El Salvador to airdrop $30 in Bitcoin to up to 6M citizens | Hacker News Reader

El Salvador to airdrop $30 in Bitcoin to up to 6M citizens

finance.yahoo.com

62 pointslowkey111 comments

It seems like many here don't get what I think they're doing: government buys 180 million USD worth of Bitcoin, stores it in their wallet, and creates an SQL database (well, with a bank as a wrapper) with 6 million entries with $30 (or whatever that is in BTC) each.

The transactions can just be recorded in this SQL database, and the "reserve" would be untouched. If someone wants to exchange their BTC to USD or Euro, they can go to a money changer, their SQL database entry will be decreased, the money changer's SQL database entry will be incremented, and the total BTC in the reserve remains.

Hmm, I think I just described the so-called Lightning Network, which means in the end you have to trust a central authority after all. (EDIT: After reading about LN, it seems this isn't how the Lightning Network works).

They might as well make something like "El-Salvador-Coin" without needing dumb blockchain stuff.

But what if someone wants to pay in BTC?

Interesting. So what they are actually building, is a Bitcoin reserve for a central digital currency, replacing USD, SDR, or gold reserves. The trick here is that it is a one-way accumulator. Bitcoin comes into the reserve but never leaves. The initial money may come from existing USD reserves, or it may be undercapitalized fiat Bitcoin.

Every currency has a value theory. USD has military hegemony and financial market centralization. China has exports and foreign land holdings. CHF is backed by gold. The Euro is trying to become a regional 3rd world reserve through remittances. Labor-based currency has been tried, but, you probably don’t want to know about it.

TBH it's just my speculation, if I wanted to attach my implementation to the hype-train of crypto, that's how I would do it.

It would be interesting if this is indeed the case. With the government not giving salvadorians custodial wallets. That also explains the idea lower down this thread [1]. That stated this might be done so the government can print their own money.

With the SQL database, that would be quite easy. With actual bitcoin wallets (or the lightning network) essentially not doable.

[1] https://news.ycombinator.com/item?id=27628739

p.s. for people wondering what LN is, it is essentially:

Pairs of people agree to split some locked up bitcoin a certain way.

If they want to exchange bitcoin, they agree on a different split.

If someone tries to cheat, Hashed Time-locked contracts (the crypt magic that makes this work) means you get to take all of the locked up bitcoin".

As you pointed out, this isn't how Lightning Network works. The fact this is being upvoted is useful information about the state of this site and people's knee-jerk reaction to anything cryptocurrency related (coming from someone who has been here a while)

Can you explain to me how something that is very unsatble in value can be useful as a currency?

Assuming all other aspects are solved.

The current volatility will decrease as adoption and everyday use increases.

The primary value of cryptocurrency is there not being a central authority to inflate away its value (through bailouts or economic 'stimulus').

Smart contracts offer the same fundamental value: you know what you are getting into and no one authority can change the terms on you.

The current bitcoin transaction fee is about $7, so nobody is going to be using this for everyday transactions, making $30 not much of an incentive. It sounds like there will be the option of choosing to accept cash instead, so it will be interesting to see how many prefer $30 of real, spendable cash over $23 of virtual, difficult to spend tokens.

Edit: Perhaps I was a bit glib as using the lightning network will probably solve the transaction fee issue. This could become an partially isolated transactional network, with less common transactions into or out of the network, like some SMS-based transactional networks in other parts of the world. In those cases uptake was quick as it was so easy to use (you only needed an SMS enabled phone). I am truly curious about how this turns out.

As has been said before on almost every thread about this, lightning network alleviates the issue of high transaction costs for small transactions.

https://www.coindesk.com/strike-launches-bitcoin-lightning-p...

How secure is it compared to real transactions?

As far as I know you have to be on the internet at least once in 30 days, so it's good only for hot wallets. Also for payments over $1k probably right now Bitcoin transaction is more practical (I have heard of $100k lightning transactions though).

There are risks, you need to remain online to catch your counter-party cheating. There are ways to outsource this to so-called watchtowers. This can generally be done privately, and the watchtowers generally get to take at least some of the cheater's money.

I haven't heard of any successful malicious channel theft. I have read quite a few stories of people losing local data making it much harder to recover the money in the channel.

Lightning network helps repeated small transactions between the same pair.

However, the first transaction between a specific pair (channel opening) still needs to occur on-chain. That transaction still pays a full fee.

You can route through your pair. Say A has a channel with B, B has a channel with C and C has a channel with D, you can make payment between A and D provided that B and C are online. In a way that nobody can steal money from one another, and neither B not D know who is paying who. In practice, B and C would probably be like banks or exchanges, with many channels, while normal users only need one channel open.

So you need something centralized for it to actually work.

No, why? It's all P2P.

True, and in fact lightning payments tend to take many hops if routed publically.

But every citizen would still need atleast one lightning channel. And opening those is expensive.

The lightning channel would go through a custodial wallet. Yes, people could self host their own wallets, but fees would be higher because they'd have to open a lightning channel.

But over the lightning network it will be close to free

They'd still have to open 6M channels which would create the same number of transactions on the Bitcoin Blockchain

This doesn't seem factually accurate. Please support this claim with more information and preferably a citation. This isn't how LN works to my knowledge.

What I said is factually accurate. It's mentioned on the homepage of the lightning network website in the "How it Works" section. Why would you challenge my statement when you haven't even read the basic information?

https://lightning.network/

Because you left out some information. These channels only have to be opened once, and at current prices this is around 40 cents. It costs a lot more to both open a bank account and send money from a -> b.

If you need to open up 6 million channels it will create approximately a month worth of transactions at the current rate and will significantly push up the transaction fee.

It will definitely use lightning, and 99% chance it will be a custodial version no different in actual execution to venmo or paypal, as this is exactly what the present solution du jour there has been (strike in custodial mode) specifically to address the underlying fact that without such a config, lightning doesn't really work. (routability of payments scaling based on size sucks, inbound transfers suck, you need to run your own full node which most regular end users are flatly not going to do)

In terms of that obviously negating any of the original promises of cryptocurrency in terms of censorship resistance, financial sovereignty, be your own bank, audit the state of the ledger upon which everybody is actively transacting, etc, yes, of course, that's the entire point of the hijack and sabotage of BTC.

While tx fees are pretty volatile, I see about 3$ (65 sats/vB) to get into the next block (even looking back to when you wrote this) and <1$ if you’re ok with waiting an hour or so.

I don't understand how you arrive at this seven dollar figure. Right now a median fee is 3-4 satoshi's per byte resulting in a typical transaction cost of about $0.64 usd. Here is a site that shows the live fee spread: https://jochen-hoenicke.de/queue/#BTC%20(default%20mempool),...

A small developing country with little industry, high inequality and some of the worst murder rates in world decides to spend their very limited money and attention on populist nonsense like this.

I guess the gangs will appreciate it?

About 1/4 of the citizen's wealth comes from US dollar transfers from abroad (ie., from immigrant families). (Their currency is the US dollar.)

Presently very high transaction fees and poor banking-system support eats up a significant amount of this wealth.

Can you see why this isn't "populist none-sense" ?

Transaction fees is one thing, but going to the city by bus to pick up the money is extra cost and hours of time. I sometimes wish people from US would travel to these places to understand the life other people were born into.

I have traveled extensively in developing countries (years) and see this cryptocurrency initiative serving a real need with remittances and electronic payments.

How then does it compare to M-Pesa?

I'm not overly familiar with M-Pesa. That said, a primary distinction is centralized vs decentralized. I prefer to have full control and trust in my currency. Crypto is volatile, but there also isn't a central bank to inflate away its value. From my perspective that is the totality of the value from distributed / decentralized consensus in currencies

So you're saying you "see this cryptocurrency initiative serving a real need with remittances and electronic payments" and also you're not "overly familiar" with the market leader in remittances and electronic payments?

The leader you reference is not dominant in all or even most developing countries. You likely have never even had a need to use an app like this. I can only conclude your comments are in bad faith.

If you’re distributing $180m in Bitcoin to 6 million wallets, do you pay transaction fees (currently about $6) once, or 6 million times?

Somewhere in between. You pay per byte.

if you send them all as a single transaction i.e one transaction with 6 million outputs, you would pay 1 transaction fee. However I dont think that is what is happening here. All the transactions are likely to made on the lightning network, which is a layer on top of bitcoin, designed to facilitate smaller transactions with lower fees.

> All the transactions are likely to made on the lightning network

How?

Transaction fees are per byte of data so you would be paying a huge fee.

Is there anything that prevents one million of these recipients from all being the same corrupt official?

This is a really good move. It will "force" people to setup wallets, study how it works, etc.

It is, if you want to receive business for money laundering and want to obfuscate it by using civilians.

I don't see another reason to go down this path...

Like the OP said, it will force their citizen to understand how it works. One can speculate that the average Salvadorian will understand more about Bitcoin than the average HN reader.

I think el-salvador is going down this path because their current path doesn't work. So instead, they are trying another monetary theory.

Short term profits might come, not from money laundering, but from bitcoin whales that are true believers and decide to come live there. Some of those whales might have gotten their bitcoin illegally, and are happy to avoid a fiat off-ramp. I suppose that might be money-laundering in some sense.

The core problem about this is that they don't have money.

My statement about money laundering is their attempt to fix it partially. But Bitcoin by itselve won't fix their core issue.

Another one is is connectivity ( to make faster payments and not take the bus), bitcoin won't fix that either.

They are pushing internet access to help Bitcoin, but it creates a false dogma. Since Bitcoin was not the answer, it was internet access for all to make faster payments.

PS. Africa has payments by text, this could have worked there too without Bitcoin: https://onereach.ai/what-the-u-s-can-learn-from-mobile-payme...

I don't think blockchains are particularly well suited for solving El Salvador's actual problems, like gang violence.

There's a not entirely implausible theory that says Bukele is going for Bitcoin specifically because El Salvador uses the US dollar and is thus prevented from taking the typical path of printing more its own currency to "solve" problems. With Tether and various dodgy custom apps in the mix, they can now print money.

https://foreignpolicy.com/2021/06/15/el-salvador-bitcoin-off...

Printing money in bitcoin requires some really weird stuff to happen. Essentially, either you need to scam others with Tether, or you need your apps to literally lie to their users.

Bitcoin was made to be deflationary. That means it was made not to allow anyone to print money. It would have made more sense for them to pick ethereum if they wanted the ability to print money.

Really, the only thing I can imagine is using colored coins in bitcoin, or switching to some other currency later.

If you look through the technical details this proposal, it 100% allows for money printing.

El Salvador isn't actually giving people Bitcoin. It's giving people records in an SQL database that supposedly correspond to Bitcoin in a government wallet.

The government can just edit that SQL database to print money.

And become insolvent in a bank run?

> Short term profits might come (...) from bitcoin whales

I don't understand. How are you supposed to make money from wealth hoarders? The trickle-down fairy?

If you convince them to move to the country / spend more time there, then they will spend more of their money in your economy.

You just explained the trickle down fairy he mentioned :)

Trickle down works for immigration. Immigration is not even close to zero sum. For wealth re-distribution within a country it starts of zero sum. And indeed, putting all the wealth concentrated does not help the poor.

Making the wealthy wealthier without taking from the poor will help the poor some. Moreover, it will help the government a lot more.

> Trickle down works for immigration.

Proof/evidence for that statement?

The fact that immigration is not wealth re-distribution (zero sum in the short term) but wealth influx.

As far as I can tell they are using some lightning network app so it's cheap but likely doesn't really teach you to setup more than an app.

Before you post a comment about Bitcoin fees, please take a little time and try out lightning. It's come an incredibly long way, it's very fast, and very cheap, and very easy using a mobile wallet.

What happens if you lose your mobile wallet?

You can restore from a backup surely? Unlike losing a physical wallet, which in most cases, means losing the cash it holds at least, but possibly getting things like your ID returned. If you lose your mobile, you will likely never have it returned, but any funds or accounts you have on it can be reinstalled on a new mobile.

Go tell 6M citiziens to back up their mobile wallet - how exactly is the key here.

The key is just a bunch of words which one need to write down with pen and paper and store in a safe place nobody can access. One can imagine better schemes of course, to hide or share the secrets.

Is it actually bitcoin being airdropped or tether?

Another rejected thread. Presumably because of malicious flagging rather than done by the mods.

I shudder to think of the transaction fees for sending money to 6M wallets.

Will be on lightning network. Essentially free

Yikes, that's not going to be smooth.

You've never used the lightning network have you?

You clearly haven't

What's the problem with this? I thought lightning was invented to solve these kinds of problems?

Source?

Opening 6M channels on lightning is not free. Not at all.

done on lightning network, so very little indeed.

Wait, lightning network is really cheap for moving money on existing channels, but channel openings still need to happen on-chain right? That would still mean one transaction per citizen to open their lightning channel. Or, at least, one output.

I wonder what kind of fraud/security controls they are using.

This is what I was wondering. If such a thing existed as an El Salvador based VPN, would using that to download the wallet be enough to secure you your 30USD worth of Bitcoin?

And what about people within El Salvador downloading it to multiple devices from different IP addresses?

I'm sure this has been considered and there's more to it than just...

1: download wallet 2: Profit!

...as all the press reports I've seen seem to be suggesting.

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