El Salvador to adopt Bitcoin as legal tender
cnbc.com
cnbc.com
Wow, this seems like an incredibly shitty situation for the people of El Salvador. It looks like some lobbyists got hired by a wallet company stacked with angel investors willing to pour money into the idea of being integrated into the government at such a low level. I wouldn't be surprised if they also announced that all transactions will be forced to go through a wrapper or other type of layer, maybe even justified with the classic "think of the coal" argument...
Strike is a payment app that uses Bitcoin Lightning network internally to settle payments between financial institutions. It's useful for sending fiat currency denominated remittances instantly and without fees. https://strike.me
When they released Strike in El Salvador, it was an instant success. The president himself contacted Jack.
1: https://www.forbes.com/sites/tatianakoffman/2020/07/14/this-...
https://bitinfocharts.com/comparison/bitcoin-transactionfees...
If they want to actually send money to someone using bitcoin, they will have to get their balance on to the main chain, which means that they will have to take it off this wallet and then incur the transaction fees for getting to the bitcoin chain.
Then they will have to take the hit of the transaction fees again to get their actual bitcoin balance somewhere else. This is what happens when you use a purposely crippled cryptocurrency like bitcoin.
They could use litecoin, monero or bitcoin cash directly and not have any 'wallet app' that keeps their balance. Then they would be in control of their own money.
Strike payment recipients can withdraw their USD balance as BTC to any Lightning-enabled wallet (or any other wallet, for that matter) [1]:
How to purchase bitcoin with Strike
1. Open a Lightning wallet or Bitcoin wallet of your choice. (If
you do not already have one, see our recommendations below)
2. Generate a receive address or invoice for the amount of btc you
wish to purchase.
3. Scan with Strike and hit send. Done! You have just converted USD
from Strike to btc in your wallet.
Why would that be what El Salvador is using? That is such a weird notion, and one of the reasons Bitcoin is often incorrectly called unscalable.
How many financial transactions do you think an average person does per day? I don't know but probably not much more than one, maybe even less.
If you handle special B2B cases like high frequency trading separately, financial transactions ceases to be big data.
I mean, sure, not everyone is out getting a coffee every morning, but that strikes me as roughly an order of magnitude below reality.
Let’s say, shopping three times a week, with 5 transactions per shopping trip; that’s already an average of 2 transactions a day, but worse, since it’s clustered in small time intervals.
How do possibly get 0-1 transactions per day per person?
That’s.. a society where people don’t use money. It’s not a thing.
Now I won't claim my consumption pattern is typical, but it certainly shows that 0-1 transaction per day is possible. (What are the five shops you visit three times a week?)
If I was still commuting, I’d add at least 5 a week for lunches, might add another 5 a week for train station Brötchen and cookie. If the restaurants were back to normal, might add two more per week for evening meals.
I think I prefer my new normal of the bulk shopping being a once a week collection, so that probably won’t go back to my old habit of whatever/wherever, but even then the local doesn’t have everything I want, so there will be a few additional transactions with grocery stores.
(My commute costs will likely be a once-per-year expense, so a rounding error for transactions per week).
Ah, chemist, supermarket, coffee shop, butcher maybe bakery? Heck, I might run out of sugar and have to go shopping again! Is it really that weird?
I’d particularly like to point out that all-in-one shops are globally atypical, and specifically atypical in smaller communities.
I seriously think you should consider your buying patterns as not representative of... most people, in most places, and specifically not el salvador.
I agree, because I used bitcoin in 2015 and it actually worked well instead of being crippled to a few transactions per second for the whole network.
How are they getting their balance on to the bitcoin chain? How much does that cost? Once they are in control of their money and actually have it on the real chain and not some wallet app maker's sub-chain they still have to eat more giant transaction fees.
This approach will only work for people using this app, which defeats the whole purpose.
They seem to use their own lightning nodes - that they don't allow third parties onto - to move money between their own accounts, rather than amending the centralized database of who owns how many dollars directly. However, it's all closed and internal, and I simply do not get why they would do this.
The base idea is that it uses the BTC network as a dispute settlement fallback. "It works but is expensive, let's just exchange through the lightning network".
You can see Lightning as being a network that exchanges "BTC IOU". If the network decides for some reasons to be hostile to you and refuses to broadcast the transactions where you receive money, you still have a signed token that proves you have the BTC IOU and that are acceptable by the BTC network (for the cost of a fee)
I've listened to an hour long Maller podcast and I simply don't get it.
The function of lightning and the Bitcoin base layer is settlement and clearing, those 2 things are non-trivial.
Then there is also the legal aspect, which cannot be detached from those.
For a centralized entity settlement and clearing aren’t hard. You have a money pile and a debt facility in both countries, then you wire money to net settle once in a while.
All of this also completely ignores the LN routing problem which is conveniently left out of the LN whitepaper as it is actually unsolvable at large scale unless you have very few supernodes coordinating everything. In the real world those are commonly known as "banks".
https://bitinfocharts.com/comparison/bitcoin-transactionfees...
As I mentioned, if people are using wallets or exchanges that set the fee higher, that's their fault. They are stupidly overpaying and that's why average is high.
Since mempool is currently empty, the blocks include transactions with 1 sat/vB. For average transaction with 140vB that would be 140 sats, which is currently ~0.05 USD.
You don't do "a few of these" every day. It's for moving significant amounts of money, where security starts to matter.
Lightning network is for small transactions. You don't need your daily purchase of a coffee to be on the Bitcoin blockchain for the rest of history.
> Whereas you could use cash and pay no fees.
Somebody still has to spend time and money managing all that cash, particularly in less safe countries.
That's why I said a few transactions every day on average, as in 2 or 3, which seems a conservative estimate.
> Somebody still has to spend time and money managing all that cash.
I don't know how you manage your cash, I manage it myself, and I certainly don't know anyone who pays $20 a month to have their cash "managed". Especially in a third-world country, it seems unimaginable.
Lightning network has virtually no fees. You were replying to someone who managed to get a "real" Bitcoin blockchain transaction through for less than a dollar.
> I certainly don't know anyone who pays $20 a month to have their cash "managed"
I was thinking of the people managing cash registers.
[1] https://www.opennode.com/blog/wp-content/uploads/2020/03/Ope...
So, why do they charge so little? Running Lightning could be done for other reasons than just collecting fees, similar to why you might run a full Bitcoin node, even though it only costs you money: You are invested in the network as a whole.
It's also worth noting that Lightning is not actually that well-adopted yet, it's more of a solution "in principle". Just because some place accepts Bitcoin doesn't mean you can use Lightning. In that case, you can usually just use Dash, Bitcoin Cash or Litecoin, which all have very low fees. Hence, the pressure to actually adopt Lightning isn't that high - yet.
Transactions on the lightning network aren't scarce like space on a new block, so there's no reason for increased demand to substantially increase prices.
> Apparently in order to open a "channel" the user needs to pay one BTC confirmation fee and another one to close it, but bitcoin enthusiasts somehow never mention this detail.
That isn't true. You can open channels larger or smaller than 1BTC and the Bitcoin aren't really "paid", but rather "staked".
> Beneficiaries of the digital currency had to learn how to use the Bitcoin itself, creating a Bitcoin economy.
If you give a relatively poor town the option to take free money as long as they learn how to use Bitcoin, of course they're going to learn how to use Bitcoin.
The real test is whether Bitcoin makes sense in an otherwise functioning economy where people aren't given free Bitcoin and they have the option to use a credit card that comes with a lot of consumer protections and zero (or even negative) fees.
There's nothing stopping them from putting various consumer protections and rewards programs on top of that, and plenty of motive to do so.
It's definitely a wait-and-see sort of thing, but I don't see as to how betting against it is the obvious move.
They're a custodial wallet for your fiat currency, right? You deposit fiat with them. You withdraw fiat from them. You move it between accounts on their service. They, or a designed entity must hold that fiat on deposit on behalf of users.
When you 'send' that money (according to Jack Maller), they buy BTC for you, send it over the LN network, then convert it into a stablecoins. Which ends up, notionally, in one of the Strike custodial accounts.
So this Rube Goldberg machine of crypto is used for internal account transfers within Strike? Am I missing something? They're a centralized, trusted custodian (and a registered money services business). Why are they sending money from a Strike-owned account to another Strike-owned account this way? Could they not simply record a debit on one account and a credit on another account in any kind of traditional store? One they clearly already have?
Why wouldn't they have one account for each country, a small slush fund and/or debt facility to cover near-term transfers, then just record how much of the pot is attributed to each user account - and if money has to move across borders, send a wire from time to time.
Is this really just the most complicated intra-company account transfer of all time?
Or are they just doing it to avoid regulation?
Further, Wise offers their multi-currency account, including in El Salvador (https://wise.com/us/multi-currency-account/) and allows you to store any of 56 currencies without conversion and offers banking details in 9 jurisdictions. It's kind of perfect for remittances because you can have your US parties ACH to your US routing and account number, and it appears in the multi-currency account, free, and very fast. Or $7.50 to receive a wire, instantly.
[edit] I'm not knocking crypto here, I'm trying to understand what they've built and why. I don't know why they're using crypto here at all. I'm seriously confused about their technical payments architecture. They seem to only use LN to move money, and between two of their own custodial accounts at that.
For what it's worth I've listened to over an hour of podcasts with Jack Mallers.
If you pay someone in the same country with the same currency, then it works probably like Paypal. You can't do that between countries, because the actual dollars have to be in the local bank.
Strike claims no fees are charged.
ACH is roughly free - it costs about $0.0033 to the depository institution in bulk (citation available on request) - which makes sense as Strike also allows you to deposit via ACH in the US.
Their fees are likely dominated by risk, compliance and regulatory.
Obviously Strike's service isn't costless to operate so they're subsidizing their operations via investment.
The creator of Strike is a true believer. You can model this in religious terms if that helps.
He believes, intellectually and emotionally, that Bitcoin is better than fiat. That it's sound money, uncensorable, uninflatable, distributed, and that adopting it will make the world a better place.
From that perspective, the collapse of the fiat system is an inevitability. Something like Strike is an onramp; realizing the BTC as fiat on both sides is just a transitional technology, until the market cap of Bitcoin is sufficient to smooth out volatility and allow it to function as a unit of account.
It continues to baffle me that such a substantial fraction of HN users show less understanding of Bitcoin than my average nontechnical friend. I don't mean agreeing with it, to be clear; I'm of at least two minds on the subject myself.
But it doesn't seem to be going away, and at some point understanding how the cult thinks is going to come in handy. I'm not a Mormon but I do know enough about their history and theology to carry on a conversation.
Why don't they have this option today? These people are unbanked and it's good that someone is offering a service. It's pretty customary to have an upfront incentive to acquire the customer. I got a $10 Uber credit when I signed up and even a few hundred dollar bonus when I opened my brokerage account. But I guess I'm not from a "relatively poor town" so its not manipulation.
Someone listed a card for 3.6 ETH two years ago [0]. In USD: $324 at $90 per ETH. Of course today the price of ETH has risen but the value of the card did not. It's not worth $10k. It's still worth $324 assuming the initial price was correct to begin with. The real price therefore is 0.12 ETH and those 0.12 ETH would be the salary of the creator of the NFT if you were a "freelancer" i.e. your income denominated in ETH goes down over time. Your best bet isn't to keep making NFTs. It's to make them as early as possible, get as many ETH as possible and then just sit on them and never do anything again.
[0] https://opensea.io/assets/0x67cbbb366a51fff9ad869d027e496ba4...
HODL anyone?
As for cash,there's no cut taken by any middle man.
And when the central government or bank is involved in pushing a legal currency -- there shouldn't be any cut.
Is it worse to peg your economy to a decentralized cryptocurrency, or a fiat currency controlled by a large powerful near-neighbor who only occasionally even remembers you exist? (and sure as hell will not modify their fiscal policy with the needs of your economy).
Having a backup official decentralized currency doesn't seem ridiculous to me. Maybe I'd use Eth or something that can scale better, but the point is the same.
A currency needs stability. Speculation needs volatility.
Speculation only works when there's a stable currency to dump your value into when the the security your trading is going in the wrong direction.
The word “currency” is inherently a tautology. How does something become a currency?
> Speculation only works when there's a stable currency to dump your value into when the the security is going in the wrong direction.
Precious metals long predate government monies. Gold and silver couldn’t have become currency under the definition you’ve presented here.
gold and silver were bad currencies back then, when people had no real alternative. People clipped coins, and debase the currency. People horded them when times were tough, and prevented lending and circulation, causing issues with the economy regarding liquidity.
Have a read of https://en.wikipedia.org/wiki/John_Law_(economist)#Economic_... and educate yourself about the past.
Hence the rise of algorithmic stable coins.Because you quickly resorted to ad hominem attacks even though you failed to provide any alternative or even a single counter example.
It does not seem you're able to point out anything at all.
Is that because you are aware that there is actually no good argument to refute OP's point? And thus you resorted to name-calling?
No. Your argument is "Yeah, we know it's terrible... so you can't hold it against us." Nevermind the fact that coinbase started to support Tether.
I think what's most interesting to me (and should be to you as a pro-crypto advocate) is that underlying backing in tether appears to be highly volatile, yet it's not represented in the price. Also what should be shocking is hodlers don't care about this either.
Nobody cared about Bernie Madoff as long as their accounts and the market kept going up. As soon as people tried to take their money out, however....
I wouldn't call me a pro-crypto advocate, just as I wouldn't call you an anti-crypto advocate. I like to keep track of what's happening in the crypto space but I'm not advocating pro or against it.
My opinion on Tether is that there should be a lot more transparency regarding their backed funds and personally I wouldn't touch it with a ten foot pole.
That's highly debatable. I'll grant you, it's advertised to be.
There's a huge cost in "stabilizing" a fiat currency, in terms of debt and inflation.
Bitcoin is not guaranteed to be deflationary. It's deflationary when the economy is growing. It's inflationary when the economy is shrinking. Deflation will slow down economy, and inflation will accelerate economy. It's a stable self-correcting system, which would correct itself to match the average economic growth globally.
More importantly, the people hawking it _really_ want it to be deflationary because that effectively makes them landed gentry getting richer without any effort on their part. After a decade of that being integral to the sales pitch I would be extremely surprised to see any major holder support breaking the deflationary model.
As a global reserve currency, bitcoin would act as an "index fund of everything". Economy is expected to grow, but it's not guaranteed. Which means that there's always a non-zero risk associated to it. There's more risk on short time scales, and less risk on long time scales.
So because the number of bitcoin is fixed to remain relevant bitcoin will need to continually deflate (ie increase in value) so that there's enough to represent the size of the economy
This has been a key part of the sales pitch for a decade: buy now and it’ll be worth more later, guaranteed, but that’s not good for an economy since it heavily incentivizes holding onto anything you aren’t forced to spend. Since Bitcoin has no innate demand, that’s an especially dangerous cycle since almost everyone has alternatives.
No, it doesn't. Bitcoin can lose 50% of its value in a matter of hours, as recent experience shows, despite being in a limited supply.
Yeah it is basically people getting screwed by increased wealth inequality and then as a response they don't think of a way to build a system without losers, instead they join a system where the old dynamic makes them the winners. The only difference is that you start from a clean slate from 2008 onwards.
Which system is that?
We’d need to assess the merit of anarcho-capitalism vs collectivist democracy to understand whether disempowering governments would in fact decrease economic stability.
If one were to completely oversimplify everything the roman empire fell into the "war + debasement" bucket though but it also had a lot of other problems. They were actively fighting a war which meant they couldn't control the influx of barbarian refugees (huns drove them out) at their border. They then committed a grave mistake. They deported all barbarians and killed those who stayed. Some barbarians gathered near the border and formed a big army which then proceeded to plunder Rome. The problems didn't start with money, they got worse because of money.
So, it results in destabilizing governments that are overspending, but stabilizing those that are not.
How many times does this get repeated? No money is being printed right now. No MMT is happening. No helicopter money is happening. Barely any Keynesian fiscal stimulus is happening (the US has stimulus checks but the EU doesn't and it's suffering for it) and the fiscal stimulus that is happening is financed via debt. No money is being printed right now.
The majority of money that the Fed creates is primarily issued via debt. The part that isn't is used to buy assets that are being put on a balance sheet and the sale of the assets will often remove more money from the economy than it added. QE does nothing but fill bank reserves so that banks lend out more money.
"Financed with debt" that is never going to be paid back. You have to think who is doing the actual financing here, and why they aren't getting interest on their financing.
Citizens of Turkey, Lebanon, Nigeria, Ethiopia, Zimbabwe, Argentina, Venezuela, Iran, Belarus, for example, all have their savings being stolen through inflation to greater or lesser extents.
The Zimbabweans that lost all of their savings to hyperinflation were literally counting the days until Mugabe's government collapsed.
https://mises.org/library/hayek-paradox-saving
Hayek was later interviewed in the 70s and said he was mystified when Keynes was promoted to godhood upon his death. He claimed the debate had not yet finished.
[1] https://en.wikipedia.org/wiki/The_Denationalization_of_Money
We are not talking about deflationary money either. We are talking about stable money supply, which is what Bitcoin is.
Sure, the article never mentioned anything about deflationary currency, but you were responding to a comment that a deflationary currency would have issues that you seemed to respond in opposition to. If you don't have a stance on deflationary currency, what is your argument for or against?
On that note, I believe that bitcoin fits the definition of a deflationary currency, and having looked up 'stable' money supply haven't found a consensus on what that means. Could you explain how you define that?
Simple, because the investment would return more than the natural rate of deflation alone would.
Stable sources of growth have existed for decades but somehow most investors aren't just going all in on those. That's because investors care more about good risk-adjusted returns than lame guaranteed returns.
>Investments would have to have very high upside to be worth a stable but lower rate of deflation.
Investments with risk-adjusted nominal returns above 0% are worth it if the currency is deflationary: even if the investment only has a nominal 1%/year return and the currency deflates at 2%/year, that's a 3%/year real return. So it's still better than just holding the currency, even though the nominal return is lower than the deflation rate.
> Secondly, I'm not sure how you can be certain that investment returns, without regard for risks, could be higher than the deflation rate.
Returns on most investments aren't certain in an inflationary environment either, so I'm not sure what's your point.
This leads to your first 2 points, where people might still want to invest to get a potential higher return than the base deflation rate, investments would drop compared to an inflationary environment. In the inflationary environment investments are necessary to prevent the loss of value, whereas it isn't in a deflationary one.
There is a group that hijacked the name for their own prize, whom the Nobel committee has no contact with. They are, of course, economists, so any merit in their prize is only as much as economists' at large.
The which is, let us say, disputed.
Given the massive volatility of BTC it presents a massive opportunity for arbitrage that mostly has downsides for consumers who want stable supplies of goods.
Making it a legal currency won't even force anyone to accept it. As far as I understand, it will simply mean that the government will accept payments in BTC.
The telling thing would be what the gov't pays in (e.g., for tax returns). Do they pay you back in BTC? or fiat?
It also requires the goods and services you buy to be traded in dollars. If stores buy food, gas, etc. wholesale in dollars, for example, and sells it to you for bitcoin, there's going to be a problem.
Because you can buy beer for dollars, so if your local beer costs 50$ in BTC it makes sense to sell BTC for USD and order beer. And if your beer suddenly costs 0.001$ in BTC it makes sense to sell it off to someone in USD and refuse selling in BTC.
> It is worth the same number of bitcoins yesterday, today, and tomorrow. That's the only stability that is relevant.
This is the most idiotic argument ever, if this was true it would be irrelevant if a currency depreciates/appreciates.
So then why feel bad about trading some BTC for it? The regret would be for not buying back.
That would be nice but it goes against the "number go up" theory of "bitcoin investing".
And Usd isn't doing too well in the last 2 years.
Obviously too much of any good thing is bad, and this applies to inflation as well. But the idea that you’re supposed to hold fiat for long periods of time is absurd and I’m tired of Bitcoin maxis who don’t actually understand money or economics parroting that line.
You’re not supposed to hold fiat. You do something productive: you consume with it, you invest in productive assets, or your lend it (to someone who will do one of the two former actions).
Bitcoin doesn’t compete with fiat. It competes with every other investment asset.
I looked up hyperinflation in MMOs and honestly the hyperinflation is by design. The fundamental problem is that veterans should not prevent new players from earning money. If the supply was fixed then veterans would acquire the majority of the currency. By letting monsters and NPC vendors print money you are stealing from the rich players robin hood style. It's impossible to solve without just outright taking the money that NPCs printed from wealthy players.
I've seen other approaches that just try to limit the supply of ingame currency and tie it to some random cryptocurrency or just plain old dollars and that is such an overengineered solution that doesn't even address the robin hood problem, which isn't a bug, stealing wealth from old players is 100% intentional.
Indeed it is. The government just mandated that everyone in the country is obligated to use a startup's app, more or less. This has to be one of the most egregious examples of regulatory capture I've seen in a long time.
"Legal tender" means that people are legally obligated to accept this as payment. Maybe the law will be broad enough that the buyer can set the terms of how the Bitcoin is delivered, but given how prominently this Strike app and their founder are participating in the launch, I suspect it will mostly just drive users to this startup.
Forcing everyone to accept Bitcoin, maybe through a specific startup company's app depending on how this is rolled out, is a weird juxtaposition to the libertarian ideals of many Bitcoiners.
I have no idea what their legal definition would be, but lightning is an open standard, and Strike is but one implementation.
As I understand it, legal tender status forces creditors to accept bitcoin as debt repayment. Given the volatility of bitcoin, wouldn't this impact risk assessment of loans? Being obligated to accept a high volatility asset as a repayment sounds like a nightmare for creditors. Wouldn't interest rates rise in order to cover this added uncertainty?
And this is significant: debtors could repay their debts when bitcoins look like they will decrease in value with respect to the currency of denomination with an intent to harm the debt owner.
In the 19th century, there were dual currency systems with fluctuating exchange rates. I don't know anything about why they failed, just that they failed...
The loan can't be denominated in multiple currencies at once, as you seem to be thinking of, because that would make the loan amount undefined unless the two currencies were directly pegged to each other.
You can have a loan of 100 dollars. Or you can have a loan of .01 BitCoin. You can pay either off in dollars or BitCoin. How much a given pile of currency will pay off depends on exchange rates. But that doesn't affect the loan itself.
I somewhat sarcastically said nobody would denominate a loan in BitCoin, but not sarcastically at all, nobody would ever denominate a loan in "either this much of one currency or this much of another" because that is seriously a no-win situation for the entity loaning money. Obviously the loanee would pay it off in whatever is cheaper.
It is an existing feature.
there will likely be a small fee to them for the conversion of Bitcoin to say, USD, but I imagine it would be similar to accepting credit cards for payment? and so it would be worked into the prices.
Quite a big ask really, no?
If the cryptocurrency infrastructure and exchanges become fast enough, the exchange rate of the cryptocurrency doesn't matter. Users would buy, transfer, and the recipient would sell the cryptocurrency at the other end in however long the technology allows.
This puts cryptocurrency in a weird spot as an investment because the exchange rate doesn't matter as much.
If PayPal announced that transactions on the PayPal network would be denominated in a finite amount of PayPalCoins, everyone would roll their eyes. Call it a cryptocurrency and add some blockchain technology, though, and for some reason it's an investment that's going to the moon.
It'll probably be the smaller countries first where they don't have great currencies to begin with, so they'll always have to use a foreign one, either USD or an alternative. With USD, they are at the mercy of USG and will get pushed around by them. With Bitcoin, the network itself is kept safe with all the energy and mathematical properties, but the price is very volatile at the moment, though volatility will decrease with increasing market caps.
This will be a very interesting experiment to watch.
The next 5-10 years will be very interesting times to live through, especially after record USD printing.
(And it would indeed be a lot more suprising if that was a country that's more in countrol of its monetary policy that made a similar announcement).
So, if a consumer wants to send bitcoins to a merchant, either the consumer needs to lock up bitcoins in a payment channel which can only send bitcoins to that given merchant, or the consumer needs to lock up bitcoins in a payment channel to an intermediate gateway, and the merchant needs to lock up the amount of bitcoins it wants to receive in a payment channel between it and the gateway.
So if 1000 consumers want to send 0.001 BTC to merchant A, via a gateway, then 1 BTC needs to be locked in a payment channel between the gateway and merchant before this can happen. This means that LN needs 2 BTC to send 1 BTC when using a single gateway.
So, first of all, the gateway needs to know how many bitcoins the merchant will receive in the future, and secondly the gateway needs to borrow this amount of bitcoins in the market and lock it up in a payment channel between it and the merchant. In the end I think the capital cost of this will be too high.
I think it makes more sense to use a decentralized, credit-based system such as GNU Taler (think “decentralized BTC debit card”). Merchants are then free to choose which gateways (“exchanges” in GNU Taler speak) to trust, and a payment app can work with any Taler gateway, making the system decentralized in the same way as email.
Imo, all of those are outdated claims. For consumers, it's easy to open outbound channels (e.g. to well connected nodes). For merchants, it's becoming easier as well. Remember that it's a network, merchants can have outbound channels and "pay themselves" to get back inbound liquidity (can also be automated).
You're not limited to one "gateway" either.
If liquidity is a problem on LN right now, you're already dealing with bigger amounts that can happen on-chain.
I'm not saying it's perfect, but I find LN to be elegant as a payment system for Bitcoin.
Merchants don’t want to spend, they want to receive. Why should a merchant have to lock e.g. $100k worth of bitcoins at the beginning of the month (in a payment channel connected to a gateway) just in order to receive that amount from consumers during that month?
No other payment system in the world requires this.
In the case of a merchant that doesn't want to participate much in the network, gateways have interest in opening to him to allow consumers to pay the merchant for a fee.
If the merchant wants to receive funds via the gateway then funds need to be locked in a payment channel between the gateway and the merchant.
This is in addition to the funds locked in multiple payment channels between consumers and the gateway.
Consider a super simple LN setup, consisting of (a) one thousand consumers, each with 0.001 BTC to spend, (b) a single gateway and (c) a single merchant. The consumers are connected to the gateway, the gateway is connected to the merchant. In order for the one thousand consumers to each send 0.001 BTC to the merchant there needs to exist a payment channel between the gateway and merchant with 1 BTC in it (assigned to the gateway), and every time 0.001 BTC is sent from the consumer to the merchant, 0.001 BTC moves from a consumer to the gateway (in one payment channel) and from gateway to merchant (in a separate payment channel).
My concern here is that this is (1) expensive, and (2) inflexible. Expensive because the gateway needs to borrow 1 BTC to sit in a payment channel between it and the merchant, and inflexible because if another consumer connects to the gateway then the merchant cannot receive additional funds because it would require increasing the capacity of the channel between the gateway and merchant.
And your super simple setup is completely isolated from the rest of the economic world. It wouldn't even work with cash because every merchant would need to manage a cash reserve in every store, manage transfers of cash back and forth, and the associated risk. It would be expensive and inflexible.
I’m very interested. Where can I buy this?
If I keep the scenario where the merchant doesn't want to lock anything in the LN, then the gateway can do it, and charge a fee for transacting through it. It's the gateway's choice to open such a channel or not. The "expensive" part is compensated by the fee which is chosen by the gateway operator.
If the merchant chooses to "lock" a bit to participate in LN, it's easier to rebalance his channels once 1000 people depleted the channel, eliminating the "inflexible". Besides, after all the fees saved by not using the Bitcoin blockchain for 1000 transactions, one can open a new channel to deal with that as well.
And again, nothing is ever "locked" in the LN, at any moment anyone (e.g. the merchant) can send everything back to on-chain or even to exchanges that use LN. There is no reason to believe that on-chain is less "locked". As such, it's not expensive nor inflexible, or in any case, less than Bitcoin itself.
Of course it would be easier if there was nothing to think about, but centralized solutions all have their set of problems as well, and that's another debate. In the mean time, LN works well at its scale and push back like yours feels like a "perfect is the enemy of good" kind of situation.
Alice wants to send 1 BTC to Bob. Alice is connected — via a payment channel — to Mallory, and Mallory is connected to Bob. To do this Alice can send 1 BTC to Mallory, and then Mallory can send 1 BTC to Bob. This requires 1 BTC to be locked in both payment channels. The only thing LN guarantees is that the transfer is atomic, such that Mallory cannot refuse to forward the 1 BTC (received from Alice) to Bob.
I think lightning needs economy of scales in order to minimize the bitcoins "locked" perception, because once you can pay lots of your needs with lightning then those bitcoins are not "locked" anymore.
Though that's assuming consumers run lightning nodes too, which need to be online 24/7, and have routing connections, which is unrealistic for average users.
My guess is that average consumers will use some kind of (semi-)custodial lightning wallet
What do you base this assumption on? Once there’s a gateway between a consumer and a merchant, then sending e.g. 0.001 BTC from the consumer to the merchant happens by the consumer sending it to the gateway in one payment channel, and the gateway sending the same amount to the merchant in a separate payment channel. It’s atomic, so the funds are guaranteed to arrive, but it requires locking the amount that the merchant expects to receive in a payment channel between it and the gateway. This is how the LN protocol works.
But LN is more productive in an interconnected economy
Let me take your own example to the extreme case and let's assume every entity in the world has a channel opened to only one gateway.
e e e
\ | /
gateway
/ | \
e e e
I think a more decentralized topology, where most entities are gateways too, will have less bitcoins "locked", but I don't know by how much, 30% less?, 70%?, 95%?, I'm not sure, but I think it's probably better than last scenario.
Nevertheless, no matter how good the LN gets, its inevitable that some bitcoins will indeed get locked, when any gateway spends all of its bitcoins then everybody else connected to that gateway cannot route payments through it, and unless they intend to pay directly to the "bankrupted" gateway, those bitcoins are indeed locked.
I think no matter the scenario, LN reduces the need to transact onchain, and the better interconnected the economy is with the LN, more effective it is at doing so. So I think a better metric to follow is the #-of-onchain-bytes that were saved thanks to the LN
Another thing to point out is that we are talking about the LN that is deployed today, we haven't taken into account future improvements that might come, like multiparty channels.
I think the serious technical problems that the LN really has today, is that it's not that robust for gateways, I've heard it has DoS weaknesses, and privacy issues, and I'm not sure how solvable some of them are if the topology becomes centralized with just a few gateways
Because it is false. To receive bitcoins on the LN you need to have a node. Other parties can open a channel with you to send you money.
> lock up bitcoins in a payment channel which can only send bitcoins to that given merchant
This is again false. The consumer can pay anyone on LN. The nodes you call "gateways" are just regular nodes, some with more funding than others. You can choose to run a regular node and keep it online and use it to route payments for other, or you can use a light wallet that opens a private channel and uses channel hints to route payments through his private channel to the network.
Bitcoins "locked" in a channel are not locked at all, You can send them to whoever you can route to on LN, or get it back to a regular on-chain wallet. And nowadays a well connected node reaches every other node.
> the gateway needs to know how many bitcoins the merchant will receive
No, the gateway needs to manage cash flow like every other money-transacting entity. There just needs to be enough capacity, like you need enough cash in a cash register. You do not need to know in advance the sum. And you can replenish and empty channels with one on-chain tx, so no need to close and re-open channels.
> the gateway needs to borrow this amount of bitcoins in the market and lock it up in a payment channel between it and the merchant.
You got it wrong.
First, gateways (that are just regular nodes, some running on raspberri pis) are already online, and with funding (https://1ml.com/). Those are already denominated in btc, so price do not affects funding capability.
Second, replace "gateway" with "the LN network". A gateway has some funding and locks it up in some channel to the LN network (meaning some other nodes)
Third, those bitcoins are not really locked for anything, but let's keep using this word.
So the "gateway" can be anyone with some bitcoins he might want to spend on LN (or not).
In a video broadcast to Bitcoin 2021 President Nayib Bukele announced El Salvador’s partnership with digital wallet company, Strike, to build the country’s modern financial infrastructure using bitcoin technology.
It looks like Japan did not, in fact, declare Bitcoin to be legal tender ("a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt"). Rather, it imposed a regulatory regime on Bitcoin exchanges.
I suspect this will be the same (in practice if not in theory). You can pay people in Bitcoin, or if they don't actually want Bitcoin the president's buddy is hyping an app that will let them get USD instead when you send your satoshis...
(That would be a nightmare - in my opinion, it would at least require some kind of official exchange rate between Bitcoin and yen.)
About the only thing you can do more easily with bitcoin is buy other cryptos and send it across borders - sometimes.
I would also predict that the failure here would finally get people to stop thinking it's a currency. But I doubt it.
The loose monetary policy might cause higher than desired inflation and the Fed might lose control of it. But we said that in 2008 and it didn't happen. We might be wrong again.
They explained it fully here: https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec...
Sharing the graph without the context is misleading.
There's so much confusion and cargo-culting around money, it would serve as well to use accurate language. The money was created, but not printed.
This is significant because "printing" evokes a picture of the money being distributed to people who then spend it, which is not quite the case here.
Seriously, this is one of the Fed's primary tasks, to control inflation through monetary policy. It's sad how many people on HN fail to understand this.
https://seekingalpha.com/article/4396194-why-m1-money-supply...
From your own link we can see-
“In late February and early March of 2020, the Fed cut its policy interest rate dramatically to help ease credit conditions during the COVID-19 crisis. The resulting acceleration in the supply of M1 can be understood largely as banks accommodating an increase in people's demand for money.”
This is “real” money that banks needed access to for their customers in unprecedented amounts. The problem is that it was created out of nothing.
A bank account requires all kinds of state sanctioned proof which subjects you to authoritarian monitoring, which is by desing.
From the bill:
- Central banks are increasingly taking actions that may cause harm to the economic stability of El Salvador
- That in order to mitigate the negative impact from central banks, it becomes necessary to authorize circulation of a digital currency with a supply that cannot be controlled by any central bank and is only altered in accord with objective and calculable criteria
What are the exceptions?
Who, in their sane mind, would buy a 2$ beer in bitcoin and pay 10$ in transaction costs ? It's crazy
It's worth a watch to understand the story.
I'm not being facetious when I say I would cry to influence my RSUs to increase in value if I could.
One you’ve a debt and you didn’t specify you may be required to accept payment (though if the debt is denominated in dollars the BTC is perhaps not as clear - does it have to be enough at the time of payment, settlement, etc?).
BTC is a currency. People who treat as such - by simply accepting it or spending it - drive it's growth, and more importantly its acceptance. People who treat it as purely an investment stagnate its growth.
Feel free to read (or not) my more detailed comment on this concept here: https://news.ycombinator.com/item?id=27338320
And... do you really believe currency management decisions on the level of the US Federal Reserve or the European Central Bank are in any realistic sense democratic? I'm not being snippy, I'm really puzzled by that statement.
No one can unilaterally make changes, when they try they end up with forks like Bitcoin Cash. Just take a look at a change like taproot which almost everyone agrees is a great change, the rollout has been very conservatively done despite not being controversial at all.
The flip side of that is Bitcoin is very hard to change which frustrates many of the people who go buy altcoins, but that's a feature, not a bug.
Less double-think, more orthogonality.
[0] a.k.a. “maintain a country”
Remember, the payment processors and paypal all decided to cut off wikileaks and ban people who try to paypal money to them as punishment for exposing US war crimes.
Control of the currency is control of the populace. It's why crypto, is so wonderful, and everyone needs to accept it.
It's definitely a wait-and-see sort of thing, but I don't see as to how betting against it is the obvious move.
In 2014 I was writing a book on Bitcoin, which I never finished. In the various interviews I did with influential people at the time (Yanis Varoufakis, Rick Falkvinge, Chris Dixon, etc), when offering my view, I used to say that the tipping point would have been a country adopting Bitcoin as currency, and guessing it was going to happen by 2020.
I was wrong, but not by much. And believing so in 2014 wasn't that common.
Marshall Islands found this out too. I wrote it up yesterday: https://davidgerard.co.uk/blockchain/2021/06/04/the-marshall...
Appears Strike (Zap wallet) recognized user base consists largely of U.S. based drug dealers, so by lobbying El Salvador into doing this they'll shield U.S. drug dealers from prosecution for tax fraud.
It'd theoretically benefit other Americans doing small transactions in BTC, but really only drug dealers do such small transactions in BTC, everyone else uses it as a reserve for speculation.
Certainly if I was selling something I'd denominate it in something relative stable and then change Bitcoin asking price to match the exchange rate to that stable currency. Since the currency there is the USD... Yeah, I'd still be pricing my goods and services in USD.
#BITCOIN: 543% LUMBER: 372% CORN: 126% COPPER: 104% GASOLINE: 69% COFFEE: 56% HOME SALES: 16%
US DOLLAR: 2% if you believe the official CPI
Slow and steady inflation is a stated goal for most governments and central banks.
Every deviation from the expected deflation would be an opportunity for arbitrage. Also, the deflation isn't guaranteed, so it carries a risk, which disincentivizes hoarding.
People will always spend for things they need, they'll also spend it for things they want, but the current fiat system is forcing to spend it just for the sake of spending it forcing over/pointless consumerism on everyone.
It appears some here believe in the labor theory of value. For me, if I cant do better than the machine, then I am not adding value and need to do something else.
This is why wage stagnation or when wages do not keep pace with inflation it's bad.
… then your boss says sales are down and your salary is being cut. “Don’t worry, your purchasing power hasn’t changed!”
… then you need to go to each creditor and try to renegotiate your balance so you’re not overpaying at the current value rather than what it was when you bought your house or car.
… meanwhile the economy slowly grinds to a halt as people and businesses hesitate to get loans for the same reason. That’s when the layoffs start ramping up, which does not improve the state of the economy.
This used to happen periodically and it was ruinous — it’s why systems like the Federal Reserve were created and almost all serious economists target consistent low inflation levels since that has the opposite effect of incentivizing economic activity.
If you can get out of debt, you may see the benefit of bitcoin as a store of value. If you are in debt slavery, you of course want easy money to make your debts easier to pay.
In fact we see this in a small scale in the tech sector all the time: products get more powerful or cheaper or both, meaning people who might want to upgrade often agonize over waiting to spend their money to a point where it will obtain more per unit of value.
Or with Crypto, consider the HODL mentality. BTC would have made a lot more progress towards use as a medium of exchange if an enormous number of people weren't simply buying it on the hope of future value, or speculate by continuously selling the peak and buying the dip. There's even the cautionary tales in the crypto community against actually using any if it to cash out for purchases, such as the person who paid for a Pizza with enough bitcoin to be worth over $100,000,000 today. The message is "Never use it, always HODL" Of course there's always the anecdotal person here an HN who will chime in with, That's not true, I just bought X with it!". Which is fine, but an extreme outlier.
It will never deliver on it's goals when that, and investment speculation, are the two dominant use cases. Bitcoin is trapped in a cul-de-sac right now, and absent some unexpected event, mainstream everyday use of crypto by average people-- if that comes to pass-- will bypass BTC by as it circles around that cul-de-sac.
Because they like controlling their people, keeping them poor, and robbing the value they create.
Authoritarianism is tyranny by another name.
Yeah, the dollar. Because I can be confident that my $USD won't lose half its value in two months. That's what I need in a currency.
:-P
I suspect we're on the verge of a nasty bubble and the only tool the Fed has shown they're confident of using is printing more money.
If there's a place in the world that would currently be a good test bed for a country to make BTC legal tender, it's not El Salvador. Its population simply isn't in a position take much of a risk moving from hard currency like the USD to a volatile asset class.
I don't think you're supposed to store your wealth in cash if you want to preserve it (diversified equity holding are a popular investment too in case you find cryptocurrencies too volatile).
https://millenium-state.com/blog/2019/05/03/the-dinar-gold-t...
What’s the relevance of such central currency today? Especially a currency that’s the fiat currency of just one nation and that’s not even like Euro!
You can then use other layers for much faster and cheaper transactions while keeping the base layer as is (as lightning network on BTC and zk-rollups on ETH are doing, or even centralized layers like Paypal/Visa, etc).
They are planning to use Bitcoin Lightning Network which is environmentally friendly and offers instant and almost feeless payments.
Acceptance decides viability of currency. Nothing else really matters.
It seems to me more likely that the figures in the article amply explain the move:
> roughly 70% of people do not have bank accounts or credit cards. Remittances, or the money sent home by migrants, account for more than 20% of El Salvador's gross domestic product. Incumbent services can charge 10% or more in fees for those international transfers, which can sometimes take days to arrive and that sometimes require a physical pick-up.
I mean, living in Latin America, I'm well aware that the US has a long history of invading and overthrowing Latin American governments, I'm just not sure how Bitcoin reserves would protect against that.
There's no effort of an invasion or coup involved. It's easy for the USA to do this to pressure people they don't like and that's why so many of these countries are moving away from USD.
… whose customers either don’t intend to ever do so or have lowered their price to reflect those restrictions
Again, note that I’m not saying it’s impossible to work around the edges of the system but it will have real costs which many people aren’t interested in dealing with or will want to be aggressively compensated for.
To avoid this risk, you'd have to somehow get access to Coinbase's blacklist of dispensary addresses—maybe they'd publish it—and blacklist them yourself. Pretty quickly you'd find you couldn't accept coins from anyone who used a mixer or any offshore exchanges, because all of them would receive tainted dispensary coins sooner or later. You'd probably find that a lot of the Bitcoin you thought you already had was tainted, too, or would become tainted later as new addresses were added to the blacklist.
(Also, presumably any published address would become tainted pretty quickly; anyone could buy some tainted millibitcoins and send them to it, and people in the tainted economy would have an incentive to get as many Bitcoin owners as possible on their side of the fence. So everybody who accepts donations by publishing a Bitcoin address would get their donations tainted: camgirls, libgen, sci-hub mirrors, Electrum server operators.)
So basically this kind of attack on fungibility would destroy most of the value of Bitcoin for anyone who was participating in the attack. "Simply choose not to accept transactions from the smaller set of addresses" isn't a coherent alternative.
I suspect this is also why there’s no concerted campaign against it: Bitcoin just hasn’t been a barrier to prosecution.
This process is completely decentralized, and AFAIK you can't trace the move from BTC to renBTC.
Americans suffer if the dollar inflates because imports get more expensive and rates demanded on USD debt purchased by foreigners will go up, making the loans more expensive in America.
If the local latin currency floats freely, there is nothing stopping foreigners from buying currency ans buying up real estate.
The US exports inflation in droves.
What currency does El Salvador use now? My hint: it's not called the peso.
The cost is that it's possible for your direct counterparty to attempt to cheat: you've been trading signed bitcoin transactions all this time, and they could try to use an old one. For this reason there's a lockout period for any unilateral onchain settlement (typically 1 - 14 days), and if they attempt to cheat you have that time to penalize them (they gave you a key to do this when you agreed the balance in the lightning network was updated). This penalty can be outsourced, too.
Moments later, president Bukele was deposed in a violent military coup. The CIA denied involvement.
A good heuristic is "if someone extols the virtues of Bitcoin (instead of crypto in general), then they don't understand much about the virtues of Bitcoin or any other cryptocurrency."
Video interview with him:
Every time you hear someone saying Nano is better than bitcoin because transactions are free the same person never mentions the problem with spam in their network.
Everyone who advocates for Ethereum for being a more complex and Turing complete network never mentions that the same complexities invite bugs and vulnerabilities and the chain was actually hacked once. Or that the developer can decide to literally rewind the chain again. Or that the PoS model is a centralizing force that is trying to replicate the current financial system.
Just check the number of people mentioning bitcoin fees without ever touching on the subject of current ETH gas cost.
Everyone advocating for Monero for its better privacy never mentions the challenges of auditing the monetary policies of their chain.
Everything is a trade off but for some reason people are very good at pointing the good parts of their solutions without never disclosing what was lost to achieve that feature and at the same time they are very good to point flaws in the Bitcoin protocol and network.
I understand that countries want to get away from foreign influences on their monetary system, but decentralised currency isn't going to solve that problem. One tweet by Elon Musk can send the price of their "currency" flying high or plummet to the ground.
If crypto currency has any real value that isn't based on schemes and speculation, at least pick something less wasteful for the environment as a currency. A proof of stake currency would work just as well in a system where the government decides on the coin.
I'm sure the guys that convinced the government to use their system made a boatload of crypto cash by buying in early and riding the price as this system is unleashed upon the country.