National Cryptocurrencies, Why These Do Not Work

Cryptocurrencies have been growing in popularity in the recent years all over the world. Natural as well as corporate persons benefit from constant changing prices of cryptocurrencies by trading them as well as using for other reasons, like transactions and payments.

Until these days, state authorities have been carefully observing how does this trend develop itself and what is to become of this impressive phenomenon.

However, 2017 seems to have been the year of tremendous changes. We have heard different news about national cryptocurrencies. Nations around all continents are planning to launch their cryptocurrencies. Currently, the United Kingdom, Russia, Venezuela, Estonia, Denmark, Cambodia, China, Iran, Canada, Liberland and many others have expressed an interest in creating their own cryptocurrencies. Even though the interest of states can be understood, what are the real chances of such currencies to work?

Here are some reasons why national cryptocurrencies are deemed to failure rather than succeed:

  • banking national system will remain in place: since payments and transactions under the blockchain technology cannot be reversed, there is no real possibility to build the national financial system on the blockchain technology exclusively.
  • any kind of regulation is not in line with the blockchain technology: it is almost impossible for government and officials to let the system work for them, interventions are inevitable, and these question the basic decentralization principle.
  • governments cannot issue and administrate a cryptocurrency purely in-house: the next basic principle of the blockchain technology is its global nature, which is thus severely questioned.

Venezuela’s Case

Venezuela, one of the world’s most economically and politically unstable states, has recently rolled out its own cryptocurrency, a form of electronic money built on a cryptographic algorithm. Fittingly for one of the world’s biggest oil producers, the coin will be “worth” a barrel of Caracas’ crude and called the ‘petro.’ They even did a pre-sale offering of the coin that they claimed brought in $735 million.

However, for Venezuela, this coin offering is rather a manifestation of sheer brazenness as Nicolas Maduro’s government is shamelessly promoting the petro as a way to circumvent sanctions imposed by the USA and Europe. Caracas is desperate for cash to pay its bondholders, who are owed well in excess of $100 billion, and the government’s coffers are nearly empty. This one is a staggering situation for one of the most energy-rich countries in Latin America, and will eventually lead the whole economy to crash.

Another reason for the currency possible crash is the refusal of the global community to accept Petro. Even if local companies and entities are forced to accept Venezuela’s cryptocurrency, the EU and Argentina do not seem so excited. These have publicly condemned the actions of the Venezuelan government and refused to accept the currency in question.