El Salvador: In search of the Bitcoin Eldorado
“Pay with Bitcoin? Yes, of course, you can do that.” Jose points to the QR code on the counter and quickly calculates how many Satoshis I need to send over to him. I double-check that Jose knows I want to pay via Lightning Network, start my wallet, scan the code, approve the transaction. Then tense silence. We both stare at our displays, waiting for the 5,400 or so sats to move from A to B.
Then “Bing!” Jose has his bitcoin, I’ve settled the bill, and we bump our fists together with some relief. It really worked! Yes exactly, we are part of the same movement, we are bitcoiners. “Gracias Señor!”
Jose is one of a growing number of Salvadorans using Bitcoin as a means of payment. El Salvador’s President would like it like this – BTC instead of dollars, bitcoin bonds, a bitcoin city, endless possibilities. The small Central American country, wedged between Guatemala, Honduras, and the Pacific, has been the new El Dorado for Bitcoiners since 2021. The history and the future of money of an entire society are being written here.
The reputation of El Salvador spread via Twitter, crypto blogs, and the travel reports of enthusiastic Bitcoiners also lure me to El Salvador. The small country has one of the highest crime rates, but youth gangs (maras) rarely target foreigners and tourists. Infrastructure and mobile internet are very well developed, and the Salvadorans are very hospitable. The big pump-action guns of the parking lot attendants and the shots that crack through the night in the western side of the country do not let us forget that El Salvador is a tougher place than other countries.
So how does it feel, the supposed bitcoin country, where is it headed, and who will follow it?
Aside from a few bitcoin ATM billboards at the airport, it’s a long time before we finally come across bitcoin in bitcoin land. Rental car, water, food, accommodation, we pay for everything with the good old dollar. “Not possible right now”, “We don’t have it yet”, “The boss wants to introduce it at some point” – no, the Salvadorans are not crazy about Bitcoin. On average, the 6.5 million inhabitants earn around €280 per month, almost half of the people live below the poverty line. Many cannot even afford the smartphone and mobile internet that is needed for BTC payments. They would rather have dollars, not BTC, which could be worth a lot less tomorrow than they are today. Bitcoin Savings Plans – this is for a tiny part of the people in the country.
The Salvadorans & the Bitcoin
“A lot of people already have the Chivo app. Sure, everyone wants the $30,” Jose says over the bar counter. “Who says no to $30?” Chivo (“cool”) is the smartphone app that more than half of Salvadorans already use. Every citizen received $30 in BTC from the state via airdrop – this is how Bitcoin should spread quickly. But the fact that the government holds the private keys and that the app is packed with bugs was not what the invention intended. Now the company AlphaPoint from the USA should get the problems under control.
Bitcoin adoption is being attempted to sell as a profit. President Nayib Bukele recently announced that GDP will grow by 10% in 2021 thanks to the Bitcoin Act, and tourism by 30%. Bitcoin is certainly what drew attention to El Salvador in the first place. Many bitcoiners (also at the invitation of the Salvadoran government) came to the small country out of curiosity. However, Bukele does not say that GDP and tourism will grow again after the Corona crisis. And on our trip we come across people for whom we are the first Europeans to see them in two years.
Bitcoin Beach: The Mini Lab
Bitcoin has long been an issue in El Salvador. It is not President Bukele (self-definition: “the coolest dictator in the world”) who brought cryptocurrency into the country, but an American. The American Michael Peterson, who has been surfing on the Pacific coast for many years, started the “Bitcoin Beach” project in the small town of El Zonte in 2019. There you can pay with Bitcoin in some shops, restaurants, and hotels, and the system is now so well known there that the Layer 2 network Lightning Network and its advantages (faster, cheaper, etc.) are quite popular. As Bitcoin Beach, El Zonte has become one of the places of pilgrimage for Bitcoiners. However: If you don’t come to surf, you will have seen everything in a short time and will see the small town with the garbage cans on which the big orange “B” was painted.
The Bitcoin Beach project, launched in 2019, has been a source of inspiration for Bukele to introduce BTC as a means of payment. But there are other players that had a major contribution. Central is Samson Mow, the former chief strategy officer of mining firm Blockstream. He is one of Bukele’s most important advisors and is considered to be the brains behind El Salvador’s notorious bitcoin bonds (aka Volcano Bonds). And he and the founder of the Berlin startup Fulmo, Jeff Gallas, were also involved when Bukele presented his vision of the “Bitcoin City” to the world public. The city is to be built near a volcano using geothermal energy, including CO2-free mining facilities and, of course, plenty of tax breaks for international crypto investors. Unfortunately, there are also doubts – more here).
At the end of 2021, however, this did not dampen the euphoria among crypto enthusiasts when they were invited to El Salvador by Bukele. After the tour group (many bloggers and journalists) had made their BTC payments at Starbucks, McDonald’s and Co. as well as several appointments with politicians, they were all sold as Bitcoin investors by the Salvadoran media. The Austrian participant of the trip, Anita Posch, later distanced herself from it, even a German journalist found the staging around Bukele too much (see here).
President Bukele: Not cool and ultra-conservative
Nayib Bukele is 40 years old and has been President of the Central American country since 2019. Before that, he was the mayor of San Salvador, and hardly anyone knew him outside the country’s borders. But since he introduced Bitcoin as legal tender, he became famous worldwide. Most people associate him with bitcoin, inverted baseball caps, and hip-hop. However, he can do other things as well. In early 2020, he marched the military into parliament to vote on expedited funding for the security forces. Critical journalists are being monitored by the government using the notorious Pegasus spy software. And a total ban on abortion leaves many women in the country with the tragic choice of either spending a long time in prison or secretly having dangerous abortions.
But Bitcoin is just one of many big plans that Bukele is rolling out. He dreams of a united Central America, just as it did when San Salvador briefly became the capital of the República Federal de Centroamérica after Spain’s independence, which united Guatemala, Honduras, El Salvador, Nicaragua, and Costa Rica from 1823 to 1840. There are already unofficial offshoots of Bukele’s political party “Nuevas Ideas” in Guatemala and Nicaragua.
Bitcoin, meanwhile, is the way to break away from the US dollar, which has been El Salvador’s official currency since 2001. Because with Washington Bukele is more and more at odds. “We are not your colony, your backyard or your front yard,” he recently told US President Biden and his administration. Because US senators accused El Salvador that the Bitcoin law would favor “malicious actors like China and organized criminal organizations”. Maybe it’s not about Bitcoin at all, but rather about geostrategic considerations.
In neighboring Guatemala, traditionally the US’s closest ally in the region, there are rumors that Bukele could allow the Chinese to set up a military base. China promised Bukele massive investments in 2019 and is building a stadium and a sewage treatment plant; in return, Bukele moved the El Salvador embassy from Taiwan to Beijing.
Ominous bitcoin bonds
The ties to China and the regional power games indicate that Bukele wants to position El Salvador away from the US and the dollar. This means that the country has to look elsewhere for investors – and why not among crypto-afficionados around the world as well?
El Salvador offers this with the already mentioned Volcano Bonds. These bitcoin bonds should bring the small state a billion dollars, which should also co-finance the ominous Bitcoin City and on the other hand should be invested in BTC. Investors are promised a return of 6.5% – further increases in the price of BTC are expected, which could then be distributed to investors, which are even promised citizenship as a goodie.
But are Salvadoran government bonds a good idea? The small country ranks 115th out of 180 countries in the Corruption Perceptions Index.