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An African country has made Bitcoin legal tender, making it the second country in the world to do so after El Salvador
I knew I wasn't in an ordinary beach town as soon as I stepped out of the back of a pickup truck in El Zonte, El Salvador.
El Zonte's welcome sign featured two Bitcoin logos, and its cafés offered 75% Bitcoin savings. Its trash cans also featured the Bitcoin logo. Last month, I was hitchhiking my way across the country's west coast, enjoying the country's world-class surf conditions, but I wasn't seeking for the country's Bitcoin hub. But I'd somehow found my way in.
Many people, including me, were suspicious when El Salvador declared Bitcoin legal tender in September of last year. Salvadoran President Nayib Bukele appeared to be a Reddit-dependent crypto trader, YOLOing away the country's wealth.
Despite Bukele's claims that he "missed the f***ing bottom by 7 minutes," Bitcoin's price plunged, costing the country dearly. It appeared to be a shambles. However, I discovered that the reality on the ground is more complex than the story suggests. El Salvador's Bitcoin experiment has a decent possibility of succeeding, at least in certain respects.
The Roots of Community Outreach.
When a California surfer called Mike Peterson received an anonymous $100,000+ Bitcoin donation for the villagers of El Zonte, the Bitcoin movement in El Salvador was born. It was Peterson's job to get the money into the hands of the people of El Zonte, where he had been performing community work for years. His response was to tell me, "We devised a plan to begin infusing Bitcoin into the community," which I accepted. "And from there, it just kind of exploded."
In El Zonte, Bitcoin took off because it was beneficial to the local population. In the short term, it enabled Salvadorans avoid paying extortionate remittance fees on the $6 billion in yearly remittances received from relatives and friends back home.
70% of El Salvadorans were unbanked, and a digital wallet would enable them get started investing. This was less obvious, but arguably more significant. Roman Martinez, who works with Peterson in El Zonte, said, "The Salvadoran population don't have bank accounts—now they have." For the first time, people are purchasing an asset."
Upon becoming president of El Zonte in June of this year, Bukele became aware of what was going on in the city and moved to make Bitcoin legal tender, requiring all retailers in the country to accept it as a form of payment. It took effect in the fall of last year, making El Salvador the first country in the world to accept Bitcoin as an official currency (the US Dollar also works there). There was a cult-like following of Bitcoiners in El Zonte, where it all began.
The Current Impact of Bitcoin
Bitcoin is now widely accepted in El Salvador, just five months after it was made legal tender. A QR code can be used to make Bitcoin transactions at McDonald's, upscale coffee shops, or even groceries that are sold in people's living rooms with QR codes hanging from the front. Anyone who downloads El Salvador's own wallet, dubbed Chivo (which translates to "cool"), receives $30. Although Chivo's technology has had occasional hitches, it has been utilized by 2.1 million Salvadorans, or a third of the population. According to Martinez, many people have never owned an asset before.
The El Salvador experiment has a lot at stake for Bitcoin's ardent believers. If Bitcoin is to achieve its greatest potential, it must be both a currency and a store of value. In this regard, El Salvador serves as a critical test bed. As an influential figure in the El Salvador Bitcoin community, Max Kaiser explains that the currency "has a journey that travels through its perception as being first a collectible (or at the very least a store of value), then a medium of exchange, and finally a unit of account, which is the same path all money takes."
As a result, a slew of Bitcoin fans have come on the country, and their enthusiasm has both positive and negative effects. In order to gain residency in the country, they're putting their money where their mouth is, spending up to three bitcoins. Even nevertheless, their enthusiasm could lead the controversial Bukele into reckless measures, such as the creation of "Bitcoin City" and the issuance of $1 billion "Volcano Bonds," which El Salvador would invest half of in Bitcoin right now, volatility or no.
Everyday Salvadorans who have decided to invest in Bitcoin will, of course, be impacted by the volatility of the cryptocurrency. L.A. Times quotes a restaurant owner who termed Bitcoin "the devil's currency." However, in today's economy, risk-taking is the only way to grow wealth. It stands to reason that Salvadorians, like their counterparts worldwide, should be able to achieve this as well. Even if El Salvador's Bitcoin experiment fails, there's still a chance that it succeeds, and that's enough to make it worth the risk.
Information about the Author: Author and co-founder of Big Technology, Alex Kantrowitz is a frequent guest on CNBC and a former senior technology correspondent at BuzzFeed News. He is the author of "Always Day One: How the Tech Titans Plan to Stay on Top Forever."
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