A week ago, Nayib Bukele opened his speech at United Nations General Assembly, saying: “I bring you greetings from the land of surf, volcanoes, coffee, peace, bitcoin, and freedom.”
Last year, El Salvador became the first country in the world to adopt Bitcoin as a legal tender. During this time there has been no shortage of opinions about what happened.
It seems like everyone is joining the witch-hunt.
For most global news organizations like The New York Times, Bloomberg, The Guardian, and Reuters, the jury is out — Bitcoin in El Salvador has failed. And it’s not just those reporting the news, it’s credit rating agencies and international financial organizations.
Is any of it true? Is the country doomed because it made Bitcoin a legal tender?
Bitcoin’s price has dropped, but I don’t think the country will go bankrupt because it lost $50 million in value from its Bitcoin holdings (approximately 0.2% of the country’s GDP). And as far as I know, they haven’t sold any of their Bitcoin holdings —I haven’t read anything in the news— so any loss is only on paper for now.
While everyone outside of El Salvador thinks adoption rates are low —20% use bitcoin— I think they’re pretty good after a year. Bitcoin’s rollout in El Salvador has performed better than mainstream media would indicate given all the obstacles.
Let me explain why I think they’re good.
Firstly, the average person is not used to hearing these concepts —most people in El Salvator believe that Bitcoin is for the rich that have money.
Secondly, whenever we’re talking about adopting new technology there’s going to be a lot of friction, especially when the product is complex —wallets and other tech not working exactly as planned.
Thirdly, Bitcoin is a legal tender, but it’s not the only one, the dollar is still a legal tender, which means that people still can fall back into their comfort zone —inertia, and people’s unwillingness to adopt it because they don’t have to.
Lastly, volatility is a major factor —70% of the El Salvadorian population doesn’t trust Bitcoin because of its volatility. They are afraid the money will be worth one thing in the morning, and something else in the afternoon.
When you look at research about mobile money like M-Pesa you’ll see that the first few times people received payment in M-Pesa, they would check their balance four or five times a day because they weren’t sure if its money or if it was reliable. Now imagine what that story would look like when you factor volatility into the picture —people constantly checking if the price has gone up or down.
For El Salvador, using the Bitcoin network, as a cheap communication system between for example a US sender and an El Salvadorian receiver, is more relevant, than the asset.
Remittances are a huge part of the economic equation in El Salvador and account for 20% of the country’s GDP every year, but only 2.1% of remittances sent between September and December 2021 were sent through digital wallets —around $57 million. Digital wallet transactions were less than 1% of the remittances in 2021.
When people experience lower costs, lower friction, and instantaneous payments, they will start sending money more often, in smaller amounts, more frequently, because they don’t have to pay a tax to the money transmitter. And if immediate swapping is implemented between Bitcoin and dollars, then there is zero exposure to any kind of volatility.
While people in the past have been afraid of other technologies, like websites and online payments, we’ve seen over time that reality imposes itself. The same will happen with Bitcoin in El Salvador and other places. What we are seeing is what happens when a new technology makes the jump to mass audiences. It takes time to change habits and behaviors.
All of the above boils down to one thing: Education, education, and education.
People will not use something when they don’t understand how it works, how to use it, and how they will benefit from using it. So the Bukele administration needs to provide a lot of education to its people if it wants penetration and usage to grow.
Did anyone expect that the majority of the population would be using Bitcoin after a year? Please.
Even though Bitcoin may be flawed and ultimately doomed, it illustrates that peer-to-peer, non-state money is practical, effective, and capable of working. Using Bitcoin to purchase things is easier than using credit cards and for the first time, people can move away from government-issued money.
We’re seeing governments planning their CBDCs and attempting to kill Bitcoin through regulation.
But, to see countries like the United States struggling with high inflation is very strange, because America has been the model for just about every country around the world. The United States is experiencing the greatest month-to-month inflation rate of 8.3% in 40 years, and the global inflationary pressure is out of control. As winter is approaching, and the conflict between Ukraine and Russia escalates, the situation is only worsening.
Governments are not concerned about creating the best possible monetary system. They use a set of policies from a different era, that works poorly in today’s world. They are only concerned with maintaining power and control over people, by controlling the currency they use and controlling monetary policy.
What’s happening merely shows that the problem has nothing to do with the country you’re in —for example, the United States or El Salvador. All the governments are reacting in the same way, except for Turkey, that’s lowering interest rates to lower inflation. Everyone wants to maintain power and their monopoly over the creation of money. The problem is with the system, the fiat-based monetary system we are using. People are starting to realize that our monetary system is a greek tragedy, that only makes us poorer. Governments are doing something very nefarious —they are taxing us through inflation. Inflation is a hidden tax that benefits the government with additional revenue, leaving us with money that has less purchasing power.
Despite the challenges it faces as a first mover, El Salvador’s example could still mark the way for other countries. El Salvador has allowed us to observe and learn from its experiment in monetary policy. But instead, people, other governments, news organizations, and financial institutions are ready to stone them.
The IMF is pressuring El Salvador by denying a $1.3 billion loan because it adopted Bitcoin. In Argentina, part of the IMF deal for a $45 billion debt restructuring plan was that the government would discourage the use of Bitcoin. How many times has the IMF bailed out Argentina? Too many.
Does anyone here really think we’re going to improve the present situation by taxing more, spending more, borrowing more, or printing more money? But more importantly, our money has lost its soul. We have jeopardized the trust we put into our money.
For centuries we trusted central bankers. But, when everyone went after Russia’s foreign exchange reserves, seizing them, it only proved that we can’t trust someone who holds the ledger. And while Russia has invaded another country, questions are surfacing about how can we trust someone with our money, if it can be taken away from us. Why would any country increase its dependency on dollars?
Whoever controls the ledger has that power and can use it as a political tool. This is Bitcoin’s true power —its decentralized ledger. That is why many countries are going to adopt Bitcoin.
We are in the midst of an unprecedented experiment in El Salvador, the Central African Republic —other countries that will follow— which will likely result in a new global monetary system. Whether it will be for good or bad time will tell. The future of money is ours to shape, but until it becomes clear that the ideas behind the existing monetary system are unsustainable, nothing will improve and these cycles will keep repeating, as they have been. I think it is worth giving it a shot, because the operation may end up being successful, but the patient will die.
by Ilias Louis Hatzis is the founder and CEO of Kryptonio wallet.
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