televised speech.

It was not immediately evident if he was referring to gold reserves in the central bank or to undeveloped mineral deposits.

He did not offer further details.

The Information Ministry did not immediately respond to a request for comment.

Gold-backed cryptocurrencies already exist, including one called RMG created by The Royal Mint in Britain. But blockchain experts have broadly panned Venezuela’s cryptocurrency efforts, noting that digital tokens are only as valuable as the faith inspired by their issuer.

The country’s history of uncompensated expropriations and the 99 percent depreciation of its fiat currency the bolivar have created doubts about the ruling Socialist Party’s capacity to manage digital tokens.

Blockchain technology is built on making information about transactions open to the public. But the Socialist Party jealously guards even the most basic of information - including about inflation.

The U.S. Treasury Department has already warned that Venezuelan cryptocurrencies could violate sanctions and thus create legal risk for U.S. investors.

Sean Walsh, founder of crypto-asset investment firm Redwood City Ventures, said it was difficult to reach conclusions about the petro gold without seeing specific details. But he said he had little interest in tokens backed by physical assets.

“Rather than buying a cryptocurrency backed by gold, I’d just go buy the gold,” said Walsh in a telephone interview. “Gold is a physical thing that you want to be able to hold in your hands, because that’s the point.”

Editing by Tom Brown

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