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In September 2021, El Salvador adopted Bitcoin as its second legally-recognized national currency alongside the U.S. dollar. It is the first nation to adopt the “Bitcoin Standard,” serving as a testing ground for other countries looking to adopt the digital currency as legal tender.
Jonathan Martin is a graduate of Stanford University, Georgetown University, and a student at The Wharton School, currently on leave immersing himself in the world of Bitcoin in El Salvador.
President Bukele, the 42-year-old Salvadoran Leader in his first term in office, has a vision to completely revolutionize the economy, starting with the integration of Bitcoin. Businesses must accept bitcoin for payment by law, and the government has purchased 2,381 BTC to date (worth ~$70M as of this writing). It also launched its own bitcoin wallet – called the Chivo Wallet – and announced plans to deploy 1,500 Bitcoin ATMs to help spur adoption.
Bitcoin for everyday people
El Salvador and a flood of Bitcoin Expats view Bitcoin as the future of money, but how the average Salvadoran feels about the digital commodity is a different question – particularly in its use as a medium of exchange in everyday commerce. If bitcoin is to become the next global reserve currency, the average non-Bitcoiner must believe in its intrinsic value, even if they do not understand the underlying system that backs it.
Read more: David Z. Morris - 1 Year of Bitcoin in El Salvador: The Bad, the Good and the Ugly
From my time living in the country so far, the potential for bitcoin to succeed as a currency is evident, but whether the average Salvadoran will embrace it is still yet to be determined.
Most Western Bitcoin investors have a low-time preference for money (i.e., they are buying bitcoin to hold for years or decades) and believe it will continue to go up in value. However, to the average Salvadoran worker, living hand-to-mouth without robust savings, do the decentralized benefits and future potential of Bitcoin present any real incremental value to them vs. using U.S. dollars?
Just a few years ago, El Salvador was one of the most dangerous countries in the world. Today, Bukele’s uncompromising security policies have dramatically reduced crime, and citizens now feel safe to start businesses, go to dinner with their friends and travel to areas that were previously avoided. As a part of the rebrand, the government has implemented business-friendly taxation policies to incentivize foreign investment in financial innovation. Even so, outside of people who evangelize Bitcoin, I have encountered mixed responses to the prospect of using it as a currency.
Bitcoin vs. fiat
U.S. President Richard Nixon took the U.S. dollar off the Gold Standard in 1971, and since then the world economy has operated in a fiat system. Fiat money only has value because the government says it has value; there is no scarce commodity backing it. The current system works well for people who own assets, and poorly for people who save in fiat.
This is because debasement (i.e., inflation) is a feature of the system and not a bug – U.S. dollars are programmed to lose their purchasing power over time. Similarly, the transaction fees associated with transferring or accessing your wealth can be both onerous and inefficient. Bitcoin provides an egalitarian alternative.
During my first 48 hours in El Salvador, I experienced first-hand the restrictive frictional costs associated with fiat banking when traveling abroad. The ATM fees in San Salvador are higher than in the U.S. It costs $5 to $8 to withdraw money, and my bank flagged several of my transactions as being fraudulent, leading to my card being frozen twice.
Read more: Bitcoin in El Salvador Is 'No Longer an Experiment': Asobitcoin President
Bitcoin ATMs are not as commonplace as fiat ATMs here yet. However, it was not long before I found an Athena Bitcoin ATM in a nearby mall using Athena’s map on their website. The Know-Your-Customer (KYC) requirement to deter money laundering made the process slower than using a normal ATM: I had to present an ID, have my picture taken, and wait 30-plus minutes for confirmation via SMS text message.
Athena also takes a 5% fee for the bitcoin-to-fiat conversion, which ended up being significantly more than the fiat ATM fees. However, the second time I used the ATM, I found the process to be more straight-forward as a foreign visitor because I did not have to deal with canceled transactions and SMS fraud alerts from my bank in the U.S.
Bitcoin for everyday services
I am taking Spanish lessons daily. I asked my tutor if she would take bitcoin as payment, and she said she only takes cash because she doesn’t know what to do with bitcoin once she has it. My Salvadoran driver had similar hesitations when I tried to pay him in bitcoin, despite having a Chivo wallet. I ended up making a bank transfer using Zelle to pay him.
I attended an expats Bitcoin meet-up with mostly Americans and Canadians who share my passion for the digital commodity. The vendors only accepted bitcoin, and I purchased a t-shirt from Alejandra (Miss El Salvador) using my Coinbase wallet. The people I spoke to who understand Bitcoin deeply view El Salvador as freer and more open-minded than their home countries.
The government began its big push for Bitcoin adoption two years ago, yet adoption is still clearly in its infancy here. Most workers still prefer cash, and the latency associated with Bitcoin settlement times make the currency somewhat cumbersome, at least at present. Some of the vendors I’ve encountered so far have layer-two (L2) Lightning integrations, but it is not common. Most people I’ve spoken to so far do not have a deep understanding of how the digital commodity is backed.
I view the Lightning Network and greater education about the benefits of Bitcoin vs. U.S. dollars as the solution to Salvadoran hesitancy in using the currency. Reducing settlement times using L2 solutions and convincing people that their future purchasing power is safer in Bitcoin than in cash will be central in increasing adoption and expanding use cases.
I intend to continue to try and use Bitcoin for commerce, and to try to educate more Salvadoran everyday people on the power of Bitcoin.