Amid the craze engulfing bitcoin, the blockchain-based currency which has undergone a spectacular rise in value in recent months, new cryptocurrencies are springing up with a more tangible backing than bitcoin: crude oil.
OilCoin, a project led by a team including former commissioner Bart Chilton of the U.S. Commodity Futures Trading Commission (2007-2014), is launching as what its backers claim as the first legally-compliant digital currency based upon a physical asset.
OilCoin will tokenize barrels of oil held in reserve with each token representing the value of one barrel, providing users of digital currency with “a meaningful safe haven from cryptocurrency volatility,” the venture said in a statement. OilCoin's public token sale, or initial coin offering (ICO), is scheduled to begin in early 2018.
It falls on the heels of Venezuela’s announcement last week that it would create the “petro,” a digital currency backed by oil reserves to shore up the country’s collapsed economy, though opposition parties expressed doubts it would succeed. The OPEC member’s currency, the bolivar, has crashed in recent months amid the economic calamity.
“Venezuela will create a cryptocurrency,” backed by oil, gas, gold and diamond reserves, Venezuelan President Nicolas Maduro said in his regular Sunday televised broadcast, according to Reuters. The cryptocurrency, he said, would help Venezuela “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade.”
Futures contracts and exchange-traded funds (ETFs) that track the price of oil already exist, but OilCoin says its cryptocurrency offers unique advantages.
The company’s plan calls for oil reserves to be sourced, held and managed by affiliate entities of the OilCoin Digital Reserve. "The price of an OilCoin token will approximate and move in tandem with the price of a single barrel of crude oil. As demand for OilCoin causes the price of a single OilCoin to rise above the price of a barrel of oil, additional OilCoin will be issued and the proceeds will be invested in additional oil reserves," OilCoin co-founder Darius Brooks, formerly with TPG, a private equity firm, said in the statement.
As transaction volume of OilCoin expands, holders will receive additional OilCoin as a share of transaction fees. As a commodity-backed digital currency, OilCoin will be a reliable store of value and medium of exchange, said Brooks.
“As an oil-denominated currency, it will also be free from the inflationary pressures and cross-currency volatility experienced by fiat currencies. Moreover, we believe the after-tax return profile for U.S. OilCoin holders will be superior to oil ETFs for sophisticated, commodity-focused investors," he said.
Added Chilton: “Once we get going, we envision holders of OilCoin will be able to participate in ordinary consumer transactions around the world. I've been saying for a long time that in order to gain greater acceptance in everyday commerce, something like what we plan for OilCoin is needed. Digital currencies will get there and OilCoin is well positioned to be the first."