The Venezuelan President Nicolás Maduro has been making headlines, but not for his usual antics of denying humanitarian aid to his citizens, defaulting on international loans, and clamping down on protests with military force. Instead, He has done so in the technology circuit after his government issued the first state-backed cryptocurrency, the Petro, backed by Venezuela’s vast oil reserves.
Each Petro coin is worth $60, roughly the price of a barrel of oil. By selling the coins, which are traded on a cryptocurrency platform, Maduro hopes to raise as much as $6 billion without giving up a drop of oil.
This project has drawn criticism from the US, foreign banks, and even some cryptography experts, who contend that the Petro is little more than a stunt designed to evade sanctions and encourages black-market trading. But for all its bad press, the Petro highlights a shift in the discussion of cryptocurrencies and the underlying blockchain technology on which they operate.
At a fundamental level, blockchain is similar to a ledger in which all transactions are public and governed by a global network of computers that are decentralised and nearly impossible to hack. Blockchain will not allow an exchange to take place unless conditions for the exchange are met by all participating parties — a fact that is verified by all members of the network.
Blockchain systems are used to facilitate trust-based transactions ranging from the exchange of money to trading in fine art. All paperless, instant and indelible. But nowhere is the promise of blockchain more evident than in government, where the burden of trust, and the paperwork and processes required to secure it, are a daily effort. This is why some governments embraced the technology.
In Estonia, blockchain is being used to secure privacy and transparency in digital health records. Every Estonian who has ever visited a doctor (so, just about every Estonian) has an e-health record that he or she can track and monitor in real-time, to manage who has access to their health data. The technology is used to ensure that their personal health data is kept completely secure, yet at the same time accessible to authorised individuals — such as a first-responder who might need access to your medical record in the case of an emergency.
In the UAE, Dubai has committed to shifting all government processes onto a blockchain system by 2021 in an effort to create a paperless government. It will do soby creating a cryptographically secure network to host digital records of government data — then monitor the exchange of these records on an indelible ledger.
While government blockchain applications are moving from the lab to the marketplace, a number of concerns with the technology remain. Several notable hacks have severely damaged private blockchain exchanges, in one case locking investors out of $162 billion.
Each attack was traced back to human error in the code that governed the particular exchange. As governments move critical transactions on to blockchain systems, extreme care will need to be taken to ensure individual and national data is secure against bad actors.
Furthermore, as comfort with cryptocurrencies grows, governments will need to take careful steps to ensure these new currencies are properly regulated to safeguard individual and national wealth. As governments from the US to the UAE work through regulation of blockchain and cryptocurrency, they must be careful not to stifle innovation when ensuring that these technologies are properly regulated.
Blockchain has the potential to do for trust what the internet did for information. But the Venezuelan Petro is a cautionary example that some governments are racing to embrace this technology with sometimes nefarious objectives. The promise and peril of blockchain will be on full display as people around the world debate how to govern this technology for public good while guarding against exploitation.
Danish Farhan is CEO of Xische & Co.