New Cryptocurrencies On Anvil: OilCoin Backed By Crude Oil Reserves And Petro From Venezuela

The jury is out on the utility of the cryptocurrency. Facebook founder Mark Zuckerberg is the latest to join those favouring it. On Friday (5 January), Zuckerberg said bitcoin is putting power in people’s hands. But this is as far as the bitcoin is concerned. You will soon have OilCoin and Petro, two forms of cryptocurrencies that will represent the oil reserves across the globe.

This week, Venezuela announced that it will soon put in place Petro, a cryptocurrency that will be backed by crude oil, gas, gold and diamond. The Nicolas Maduro government is showing urgency in floating the cryptocurrency. It will be just a matter of days before it becomes a reality. The Petro will likely help Venezuela fix its economy. Venezuela’s oil reserves can be worth $267 billion worth of financial instruments. The Maduro government has set up a separate ministry, Unique Registry of Digital Mining, to recruit miners for the digital currency. So far, over 8.6 lakh persons have registered.

Men behind OilCoin

Be that as it may, a team of technocrats, bankers and former officials of the United States regulatory bodies has come up with a cryptocurrency that will be regulated and backed by OilCoin, reflecting oil reserves across the world. The promoters have chosen to back their digital currency with oil reserves because the global oil market is the single-largest and most actively traded commodity market in the world. The annual transaction in the oil market is $1.7 trillion. The market size is at least 10 times larger than gold and all of the world’s raw metals market put together.

Each OilCoin will represent a barrel of oil and be free from risks of governmental interventions affecting the currency markets. It will offer the advantages associated with blockchain-enabled digital currency but will provide a fully verifiable and audit asset reserve. OilCoin will initially be issued as a digital token on the Ethereum blockchain via the ERC20 protocol.

Petro and OilCoin are in contrast to the bitcoins, which aren’t backed by any intrinsic value or sovereign guarantees. In India, the government has cautioned against trading in bitcoin, though it has not officially said if it is legal or illegal. The centre is reportedly planning to impose the Goods and Services Tax (GST) on it. The Economic Times reported on 5 January that the top seven bitcoin exchanges’ turnover in India was around Rs 40,000 crore, and the Income Tax authorities were considering to mop up around Rs 7,200 crore from cryptocurrency trading.

In a white paper, OilCoin promoters said the cryptocurrency’s value will reflect the price of a barrel of oil. In case its price rules higher than crude oil, more coins will be issued and in the case of the reverse happening, oil reserves with the firm will be liquidated. Trading in OilCoin will be compliant with the US laws on securities and commodities.

Trading process gets underway

Private placements of OilCoin has begun. It has been structured as private placement under the US securities law, according to Dan Eisner, a senior executive at OilCoin. Public trading will begin after it is registered with the US Securities and Exchange Commission (SEC). Eisner said the process for registering with SEC will begin after private placement of OilCoin is completed.

Probably OilCoin can come in handy for Indian companies to manage their oil bills or generate additional revenues. Before that, we will have to see how these currencies, backed by precious resources, fare in the open market. Governments, too, should approach the issue with an open mind, looking into the pros and cons before deciding one way or the other.