Digital dinero
El Salvador becomes first nation to make bitcoin legal tender
EL ZONTE, El Salvador — After El Salvador’s Congress made bitcoin legal tender this week, eyes turned to this rural fishing village on the Pacific coast. Known to surfers for its pounding waves, El Zonte has had the cryptocurrency in its economy for the past year.
Some 500 fishing and farming families use bitcoin to buy groceries and pay utilities, something the government envisions for the country at large. Bitcoin already was legal to use in El Salvador but its acceptance was voluntary, so the legislation passed late Tuesday now requires all businesses — except those without the technology — to accept payment in bitcoin.
El Zonte’s mini-bitcoin economy 26 miles from the capital came about through an anonymous donor who started working through a local nonprofit group in 2019. Supporters of the financial change point to it as a demonstration case for how digital currency could help in a country where 70% of the people don’t have bank accounts.
President Nayib Bukele, who pushed through the bitcoin law, touts it both as a way to help those many Salvadorans without access to traditional banking services and as a path to attract foreigners with bitcoin holdings to invest in El Salvador, which is the first nation to make the cryptocurrency legal tender.
Experts are trying to figure out why Bukele is pushing bitcoin. They say it is unclear how the highly volatile cryptocurrency will be a good option for the unbanked and only time will tell if the new system translates into real investment in El Salvador.
Bitcoin, intended as an alternative to government-backed money, is based largely on complex math, data-scrambling cryptography — thus the term “cryptocurrency” — lots of processing power and a distributed global ledger called the blockchain, which records all transactions. No central bank or other institution has any say in its value, which is set entirely by people trading bitcoin and its value has moved wildly over time.
Román Martínez was a pioneer in using bitcoin in El Zonte. He said the anonymous U.S. donor heard about community projects through the nonprofit Hope House where he works and began working through another American who lives in El Zonte. Hope House shares a building with Strike, a Chicago-based start-up that has been working with Bukele’s government on the nationwide bitcoin launch.
A request by The Associated Press to interview Strike CEO Jack Mallers was not granted. In an email, the company said, “Strike’s app is meant to empower people in all countries, broaden the financial system to include those who have been excluded, and increase economic opportunity around the world, and that is at the heart of this effort.”
El Salvador has used the U.S. dollar as its official currency since 2001, and Strike said that adopting bitcoin “as legal tender will help reduce its dependence on the decisions of a foreign central bank.”
Martinez said El Zonte residents did not have bank accounts, had no access to credit and were forced to handle all transactions in cash. “Now they are small investors whose lives have been changed by bitcoin,” he said.
Some question just how much can be learned from the Bitcoin Beach experiment.
David Gerard, author of “Attack of the 50 Foot Blockchain,” said El Zonte is an artificial demonstration.
At Bitcoin Beach, he said, “the bitcoins are traded inside Strike. They don’t actually move on the bitcoin blockchain or anything.”
Gerard said it appears to work because the bitcoin donor keeps pumping bitcoin into the village’s system. “That’s not a proof of concept that works. That shows that you can trade this stuff if you’re not trading actual bitcoins and someone massively subsidizes it.”