El Salvador’s Experiment with Bitcoin as Legal Tender
nber.org
nber.org
1) free conversion from btc to usd 2) large discounts for purchases of gasoline using btc 3) no bank account or a credit card needed
This blows my mind. The reasons stated were:
'Among the one in five Salvadorans who knew about Chivo but did not download it, the top reason was a preference for using cash. Others said they did not trust the system or bitcoin, they did not own a phone with internet, or the technology was complicated.'
I was just in El Cuco, a small town in southern El Salvador. This town has no bank and no ATM but they do have one of these Bitcoin ATMs. I asked the hotel owner about it and ZERO PEOPLE HAD USED IT. We are talking about free money here. My gut is telling me it's mostly older folks who think it's too complicated to figure out.
When freshly made tortillas are less than 5 us cents, and the cost of gas is near $5/a gallon, I would have assumed everyone would run for the free $30 in btc. Color me impressed.
I mean... if I'm paying for my gas, I'd rather just put my card in the chip reader instead of getting out my phone/hardware wallet, preparing a transaction with the proper amount of Bitcoin, introducing the transaction to the gas pump, waiting for the transaction to register with the ledger and then leaving. Even if we're talking about a 20% discount here, I'd probably just stick with the debit card. Playing with a crypto wallet was fun for larping as a hacker when I was in middle school, but nowadays I don't think it's worth the trouble (much less the shitshow that is L2 chains).
People put effort into saving small amounts all the time, like cutting coupons or going to the cheaper store further down the road. But these things are understandable; using a crypto wallet in a place where most people don't have a history of smartphone use isn't really the same thing.
Which is why I added the "familiarity" qualifier. Pretty much anyone can barter with cash, and I've watched 7-year-olds buy ice cream with a Visa card. Initiating a Bitcoin transaction though? That requires some setup, even moreso if you have a 'proper' self-custody wallet that you manage yourself.
> using a crypto wallet in a place where most people don't have a history of smartphone use isn't really the same thing.
I agree, I'm afraid you may have misread my sentiment. It's not that there's no motivation to use Bitcoin, the government subsidies are a pretty clear and obvious shot at luring less-fortunate citizens into the world of crypto. My larger point is that the low adoption among their population makes perfect sense to me. Even in a country with maximum digital literacy, I doubt most people would feel motivated to use crypto either.
Not sure we understand each other with this part. I'm arguing that it's about literacy, you're saying people just aren't interested. I think we just disagree.
I think there is a deeper issue for not even trying it/getting free money -- which of course are used to acquire users here pretty aggressively.
> In theory, developing nations like El Salvador are ideal candidates for cryptocurrency adoption. More than half its citizens rely exclusively on cash, rather than credit or debit cards. Some 70 percent of households have no bank account and nearly 90 percent do not use mobile banking. A digital payment platform could be a way to make the economy more inclusive and accessible.
> Residents didn’t need a bank account or a credit card to make transactions, only a mobile phone with internet access, something two-thirds of residents had.
Maybe you could take the time to research it but let's be honest, how the blockchain works is complicated to lay people. Also the history of coin is littered with scams, maybe different coins than btc but still.
You under estimate the fear the masses have of having the rug pulled from under them, especially when some are just trying to survive
Is it really surprising that Bitcoin isn't widely adopted in El Salvador in just 1 year?
Bitcoin has been in existence for just 13 years. Even very smart, technically minded people in economically prosperous nations who heard about Bitcoin over a decade ago barely understand the full implications of cryptocurrencies yet, to say nothing of poorer and often uneducated people in a country with some corruption and untrustworthy institutions.
Nobody can perfectly predict the future, but the story might be radically different down the road.
Yeah, imagine how small the adoption would be of some other mysterious newfangled tech thing after only 13 years...
https://www.theverge.com/2015/4/27/8504033/apple-iphone-sale...
Example: https://www.theblock.co/post/156031/uprise-lost-99-of-client...
> However, the system could not prevent the firm from being liquidated out of its LUNA futures trading position and losing 26.7 billion won ($20 million) in the process. This happened during Luna's price crash. It was reportedly shorting Luna — while its price plummeted — but got caught out during sudden price pumps along the way.
> The lost funds represent about 99% of the funds that Uprise was managing on behalf of its customers. These clients are high-net-worth individuals and corporate entities, according to the report. Uprise also reportedly lost $3 million of its own funds short trading LUNA.
They were absolutely correct about LUNA, and still got wrecked. Bart (https://www.newsbtc.com/news/bitcoin-price-bart-simpson-char...) will murder you.
With electronic transaction - and especially bitcoin - the government knows what goes in and out since every transaction is traceable. And with that info, they will be able to properly tax you ! The goal of El Salvador here is to fight rampant tax evasion by providing a fully traceable payment system. Unsurprisingly, people are resisting that by using the best way they know how: untraceable cash transaction and bartering.
How hard was it for a middle aged farmer to actually download and set up the app to get $30 out of it?
And to your point, how many citizens are using cash primarily because its untraceable? When people say they prefer cash, The journo should have followed up with 'why'?
I suspect one of the larger reasons this failed is due folks above age 40 not given it a shot because of how complex it all is to use for them.
The government sponsored bitcoin wallet is easier to use than the banking apps.
For a normal Salvadoran most of the day to day transactions are micro transactions.
$0.25 loaf of read, $0.21 bus ticket, $1.00 groceries. For those amounts, handing a coin is faster than scanning a QR code.
El Salvador tracks cash transactions.
Originally, like everywhere, only large transactions were registered.
But in the mid 2010s some laws and regulations were updated then interpreted in a way that required businesses to start registering transactions in in a more detailed way.
So for some years every purchase over US$ 100 has required an ID. in practice the threshold is lower though.
For example in banking transactions even depositing a one cent coin is linked to an ID card. Previously the threshold was $500.
Utility companies do something similar too, like registering not only the account holder name, but also the ID and name of the person who pays the utility bill for any amount. So paying a $2 water bill with coins requires and ID.
A new reporting requirement was added last year, in which businesses and 'tax-contributors' are required to upload every month to the Tax Ministry a CSV containing all transactions with other tax-contributors.
So if Alice's Medical Supply Store sells $5.00 to Bob the Doctor, the Tax Ministry will expect Alice to report in an individualized way the sale to Bob, and to Bob to report the purchase to Alice. Including their IDs, amounts and invoice numbers.
It is still not required to report the ID of sales to 'final consumers', but the change is just one CSV column away from happening.
Well, that's pretty terrible.
It's a similar scenario here in my home country which is also considered as having a developing economy. Not a lot of people here have Bitcoin wallets but digital wallets (which are not stored in immutable ledgers) are already gaining some popularity. More than half of young adults here probably have at least one digital wallet. However, it's still not a viable substitute for cash transactions because of that Internet connection requirement barrier. And since prepaid is more popular than postpaid mobile data plans, a lot of users see it as just an unnecessary additional cost. Actually, some might even see it as less convenient as digital wallet transactions are usually riddled with QR code scan failures and sometimes, sluggish loading times.
This is an important factor. The Chivo app was initially zero-rated (requiring no data plan to use) but this lasted only some months. Now it won't work without wi-fi or data.
To them, that pocket change gift probably seems like more of a loan, they are expected to pay back with loyalty to the platform.
"Although the law requires all firms to accept bitcoin, in reality only 20 percent do so. Roughly 5 percent of all sales have been paid in bitcoin through Chivo Wallet, and just as most households using Chivo prefer to keep their money in cash rather than in bitcoin, 88 percent of firms convert their bitcoin into dollars."
20 percent of firms actually accepting bitcoin and 5 percent of all sales is actually much higher than I expected. If these numbers continue to grow that would be the first bit of evidence I've seen that makes me feel positive about crypto's future.
I'd also be curious to know where the bitcoin transactions are concentrated. I assume it's not a random 20% of firms and 5% of transactions. Is it crypto-tourists and resorts? Poor people who would see the most relative-incentive to adopt because of the 30 dollar bonus? Families with members working in other countries?
The participation rate was not very high. It was hard to find anyone who said yes.
People seemed to know what they’re asking but they just say no and move on… not even any effort to say something like “I do take cash” … just a hard no.
With Bitcoin, no one has control!
Well, until a little over 50% of the miners decide they don't like you.
Ethereum's fork proved "no one has control" is an illusion.
The 2017 Bitcoin scaling wars proved that one can't simply change Bitcoin's consensus rules by majority control of the miners. I think at one point 80% of the miners were in favor of large blocks, yet they didn't have buy-in from the rest of the network participants (developers, regular users, merchants, exchanges).
Bitcoin has really robust decentralization.
The ETH fork happened before the people on HN were even following cryptocurrency happenings.
That's how early in the project a fork was done — the project would never survive another at this stage of maturity.
And everyone knows that.
So stop repeating it?
The fork stuck because it was still an alpha, as far as society was concerned.
It's currently in a grey area between a social movement and a FOSS project, and it simply started as a FOSS project.
I think it's important to characterize what occurred with this context. Devs won't get another chance at that without the project (and movement!) ending — and everyone knows it.
Imo you're just trading "beholden to the usgovt" with "beholden to miners, whales and wall street" plus wild price swings. Former or latter may be preferable for certain reasons, but for fiscal stability or day-to-day use the choice seems obvious to me.
The price of BTC, even today, seems very easy to manipulate.
In fact trying to get a neutral or deflationary currency is a no brainer. Especially, if you have a small banking system/network.
Of course there are gotchas.
Can you make your own currency? Of course. How will you back it? Who will trust it? Who governs those policies? These are people problems people want to solve without people (crypto folks), with expected results (speed running financial regulation). They came at the king (reserve currencies) and missed by a mile.
If it's actually used as a currency, a person with a large stockpile will gradually lose their relative share over time as they consume, since you don't generate interest on it.
It's also confusing to me that people can hold the cognitive dissonance of defending a post gold standard, infinitely inflatable currency with a negative view income inequality, which only started increasing drastically after we abandoned the gold standard.
An inflationary currency benefits the wealthy asset owners more than the working class almost by design. Asset owners get to borrow against their assets and pay it back in a depreciating currency, while at the same time getting to use a psychological magic trick to make poorly educated employees think they're getting a pay raise, when in real terms they're getting a pay cut.
If I was a greedy rich person who wanted to make sure I could never lose my wealth, I would build a financial system on a currency that inflates away by design.
Why are you presenting it as such?
There is a reason that nations have abandoned the gold standard.
The reason we ditched the gold standard was for deviance. It’s very hard to fight wars if you can’t print the money. Ww1 ww2 Vietnam, Afghanistan, Iraq … try that on gold. Bitcoin = End of all war.
...?
Holding back the floodgates until the problem is ready to kill everyone equally is stupid, and the opposite of a meritocracy.
There is limited evidence for connecting countries' foreign debt levels to their degree of democratization [1].
More pointedly, there is ample evidence--millenia of it!--for empires on commodity money waging war and whatnot and having a fine time of it.
> deficit spending funded with inflation is not really what people have voted for
Deficit spending / bond issuance is voted on at multiple levels of government practically every cycle. People have voted for this. Because the alternative is austerity, and fanatical governments that pursue that for its own sake tend to get replaced.
[1] https://d1wqtxts1xzle7.cloudfront.net/68966375/bf00224681202...
Anyway, my point was that bitcoin can limit government spending and protect individuals against inflation due to government spending. It doesn't mean that a rich nation couldn't wage war.
I believe Bitcoin standard world is post war. It is uneconomical, and that hits the people very hard very quickly. No home propaganda could convince the people it was just…
Bukele is promoting BTC as a way to attract talent and capital, and also to modernize El Salvador's economy. Similar to how Africa skipped landlines and jumped right to mobile phones. It remains to be seen how effective that part is. But, either way, it gives El Salvador some more independence from the US and sovereignty in a world where alliances are shifting fast.
This is because the Taliban is a terrorist organization that captured the capitol, not a government. You don't give $7bn to al qaeda, ISIS or lashkar-e-taiba either.
You can thank Trump and Pompeo and their plan to withdraw 100% of US forces by a fixed deadline for that (removing all support for the afghan government's armed forces), and Biden for going along with the foolish plan.
Russia defaulted on their USD loans, not because they don't have dollars, but because the US won't allow them to pay.
The pre-Taliban government of Afghanistan as well as the US puppet state in 2021 failed in this core responsibility, and consequently lost the right to govern. Whether or not the Taliban will produce a stable or good government is a different question. I personally weep for those forced to live under it's rule.
It would make about as much sense to say the United States in 1783 was not a government, but a terrorist organization that attacked the rightful British government of the American colonies. The British lost the right to govern when they failed to maintain their monopoly on violence in the American colonies, and a new governmental organization formed from the ashes of the war that proved it.
That doesn't have anything to do with USD. Any reserves (or really any asset) that is outside the country's jurisdiction can be seized by a foreign one. El Salvador could as easily lose all their Bitcoin reserves if they held them in a Coinbase wallet, for example.
Comment you're responding to is saying this is not unique to U.S. dollars. All currencies are controlled by their issuing sovereigns.
Separately, the idea that Bitcoin is unsanctionable is laughable. It may require enabling legislation. But marking wallets as sanctioned, and threatening any wallets that transact with it to be either similarly sanctioned or subject to heightened scrutiny, would diminish the value of those coins relative to coins which can be freely traded with anyone. Given the public nature of the blockchain, enforcement would likely be easier than e.g. enforcing an Iranian oil embargo.
Doesn't this already happen? Basically any bitcoin that comes out of a tumbler or any wallet address that has transacted with tumbled coins is banned on KYC exchanges: https://sethforprivacy.com/posts/fungibility-graveyard/
Litecoin just introduced a sidechain called (mimblewimble extension blocks) MWEB, it permits “cut-through” transactions where UTXOs can mix. It looks like a single UTXO on the main chain. Very Fungible!
The problem is one of pragmatism. All money is dirty. All great fortunes are founded on exploitation.
Every dollar in your pocket has been used for crime many times. The system works because we choose to ignore this. If we could programmatically enforce rules, the system would be fail in a day.
So it’s not about money laundering, it’s about achieving some kind of pragmatic equivalence, while permitting the system to continue to function.
My point is that eventually the major cryptocurrencies will have some fungibility enhancement mechanisms to deal with the practical limitations of taint and chain analysis. Tornado cash, Coinjoin, MW, etc. Its not about normalization of crime. It’s the default ignorant status quo.
I hear similar things from the NRA about how we'd all be safer if everyone carried a concealed firearm. I just don't want the world to be a place where we all have to be armed and launder our money after every transaction.
There is always a balance that needs to be struck between privacy and accountability. Bob Woodward violated the privacy of the Nixon white house, but we generally believe the public interest there outweighs the privacy concerns at stake. I am always particularly skeptical of financial privacy maneuvers, since they are of considerably greater interest to the already rich and powerful.
I don’t know if I agree about accountability balance — accountable to whom?? It is better if everyone is equally blind. Technology that takes power from the powerful is our weapon. You don’t need accountability if there is nobody to be accountable to.
Creating a new form of privacy means creating a new arena in which to conceal malfeasance, and some will inevitably take advantage of that. Privacy can become a means of entrenching power as easily as it can become a means of distributing power. Wealthy people and organizations in the US sue journalists for invasion of privacy to prevent embarrassing information from being published. In the US, some parties have been lobbying and suing for decades to be able to spend unlimited sums with no public disclosure on political and influence campaigns.
Interesting to consider that many gun owners likely don't want the world to be a place in which they feel the need to carry a firearm.
Another massive issue is that as a currency with an inelastic supply Bitcoin price volatility is guaranteed to remain unstable. This is not a desirable feature for any currency.
Bitcoin is like this for all governments and currencies. It is honest true hard money that cannot be devalued by the money printers. It’s the hard money of last resort and you bet this will be more and more important as we lose trust for each other’s currency.
https://www.wsj.com/articles/argentina-names-new-economy-min...
The annual inflation rate in Argentina is ~76%. It's basically impossible to do business in Pesos when it's devaluing so quickly. Every contract programmer in Argentina is doing business in Bitcoin or stablecoins because they would lose ~40-60% if they were paid in USD from abroad. People are stashing savings dollars (and Bitcoin) to keep it out of government hands and protect it from becoming worthless.
El Salvador banks don't exchange or accept bitcoin as deposit. Some of them accept bitcoin for loan payments, via an external payment processor.
El Salvador is very corrupt, in the neighborhood of Sierra Leone and Algeria [1]. It is unclear to what degree the state has a monopoly on violence [2]. Bitcoin is a precedented dark money channel.
[1] https://www.transparency.org/en/cpi/2021/index/slv
[2] https://www.cfr.org/in-brief/why-has-gang-violence-spiked-el...
The charitable answer I would give is that Bukele hoped to attract cryptocurrency investors with the move, perhaps to supplement existing institutional investors who haven't been happy with some of Bukele's policies.
The uncharitable answer I would give is that Bukele is trying to innovate and translate core cryptocurrency strategies of extracting money from people's pockets into extracting money from El Salvador's citizens' pockets.
I have a really hard time understanding what lasting effect El Salvador hopes to accomplish.
> More than half its citizens rely exclusively on cash rather than credit or debit cards
That's not in itself a problem.
> Some 70 percent of households have no bank account
That's may be a problem, but is it something that Bitcoin itself can solve? For example, people who have no savings and survive hand-to-mouth really don't need a bank account. Maybe that's what the 70% statistic is telling us.
> and nearly 90 percent do not use mobile banking.
The experience of using bitcoin for most people is not unlike the experience of using a mobile banking app. What is it about Bitcoin in particular that makes it a better fit?
> A digital payment platform could be a way to make the economy more inclusive and accessible.
Possibly, but only if the reasons for lack of inclusivity and accessibility are understood, and Bitcoin is compatible with resolving them. If the reasons are social/political, Bitcoin is not going to help at all. Monetary policy is effectively set elsewhere, either Washington or the Internet through the Bitcoin protocol. Being the hardest form of money ever created, bitcoin is especially bad at funding public works projects like the kind El Salvador is going to need to elevate its standard of living.
Then there's the elephant in the room: money printing. El Salvador has no currency of its own. It uses the US dollar, and now Bitcoin. This means that the government has voluntarily foregone the ability to print the money to cover the debts incurred for domestic spending. Adding Bitcoin just doubles down on the status quo: no domestic currency and no possibility of money printing.
1. Download banking app
2. Open an account by taking a selfie and a picture of the national ID card.
3. Go to " Receive Remmitance Option", type the remmitance code/MTCN.
4. Remmittance in your acount.
35% of the remittances are paid by banks, but I do not have numbers on how many of them are paid via an app.
El Salvador's informal economy is cash-based, doing business mostly with the small businesses in their neighborhood. I guess they don't have an account because they don't need them or because they don't have enough money to save. Other's want to avoid monthly fees that some of the traditional paper based bank accounts have.
People who need a bank accounts do open them. Like for receiving a wage from a 'formal' business or having to do electronic payments (like paying a landlord who lives in another town).
> How hard is it to get an ID card?
This is something El Salvador does very well. Our ID/Passport issuing system is really state of the art. I'd say it takes about 45 minutes to get an ID card or a passport. I've seen this take weeks or months in other countries. The first ID card is free, renewals cost about $10 every eight years.
There were edge cases though, like older people who's birth certificates were lost in town hall fires which were common during the war in the 80s. Or people who had duplicate but different birth certificates. In those cases they had to go through a longer process to replace their birth records and then apply for an ID card.
Bitcion is not a stable store of value, therefore it is useless as a currency. Something that can move 10-20% daily cannot be used in commerce, especially for goods on and services sold on at razor tight margins. And let's not even get into the amount of borrowed money that went into propping up Bitcoin, whose unwinding we've witnessed [and it's not over yet].
* why Bitcoin, versus a cryptocurrency with low latency?
* why not a stablecoin?
* Because the whole point is to be independent from foreign currency
I recommend checking out BTCPay server, it is a full BTC node, LN node and payment invoicing system. Integrated into e-commerce platforms and apps.
Ride the Lightning is a nice webui for LN
It looks like the government ARE running a lightning node as part of the service, however:
https://davidgerard.co.uk/blockchain/2021/08/24/el-salvador-...
I've always seen the lighting network as a not great solution unless it is used between exchanges (think Coinbase <-> Binance). If it were to be used by users directly, you'd still have to pay the user-cost of receiving enough (takes time) and then establishing a channel.
Berkeley Labs hypothesizes a "thermodynamically" stablecoin. If that experiment fails, there may be no hope for defi ;)
‘Holy grail’: Researchers create physics-based cryptocurrency
https://www.dailycal.org/2022/06/20/holy-grail-researchers-c...