Ezra Fieser on El Salvador’s Bitcoin Economy.

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Next to the typical tourist spots in the surf town of El Zonte, El Salvador are garbage barrels emblazoned with Bitcoin B and signs hanging above the doors of clay-floor restaurants that advertise Bitcoin is accepted here. Over the past two years, El Zonteaka Bitcoin Beach has experimented with cryptocurrency, hoping to create an economy that at least partially operates on Bitcoin. Now the Salvadoran government wants to try this nationwide.

El Zontes Bitcoin’s journey began in 2019, when expat Michael Peterson received a proposal: A mysterious donor had a cache of Bitcoin but instead of cashing in, he wanted to use it to create a circular Bitcoin economy. While Peterson was excited about the difficult concept, it wasn’t until the pandemic hit and the city’s tourist economy collapsed that others started to join us. The project began by simply donating between $ 35 and $ 50 in Bitcoin per month to 500 families in El Zonte. Fairly quickly, local businesses started to accept cryptocurrency. Today, around 90% of the city’s households interact with Bitcoin on a regular basis. These transactions are bolstered by an app, Strike, which allows low-cost international Bitcoin transfers to be sent, crucial for a country like El Salvador, which receives nearly $ 6 billion a year in remittances from Salvadorans living in the USA.

On the Friday episode of What Next: TBD, I spoke with Bloombergs Ezra Fieser, who recently posted an article on El Zonte, about what happens when you take a crypto-utopian fantasy beach town and make it into it. national policy. Our conversation has been edited and condensed for clarity.

Lizzie OLeary: One thing you mention in your story is that to people in the United States or other developed countries, Bitcoin may seem like an ideology or a way of thinking about the international financial system, but at Bitcoin Beach these guys hope to solve problems. Tell me a bit about the problems they want to solve.

Ezra Fieser: I met a woman who has a small pizzeria and she told me that she has six children. Four of them emigrated to the United States. Constantly, they sent him money, it was before the project. She routinely had to spend up to a day taking a bus to the nearest town which had an office or bank where she could collect the remittance, paying a huge fee to collect it, then quitting her business and quitting. it came back while she was taking the bus into town to get the money. She started using Bitcoin and was able to save so much that she started using it to send money to her child in the United States.

Wow.

rather than getting the money back. So this is just one example of the issue of remittances, the time it takes to get it, the fees associated with it, and the issues these organizers are trying to solve by using Bitcoin to simplify these transactions. .

You cover the Latin American economies, and obviously there have been so many financial crises in Latin America with rising and falling currencies, inflation, devaluation, various central bank interventions, et cetera. I wonder if there is something about the Latin American financial experience that makes it more fertile ground for a crypto experiment?

You look across the region, as you mentioned, and there is enough currency volatility for people to experiment with crypto. What’s interesting about El Salvador is that it was dollarized 20 years ago. So this is also an advantage in terms of crypto because there is no one to defend the local currency, right?

Right. We do not care? It’s the US dollar.

Right. 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 a possibility for more experimentation with crypto 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 in favor of the bill, El Salvador became the first country in the world to make Bitcoin legal tender. This means that taxes can be paid in Bitcoin and companies are required to accept it if they have the technology to do so, but there are no plans to replace the dollar, and the government says it will implement it. sets up a $ 150 million fund for people to trade their Bitcoin. for dollars. Tell me a bit about Bukeles’ adoption of Bitcoin.

What we know about Nayib Bukele: He’s a young president. He is 39 years old now. He had, during his political career, really disrupted the political system in El Salvador. He was mayor of San Salvador. He was kicked out of his political party and then created his own. We know that as early as, say, 2017, when he was mayor of San Salvador, he tweeted, was going to use Bitcoin, and didn’t really say much more about it, but hinted at it.

He has a very pro-Bitcoin social media presence.

Yes. I know from speaking to members of the government while I was there that he and many people in the party have held Bitcoin for quite some time. So at some point after the project started at Bitcoin Beach, we also know that he was paying close attention to how it was in El Zonte. When I was there I was told he was very interested. He recognizes that it’s important to be the first in something like this. It was still a question, however, of when he was going to do it.

Is it possible, do you think, to get any idea of ​​how attractive the use of Bitcoin could be to people nationwide?

After the announcement, there was a huge obvious interest in what was going on because you saw the downloads of the Bitcoin Beach app, of the Strike app, increase tenfold. I think Michael Peterson told me that even though the price of Bitcoin had somehow gone down, post-announcement transactions started to rise. So I think there is clearly an interest there.

But you said that we don’t know how this interest will translate into reality. After all, El Zonte is a small town with money from a mysterious donor and a special app just for its Bitcoin.

In some communities in El Salvador, it will be much more difficult to deploy something as successful as Bitcoin Beach because you don’t have some of these other elements. If you go to some of these small towns in El Salvador, you don’t have as much of a tourist presence. You might 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 these other elements. In doing this nationwide, I think you’re really going to need a huge effort from the government and people like the guys who work at Bitcoin Beach to roll out several of these projects locally across the country.

One of the things about Bitcoin is that it can fluctuate by up to 50% in a matter of months. The idea of ​​not using the world’s most stable reserve currency, the dollar, and instead using Bitcoin, seems risky. What did the Bitcoin evangelists say about this?

From the time they really started until the time I was there, there were a few drops, momentary drops in the price, but in reality it was six times, seven times, something like that compared to the previous year.

So everything is going well?

Everything is going really well. It’s really easy to convince people to use Bitcoin and get more Bitcoin when one day it’s worth $ 500, then a month later it’s worth $ 800 or something. There is a podcaster that was there the week I was there and he said, it’s very cool when you get $ 30 and all of a sudden it’s up to $ 60 or $ 50, but what happens when it’s down $ 20 or $ 15? This is the real test. I don’t think I spoke to anyone who said it was a good idea for you as the owner of the pupusa store or whatever to keep everything in Bitcoin. They recognize that volatility is a risk and so they say, we say take 10 percent, take 15 percent, take anything and put it in Bitcoin. You are still going to use dollars.

But I hear you say this and I hear you talk about someone saving a little or holding and watching the price go up. What happens to them if Bitcoin crashes?

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The last day I was there was the day Elon Musk tweeted that Tesla was no longer taking Bitcoin. That week it had been stable and I was like, Oh, it’s an unusually stable week for Bitcoin, and then all of a sudden I saw something like 8, 9, or 10% go down in a few days. This will be a question not only for El Zonte in terms of success, but if El Salvador tries to deploy this in this time of higher volatility or even a prolonged bear cycle, it will be a real question on how much they can get people to lean on it. ‘adopt and how quickly.

You have this line in your story: [I]This is the controversial crypto debate common to those fortunate enough to come from a thriving economy where Bitcoin is as much about the belief system as it is about the financial system. I wonder how you think the people you have met, whether local or expatriate, fit into this idea of ​​a test of a belief system but also one that could make or break life and people’s livelihood.

The people who are leading this project out there are already Bitcoin believers, and I think for the people who are at this point there is really no looking back for them or for the project. The people who have been exposed to it locally over the last couple of years, I think a lot of them have gone through a similar process where they’re kind of in it for the long haul, no longer treating it like an experience, that they think it’s really like that now, that they are going to ride volatility, that they are going to be smart about how they use Bitcoin in relation to the US dollar and that from now this is how their financial systems go to work. It will be partly Bitcoin, partly in dollars.

Future Tense is a partnership between Slate, New America, and Arizona State University that examines emerging technologies, public policy, and society.

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