In addition to the typical tourist surf towns of El Zonte, El Salvador, there are rubbish barrels with the Bitcoin “B” and signs above the door in restaurants with the ground, announcing that “Bitcoin is accepted here”. For the past two years, El Zonte – also known as “Bitcoin Beach” – has been experimenting with cryptocurrency in hopes of creating an economy based at least in part on Bitcoin. Now the Salvadoran government wants to try this at the national level.
El Zonte’s bitcoin journey began in 2019 when ex-pat Michael Peterson received a proposal: A mysterious donor had a bitcoin cache – but instead of paying off, he wanted to use it to create a circular bitcoin economy. Although Peterson loved the challenging concept, others didn’t start until the pandemic broke out and the city’s tourism economy collapsed. The project began by simply giving away Bitcoin worth $ 35 to $ 50 a month to 500 families in El Zonte. Local companies soon started accepting the cryptocurrency. Around 90 percent of households in the city now interact with Bitcoin on a regular basis. These transactions are powered by an app called Strike, which makes it possible to send cheap international Bitcoin transfers – crucial for a country like El Salvador, which receives nearly $ 6 billion in transfers annually from Salvadorans living in the United States
On Friday’s What Next: TBD episode, I spoke to Bloomberg’s Ezra Fieser, who recently covered a post on El Zonte about what happens when you turn the crypto-utopian fantasy of a beach town into national politics. Our conversation has been edited and condensed for the sake of clarity.
Lizzie O’Leary: One thing you mention in your story is that Bitcoin – to people in the US or other developed countries – may seem like an ideology or a way of thinking about the international financial system, but with Bitcoin Beach it is People hoping to solve problems. Tell me a little about the problems you want to solve.
Ezra Fieser: I met a woman who has a small pizzeria and who told me that she has six children. Four of them emigrated to the United States. Consequently, they sent their money back – that was before the project. She regularly had to spend up to a day taking the bus to the nearest town that had a proper office or bank to pick up the transfer, paying a huge fee to actually pick it up, and then doing business and the abandoned income returned while she took the bus into town to get the transfer. She started with Bitcoin and was able to save so much that she actually started sending money to her child in the United States.
… instead of getting money back. So that’s just one example of the wire transfer question, the time it takes to pick it up, the fees involved, and the problems these organizers are trying to solve when using Bitcoin to make these transactions easier.
They cover Latin American economies and obviously there have been so many financial crises in Latin America with currencies up and down, inflation, devaluation, intervention by various central banks, etc. I wonder if there is anything about the Latin American financial experience that makes it more fertile ground for doing a crypto experiment?
They look across the region, as you mentioned, and the volatility of currencies is enough to keep people experimenting with crypto. The interesting thing about El Salvador is the dollarization 20 years ago. So it’s also an advantage when it comes to crypto because no one is there to defend the local currency, right?
Law. Who cares? It’s the US dollar.
Law. In these other countries, even though there has been this drastic volatility in a place like Argentina, they still have their own local currency. So I think there is an opportunity to experiment with crypto more than in more developed places.
In June, President Nayib Bukele sent a bill to Congress to make Bitcoin legal tender in El Salvador. With 62 out of 84 lawmakers voting for the bill, El Salvador was the first country in the world to make Bitcoin legal tender. That means taxes can be paid in Bitcoin and companies are required to accept it – if they have the technology – but there are no plans to replace the dollar and the government says they have a cash fund of $ $ 150 million will be set up so people can exchange their bitcoin for dollars. Tell me a little about Bukele’s embrace of bitcoin.
What We Know About Nayib Bukele: He is a younger president. He is now 39 years old. He had really messed up the El Salvador political system during his political career. He was the mayor of San Salvador. He was kicked out of his party and then started his own. We know that, for example, when he was mayor of San Salvador in 2017, he tweeted, “We’re going to use Bitcoin,” and didn’t say much more about it, but somehow implied.
He has a very pro-Bitcoin social media presence.
Yes. I know from talking to people in the government while I was there that he and many people in the party have been holding Bitcoin for some time. So at some point after the project started in Bitcoin Beach, we also know that he was paying close attention to how things were going in El Zonte. When I was there I was told that he was very interested. He realizes that it’s important to be the first to do this. It was still a question of when he would do it.
In your opinion, is it possible to get a feel for how appealing the use of Bitcoin could be to people at the national level?
After the announcement, there was obviously a lot of interest in what was going on as downloads of the Bitcoin Beach app, the Strike app, have simply increased tenfold. I think Michael Peterson told me that after the announcement, even though Bitcoin’s price had somehow fallen, transactions skyrocketed. So I think there is definitely an interest there.
But you said it was unclear how this interest would be translated into reality. After all, El Zonte is a small town with money from a mysterious donor and a special app just for its bitcoins.
In some communities in El Salvador, it will be a much more difficult task to introduce something as successful as Bitcoin Beach because you do not have some of these other elements. If you go to some of these small towns in El Salvador, you won’t have that many tourists. You might even be more isolated than El Zonte from things like banks and other infrastructure. So, El Zonte, what happened there is very unique because of all of these other elements. If you do this nationwide, I think it will take you a really big effort from both the government and people like the folks who work at Bitcoin Beach to get several of these projects up and running locally across the country.
However, one of the things about Bitcoin is that it can fluctuate up to 50 percent in a few months. The idea of not using the world’s most stable reserve currency – the dollar – and using Bitcoin instead seems risky. What did the Bitcoin evangelists say about this?
From the time they really started in earnest to the time I was there there were a couple of dips, momentary dips in the price, but in reality it was six times, seven times, something like the year before.
So everything is going great?
Everything is going great. It’s really easy to convince people to use Bitcoin and get more Bitcoin if one day it’s worth $ 500 and a month later it’s worth $ 800 or so. The week I was there there was a podcaster who said, “It’s very cool when you get $ 30 and all of a sudden it’s $ 60 or $ 50, but what happens when it drops $ 20 or $ 15 ? ” That is the real test. I don’t think I spoke to anyone who said it was a smart idea for you as the Pupusa shop owner or whatever to keep everything in bitcoin. They recognize that volatility is a risk, so they say, “We say, take 10 percent, take 15 percent, take whatever, and put it in bitcoin. You will still be using dollars. “
But I hear you say that and I hear you talk about someone who is saving or holding a little and watching the price rise. What happens to them when Bitcoin crashes?
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The last day I was there was the day Elon Musk tweeted that Tesla is no longer taking Bitcoin. That week it was stable and I was like, “Oh, this is an unusually stable week for Bitcoin,” and then all of a sudden, in a few days, I saw about 8 or 9 or 10 percent drop. Not only will it be a question for El Zonte how successful they have been, but if El Salvador tries to introduce this during this time of higher volatility or even a longer downward cycle, it becomes a real question how much can they get people to to accept it and how quickly.
You have that line in your story: “[I]It is the controversial crypto debate that is widespread among those fortunate enough to come from a wealthy economy where bitcoin is as much a belief system as it is a financial one. “I wonder how you think that the people you met, whether locals or ex-pats, reflected this notion of a test of a belief system, but also one that could determine or destroy people’s lives and livelihoods.
The people doing this project are already Bitcoin believers and I think for people who are at this point there really is no going back for them or for the project. The people who have faced this locally over the past few years, I think a lot of them have gone through a similar process in which in the long run they are in, that they stop treating it as an experiment, that they are thinking things really are like that now that they will ride the volatility, that they will be smart about how they use Bitcoin in conjunction with the US dollar, and that from now on this is how their financial system will work. It will be part bitcoin, part dollar.
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