How Sovereign Bitcoin Adoption Is Going: El Salvador
On June 9, 2021, President Nayib Bukele sent the Bitcoin Bill to the legislature, paving the way for El Salvador to be the first nation on the planet to deem Bitcoin as legal tender. Naturally, this piqued the interest of many El Salvadorians and foreign Bitcoin enthusiasts.
In March 2022 I had the pleasure of visiting El Salvador to find out more about the nation and its Bitcoin implementation. Here’s what I learned during my week on the ground.
It’s Early
When my guide picked me up from the airport, we stopped to get some coconuts from a roadside stand. This lady hadn’t heard of Bitcoin before (let alone accepted it). However, when my guide invited her to take one of the many Bitcoin educational courses offered for locals, she happily accepted.
Simply put, most places don’t accept Bitcoin. Some exceptions include the government tax you pay when going through immigration ($12 for Americans), foreign chain restaurant, and a plethora of vendors in Bitcoin Beach (El Zonte).
Bitcoin Beach is where El Salvador’s Bitcoin journey began in 2019, when an anonymous donor gave the local community $100,000 in Bitcoin, facilitated by American Michael Peterson. At the time, many of the residents were unbanked and thus had difficulties engaging in commerce. Because of the permissionless nature of sending Bitcoin, residents could now trade value without the need for a bank.
Nowadays, most of the businesses in this town — everything from snack shops to hotels — accept Bitcoin. Unsurprisingly, it is also where you’ll meet the majority of the foreigners coming to El Salvador for Bitcoin.
El Zonte, Bitcoin Beach (photo by author)
El Zonte, Bitcoin Beach
It’s Not Permisionless
There are many reasons people buy Bitcoin, one of which is the ability to spend your coins without the permission of any authority figure. Therefore, it’s worth noting that El Salvador’s Bitcoin payment system does not hold these same permissionless ideals. Instead, transactions are primarily facilitated via the government-run Chivo wallet. This app wallet allows El Salvadorians to store US dollars (the nation’s other official currency) and Bitcoin in one place and generate QR codes that buyers can scan to pay for their items. Foreigners must use a different wallet like Strike or Muun to hold their Bitcoin, but can pay a vendor who is using Chivo.
So, as a foreigner, when you want to pay for something in Bitcoin, simply take out your mobile wallet app of choice, press the “scan QR code” button, and scan the QR code the merchant gives to you. The wallet will likely ask you to confirm your purchase, and then the Bitcoin will be sent.
On the back end, that money does not go straight to the merchant. Instead, it enters the government wallet, and the government then releases the Bitcoin to the merchant’s wallet. Sometimes, though, the government decides to halt the transactions, meaning that the Bitcoin leaves the buyer’s wallet but does not reach the seller. That doesn’t happen in traditional “on-chain” peer-to-peer Bitcoin transactions but can occur when you’re using Chivo. This is because the permissionless step is transferring your Bitcoin to Chivo, not to the vendor.
When I was paying for my stay at the mountain-side Bello Campo hotel near the city of Santa Ana, I used my Strike wallet to pay the hotel that was charging me via Chivo. However, for a reason I still don’t know, the government decided to not release the Bitcoin to the hotel. With some back and forth with Chivo via WhatsApp, the hotel eventually got its money. Manageable, but hardly the seamless experience Bitcoin is promised to deliver.
That’s not to say Chivo is bad. Many El Salvadorians I spoke with quite like Chivo because of the ability to convert between Bitcoin and US dollars without fees and move money to their bank accounts in a jiffy. Also, Chivo uses the Lightning Network, which moves Bitcoin in a matter of seconds, rather than the 10 minutes it takes a traditional Bitcoin transfer to settle, and it does all of that for a microscopic fee. It’s just worth noting that the government does have the ability to censor transactions in a way not possible with traditional Bitcoin transfers.
It’s Growing:
It’s been under a year since El Salvador adopted Bitcoin, so it’s understandable that not everyone is using it yet.
However, the country is taking on some groundbreaking projects in the coming years. The country will soon issue bonds for its volcano-powered Bitcoin mining operation. These bonds will allow $100 investments via the Bitfinex app. In addition, in the east of the country, near Honduras, the futuristic Bitcoin City will soon be under construction. Here, residents will be able to buy homes and live, all with Bitcoin.
Also, a 52 law legal reform initiative is going through the legislature to encourage foreigners to move to and invest in El Salvador. This includes a citizenship by investment scheme, similar to what is offered by many Caribbean nations, but with this one being Bitcoin-centric.
For two of the trip days, my father and I were able to join a group of ex-pats living and investing in El Salvador on a trip to the Coatepque Lake and the Santa Ana Volcano. These people have various reasons for coming to El Salvador — the lack of capital gains taxes on Bitcoin, increased personal freedom, being around other Bitcoiners, and a desire to buy ocean-front real estate.
Conclusion:
The fact that a nation has committed itself to using Bitcoin is a huge step for this 13 year old currency. Bitcoin also has become, and will continue to be, a great selling point for this small Central American nation. As with any major national shift, progress is gradual, but it is exciting to see how local citizens are committing themselves to getting more of their fellow countrywomen and men involved in Bitcoin. Bitcoin in El Salvador is not the fully anonymous or decentralized experience many associate with the currency, but the mere fact that the nation is no longer reliant on a fiat currency is a monumental shift.
Also, if any other countries decide to embrace Bitcoin, you can bet I’ll be flying out there to check it out and report back here!
What do you think about sovereign Bitcoin adoption?
This essay was originally published on March 23, 2022 on my Medium account.