Hello stranger, how’s it going?
It may sound weird, but what were you doing two years ago, somewhere around September? I bet it was something important, grandiose, ambitious and possibly even life-changing. Well, you weren’t the only egg that made some bold moves in that timeline.
We had something HUGE happen to our dear Bitcoin in that time too. In case you’re blanking, let me help you…Two years ago El Salvador became the first country to make bitcoin legal tender!
Legal tender is currency in specific denominations that a creditor must accept in redemption of a debt. In simple-speak, legal tender is something that you can use to pay for stuff to folks that provide goods and services. It sounds nice on paper, but the road to full scale Bitcoin adoption in El Salvador is not that straightforward.
That’s why today we’re going to look into the adaptation period of the darling cryptocurrency inside this tiny and prideful country in Central America!
Dios, Unión, Libertad… Bitcoin!?
Don’t you wonder why Salvador became the first country to go ‘all in’ on Bitcoin?
Why didn’t this happen in, let’s say, Honduras or Guatemala? Well, if we’re going to be basic about it, we have to pinpoint a certain individual as a catalyst. Talking about Nayib Bukele, politician and businessman, the 43rd president of El Salvador.
Bukele is a former public-relations executive with 4 million followers on X. Sometimes he referred to himself as the country’s CEO! From my observations, Nayib is a man that likes to plan and act big, an approach that many entrepreneurs could relate to.
So, one day he woke up and decided that he’ll turn the impoverished area around Conchagua into a futuristic metropolis like Dubai and call it Bitcoin City. In the president’s vision, the city would be shaped like the Bitcoin logo, and it would be so big that you would be able to see it from space.
Additionally there would be a geothermal plant that would use renewable energy from the country’s volcanoes! It sounds too gimmicky to be true, but hey, it’s not impossible.
Nayib Bukele is certainly a visionary, an unapologetic figure that will not waiver under the pressure of the public opinion and will continue to ‘lead the process’ even in bearish conditions. It takes someone like that to be the ‘trailblazer’, to pave the road for those sitting on the fence.
I can’t knock the man’s hustle and confidence.
And even though he seems to be overly optimistic with his plans, Bukele still possesses the qualities of a realist. He knew that in order to warm local people to Bitcoin he had to incentivize them. And so he did, airdropping $30 in Bitcoin to each citizen, which is nearly 1 percent of average annual per capita income!
He offered large discounts on gasoline paid for in bitcoin, plunked down Bitcoin ATMs in every town plaza and invested heavily into BTC to back his words with actions. But as we all saw, the timing wasn’t quite right for people to make the jump.
Half the nation’s households downloaded the app when the bitcoin law went into effect to get some ‘free money’, and given that there were little to no safeguards, malicious parties took the advantage. Some users submitted photos of pot plants as proof of their identity, and as many as 20% of the app’s 4 million sign ups were fake. I believe that was the critical point of this uneasy onboarding process…
From the relevant demographics, only the banked and educated young males caught on to the changes and made the most of them, a picture we can see in different countries with contrasting cultures.
So it’s not a ‘failed experiment’ like many would make you believe, but rather a ‘work in progress’.
No Pain – No Gain
I think that El Salvador still remains a ‘prime candidate’ for crypto adoption.
More than half of its citizens rely on cash, with the vast majority of households having no bank accounts. Digital fee-free payments have the potential to make the economy more accessible, as people only need a phone with internet access.
So what are the obstacles that make Bitcoin unattractive for the people of El Salvador?
Among people who did not cash in their $30, the majority simply said that they would prefer cash. Others added that they did not trust the system, did not own a phone with internet connection, or said that the technology was too complicated for them.
All of these reasons have little to do with Bitcoin itself, but highlight all the typical issues newcomers experience when trying to enter the space.
There’s another reason why locals may have some disdain for Bitcoin – it made their home an attraction for overly bullish tourists. Imagine seeing a bunch of crypto bros who want to pay for 0.99 water bottle in crypto. I would roll my eyes too!
Bitcoin is still a volatile cryptocurrency and its processing time does not make a good case for the ‘salt of the Earth’ folks that harvest shellfish, herd cattle and grow mangoes in their free time.
If the tourists treated Bitcoin expenses as more than a one-time gag, then I’m sure everyone would be more receptive. It takes real commitment to give Bitcoin momentum as legal tender, and it will take years before we will see the ‘revolution’ in full swing.
As They Say, Rome Wasn’t Built In a Day
It’s awfully easy to call this experiment a ‘failure’ and keep pointing fingers at those who shoot their shot.
Instead of focusing on negativity, let’s mention all the good things that Bitcoin integration brought to the table, and what benefits this ‘switch’ could bring in the near future:
Eliminating Remittance Charges
Millions of Salvadorans reside abroad, with many having relatives overseas. El Salvador received approximately $6 billion in remittances from Salvadorans living abroad, a substantial amount, equating to roughly 22% of the nation’s GDP! Bitcoin has the potential to significantly slash the expenses linked to sending money back to El Salvador from abroad. People can already enjoy the benefits, combining STRIKE and Chivo apps. Many people admit that it has been a game charger for sending money.
Decreasing Dollar’s Influence
The official currency of El Salvador has long been the United States dollar, so incorporating Bitcoin as legal tender will play a pivotal role in reducing the influence of the United States.
Numerous countries rely on USD as their primary currency, effectively relinquishing control over their own monetary systems and being subject to any decisions made by the US central bank. During COVID-19, the United States resorted to printing a substantial amount of new currency for economic stimulus. While US citizens got stimulus checks, countries employing the US dollar did not partake in these advantages but bore the brunt of inflation.
Additionally, with the recognition of Bitcoin as legal tender, it no longer falls under the purview of capital gains taxation. As the value of Bitcoin appreciates, this shift provides an additional financial advantage for Bitcoin holders in El Salvador.
Liberating Wallet Choices
El Salvador’s government has created its own custodial wallet service that citizens are encouraged to use, but it has refrained from imposing limitations on the types of wallet services that individuals can employ. This policy grants users autonomy and control over their assets, so assets stored in non-custodial wa
llets, hardware wallets, or offshore accounts remain shielded from government confiscation or surveillance, unlike conventional bank accounts.
Today El Salvador prepares to explore a different direction, one that involves more education for the young ones, which I see as a sensible decision that will benefit the long-term development of the nation.
Salvador’s balls-to-the-walls venture should be a model to learn from, and a foundation to build upon. You can’t be a trailblazer without causing some chaos! Remember that iconic scene from ‘Back to the Future’ where Marty loses his mind playing a rad guitar solo, much to the bewilderment of people in attendance?
“Guess you guys aren’t ready for that yet… but your kids are gonna love it!”