Why El Salvador’s Wild Bitcoin Experiment Just Might Work
Last fall, El Salvador made Bitcoin legal tender. Here’s what it looks like on the ground.
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Right after I hopped out the back of a pickup in El Zonte, El Salvador, I recognized I wasn’t in an ordinary beach town. El Zonte’s welcome sign had two Bitcoin logos, its cafes offered 75% Bitcoin discounts, and its trash cans sported the Bitcoin emblem. I’d been hitchhiking my way through the country’s west coast, enjoying its world-class surf conditions last month, and wasn’t looking for its Bitcoin epicenter. But somehow, I’d stumbled right in.
When El Salvador made Bitcoin legal tender last September, many — myself included — reacted skeptically. Nayib Bukele, El Salvador’s president, seemed to be YOLOing away the country’s treasure like a Reddit-addicted crypto trader. Bukele bought millions of dollars worth of Bitcoin, complained he “missed the f***ing bottom by 7 minutes,” then Bitcoin’s price tanked, costing the country dearly. It seemed like a mess. But the reality on the ground, I found, is more complicated than the narrative. There’s a good chance El Salvador’s Bitcoin experiment works out, at least in some ways.
The Bitcoin movement in El Salvador began in El Zonte when a California surfer named Mike Peterson received an anonymous $100,000+ Bitcoin donation for the town’s residents. Peterson had been doing community work in El Zonte for years and accepted the money with a mandate to get it in people’s hands. “We formulated a plan to start injecting Bitcoin into the community,” he told me. “And it kind of just exploded from there.”
Bitcoin took off in El Zonte for a reason: it was useful to its people. The first, most immediate benefit was it helped Salvadorians avoid exploitative remittance fees they paid on the $6 billion that friends and family outside the country sent back each year. Less apparent, but perhaps more important, was that 70% of the people in El Salvador were unbanked, and a digital wallet would help them start investing. “The Salvadorian people don’t have bank accounts — now they do,” explained Roman Martinez, who works with Peterson in El Zonte. “People are buying an asset for the first time.”
After Bukele took office in June 2019, he caught wind of what was taking place in El Zonte, and moved to make Bitcoin legal tender, compelling the country’s merchants to accept it as payment for their goods and services. The law went into effect last fall, turning El Salvador into the first country where Bitcoin is an official currency (the U.S. Dollar works there too) and setting off the world’s largest natural Bitcoin experiment. El Zonte, where it all began, turned into a quasi-Mecca for Bitcoiners worldwide.
Today, just five months after becoming legal tender, Bitcoin is everywhere in El Salvador. You can use it in McDonald's, fancy coffee shops, or small groceries people run from living rooms with QR codes hanging out front to enable Bitcoin transactions. El Salvador also has its own wallet, called Chivo (meaning “cool”), and it gives anyone who downloads it $30. There have been some hiccups with Chivo’s technology, but 2.1 million Salvadorians, or a third of the country, have used it. As Martinez put it, many are holding an asset for the first time.
For Bitcoin’s true believers, there’s a ton riding on the El Salvador experiment. If Bitcoin is to reach its full potential, it must be both a store of value and something people use to transact. And El Salvador is its crucial proving ground. “Its journey,” said Max Kaiser, an influential figure in the El Salvador Bitcoin scene, “is one that travels through its perception as being first a collectible more or less, and then a store of value, then a medium of exchange, and then a unit of account, which is the same path all money takes.”
Bitcoin enthusiasts have thus descended on the country — Bitcoiners on El Zonte’s streets asked me if I’d seen Kaiser — and their enthusiasm has mixed benefits. They’re investing in the country, with some spending 3 bitcoin there hoping to obtain permanent residency. But their exuberance could drive the controversial Bukele into risky decisions, such as the opening of a largely tax-free “Bitcoin city” and the issuing of $1 billion “Volcano Bonds” where El Salvador will invest half the money raised in Bitcoin straight away, volatility be damned.
Bitcoin volatility, of course, will impact everyday Salvadorians who’ve decided to invest in Bitcoin. One restaurant owner who spoke to the L.A. Times called Bitcoin “the devil’s money.” But in today’s economy, people build wealth by taking risks. And if people elsewhere have that ability, so should Salvadorians. El Salvador’s Bitcoin experiment may not work, it could implode, but there’s a chance it succeeds, and that makes it worth trying.
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For one, when you have been such a poor country for so long, and little experience or familiarity with new tech like this, as the average El Salvodoran citizen is, Bitcoin and crypto is still foreign to most of the population in the world, whether your American or Salvadoran anyways, and it will take a while for them( El Salvadoran's to get used to it, especially when tech advanced, wealthy countries's citizens don't totally understand what crypto truly is yet or at least the majority of the population doesn't yet. Crypto will get more and more mainstream and with that easier, more user friendly crypto apps will come along🤔 I also hope that Bukele is doing this to help his country, rather than for his own corrupt, unseen motivations, but only time will tell. And admittedly the "chivo" wallet has been a disaster, but that is hardly Bitcoin's fault, but the custodian company managing the wallet. All on all, I believe bitcoin and crypto aren't for everyone and education on blockchain tech is absolutely crucial to new users of it, but in the end, the more options available to the people is a good thing rather than just limiting people to less options simply because outside forces don't think they're ready for it (Bitcoin)
I for one, am glad I have so many options when it comes to investing in my financial future as an American, such as bank accounts, precious metals, cryptocurrency assets, bonds, stocks, futures, currencies, etc. Etc.
First off, full disclosure. I'm very much a Bitcoin skeptic. I think Stephen Diehl gets Bitcoin exactly right:
That said Alex, I'm definitely open to being convinced I'm wrong, so your El Salvador report was interesting but unconvincing. Given that Bukele is all in on Bitcoin, I'm not sure claims he makes are credible; and the fact that Bitcoin is all over El Zonte (a town of 3,000 people) isn't very interesting either given the $100,000 donation to the town's residents. It would be shocking if the townspeople weren't trying to get a piece of that.
So I was thinking about what would be interesting and potentially persuasive and here is my idea. It would be great if you could interview 100 random El Salvadorians that you encounter on the streets of different places in El Salvador (or however many you can) and ask them the following questions:
- Where do they live?
- What do they do?
- Do they own any Bitcoin?
- Have they been sent any Bitcoin?
- How have they used Bitcoin?
- If so, in what ways?
- What was the last time they used it?
- If they were offered the choice of $100 (in U.S. dollars), 875 Colons, or whatever $100 is worth in Bitcoin today, which would they choose and why?
Think it would be very interesting to see the results of such a survey.