Bitcoin Commentary
Only small countries use Bitcoin: Congratulations, El Salvador!
Decentralized digital money has today become legal tender in a country whose economy is dependent on remittances.
Today Bitcoin set a historic milestone. Just over a year ago the hype of institutional investment from companies like Microstrategy was enough to send ripples throughout the community, as traditional institutions watched from the sidelines in disbelief. Today, it’s not just geeks, retail investors, small businesses or large institutions that use bitcoin — it’s an entire nation; the first of many.
El Salvador made a bold and difficult move, detaching from decades of dependence on the US dollar. The future is unconfirmed, but replacing a reckless, fallible, and uncapped monetary policy with a decentralized trustless and predictable network will go down in history as one of the most important financial experiments of the century.
While none can say for sure how it will be received or whether it will even bring the desired benefits, it will be keenly watched both by those in power and those under it.
In support of Bitcoin we as a community aim to make this law benefit Salvadoran citizens to the greatest extent, to help them take secure custody of their money, reduce their exposure to high-commission remittance services, and save money to ensure future prosperity.
What the first Bitcoin economy looks like so far
The announcement by El Salvador’s president, Nayib Bukele, at the close of Bitcoin 2021 sent waves of excitement through bitcoiners, and waves of outrage among its detractors. The implications of this law are unprecedented: the IMF have already issued grave warnings to Bukele’s government that a failure would be disastrous, while citizens who experience a new, practically free way to send money across borders could see a much brighter future ahead.
Those who disagree with the IMF’s fears are right to point out that fiat currency itself is a failing experiment, and that a backed currency like Bitcoin could provide much-needed protection from a global financial crash caused by a heavily diluted money supply: around 30% of all existing US dollars were created in the last year.
Today, the government’s Chivo wallet launched. It is a mobile Bitcoin wallet that uses the lightning network to send off-chain transactions. While the government set aside $30 of free bitcoin for each Salvadoran who downloads the wallet, the campaign is focused on an opt-in, voluntary rollout.
With the app’s tagline reading ‘If you don’t want to install it, no problem’, El Salvador appears set on giving its citizens free choice to use Bitcoin or continue to use the US dollar. This should assuage some of the fears bitcoiners voiced at the time the bill was first announced, that no-one should be forced to use bitcoin if they don’t want to.
Even with this positive start, there is still much to address, such as the fact that use of a lightning wallet overlooks many security considerations that should be part of any Bitcoin plan. Until hardware wallets become part of the country’s adoption plan, there will always be a risk of a cybersecurity incident causing unwanted bad press and dissatisfaction during this critical time.
A sovereign Bitcoin fund and infrastructure
To deploy Bitcoin across a country of over 6 million people, Bitcoin infrastructure must be built. El Salvador has already deployed over 200 commission-free Bitcoin ATMs — also bearing the Chivo (slang for ‘cool’) branding — where Bitcoin can be bought or exchanged for USD. This is a way the government hopes to make Bitcoin accessible to all, without putting citizens at the mercy of high fees charged by conventional privately-owned Bitcoin ATMs.
Along with providing access to Bitcoin, El Salvador has become the first country to officially buy and hold Bitcoin in its treasury. Yesterday, President Bukele announced a purchase of 200 bitcoin, bringing the total officially held by El Salvador to 400. This will serve not only as the state’s investment but will be part of a national exchange guarantee scheme, designed to dampen the impact of volatility for users of the Chivo app, to ensure that the dollar value of their sales and purchases does not fluctuate significantly should Bitcoin’s price change during a transfer.
Finally, Bitcoin mining has found untapped opportunity in El Salvador. Home to over 20 active volcanoes, there is a large amount of geothermal power available to use as a source of sustainable energy. During an ad-hoc appearance by Bukele on a Twitter Space hosted by Nic Carter on the eve of the bill’s passing, the President was presented with the question of whether he would use this resource for Bitcoin mining, which immediately caught his attention.
What started as a bit of fun quickly became reality as one of the country’s geothermal power plants dug a new well to produce 95MW of energy exclusively for mining bitcoin. Coming from the President himself, it took around 24 hours from idea to action, showing the profound impact government support can have in building Bitcoin infrastructure and catalyzing adoption.
Bitcoin for nations
Most governments claim to exist to serve their citizens, to pursue opportunities to improve society and to ensure that the future is better than the past. Unfortunately, Bitcoin has been the target of so much disinformation that it is easy for those in power to make claims about how it should be strictly regulated in order to protect citizens, rather than nurtured to offset the risks of traditional unbacked currencies.
Bitcoin is becoming an issue no government can afford to ignore. The US government have made multiple attempts to stifle it, such as recently concealing a tax plan for cryptocurrencies within an unrelated infrastructure bill. This case triggered a tremendous community pushback and made Bitcoin an issue that will influence voters’ decisions in future.
El Salvador, without a national currency of its own, sees Bitcoin as a way to decouple its wealth from the US dollar, which it has relied on since 2001. While it is in many ways experiment, it is one with a clear hypothesis: that Bitcoin will insulate holders from a runaway US dollar supply, while eliminating predatory fees on remittances, which consistently account for a fifth of El Salvador’s GDP.
Many countries have stood in support of El Salvador’s initiative, especially in South and Central America. Eliminating cross-border fees could mean significant savings for individuals and feed back into the country’s economy. So far, politicians from Paraguay, Brazil, Panama and Argentina have shown support for Bukele’s Bitcoin bill, seeking to ride the wave of rebellion and return financial independence to their citizens.
Other countries fear losing more than they would gain. The USA, UK, and many European nations will no doubt do their best to de-legitimize El Salvador’s decision, while rushing to digitize their own currencies. Rather than decentralize wealth and give individuals control over their money, the Central Bank Digital Currencies (CBDCs) of tomorrow will further concentrate power in the hands of the few, and introduce economic experiments that will allow more free debt to be created to dilute pensions and savings.
Politics will not stand in the way of bitcoin
Even for those vehemently opposed to Bitcoin, El Salvador raises questions that lead us to a better understanding of the global economy. Political structures have always been dependent on governance by force, through police, courts and soldiers operating within a nation’s borders. A decentralized global network upends this concept, as individuals can participate in global markets without needing approval from anyone.
“You have no moral right to rule us nor do you possess any methods of enforcement we have true reason to fear.” — A Declaration of the Independence of Cyberspace, 1996
Stifling innovation in one country means opportunities for another. The exodus of miners from China has redistributed hash power around the world. Likewise, the impossible-to-comply-with stipulations of the infrastructure bill will see bitcoin businesses emigrate from the USA. Cyberspace knows no borders, and those who see Bitcoin as a way to improve society will not tolerate speculative, selfish politics which evidence no understanding of the technology itself.
“We are creating a world that all may enter without privilege or prejudice accorded by race, economic power, military force, or station of birth.” — Ibid.
No country needs to make Bitcoin legal tender. Bitcoin is here for you to use, wherever you are and whatever your government happen to think about it. Today’s news is not about El Salvador, it is about citizens of one country being able to use their money however they wish and preserve the value of their work long enough to live with dignity.
“We will spread ourselves across the Planet so that no one can arrest our thoughts.” — Ibid.
From today, you can go out and spread the word that Bitcoin is legal tender for an entire nation. Whether or not it achieves all that the government hopes, it remains the same permissionless money that anyone can use. El Salvador’s new law simply means one less nation suppressing Bitcoin. It doesn’t change how Bitcoin works and probably won’t change the mind of a skeptic, but soon enough it won’t matter: Bitcoin is here to stay, even if only small countries use it.
