El Salvador On Verge of Adopting Bitcoin Standard
El Salvador On Verge of Adopting Bitcoin Standard
Bitcoinization Begins
Which country will be the first to embrace Bitcoin in a meaningful way? That question may soon have an answer. During the Bitcoin conference in Miami, a major company (Strike) in the Bitcoin innovation space gave an announcement that really needs to be taken seriously. They’ve been deploying their application in El Salvador, aiding in a project called Bitcoin Beach with the intent on creating a bitcoin based micro economy. Because of this, El Salvador looks to be passing a bill that will declare Bitcoin as official legal tender within the country. The aspects that are up for speculation is whether or not El Salvador will also add BTC to the country’s reserves. The Bitcoin Standard is becoming real.
There are major stops along the way to global Bitcoin adoption. This is one of them.
Why El Salvador?
The countries with the most to gain from adopting Bitcoin, will be the first to do so. El Salvador currently ranks 106th economically, and 93rd in the Prosperity Index.
El Salvador is home to a budding Bitcoin movement based in El Zonte, also known as Bitcoin Beach. For the past few months, Strike.global has been deploying the first version of their application for the residents of El Zonte. For the past 2-3 years, an organization under the name Bitcoin Beach has been supporting an experiment wherein the residents of El Zonte are taught about Bitcoin. They are given Bitcoin by Bitcoin Beach with the support of an anonymous donor who has donated some of their Bitcoin to bootstrap a BTC based micro-economy. Bitcoin Beach regularly gives residents a deposit of Bitcoin in order to pay for bills, groceries, and goods within the community of El Zonte.
The Path to Adoption
Mrugakshee and I had the pleasure of interviewing Michael Peterson on our podcast. Michael is the founder and director of Bitcoin Beach. During the first stages of Bitcoin Beach, they were trying to get the community into Bitcoin through seeding an older demographic of the public. The movement really gained momentum when they turned to the youth and paid them in Bitcoin to teach the community how to use bitcoin for everyday transactions. After the youth had Bitcoin amongst themselves, the shop keepers and merchants really benefitted from learning how to accept it. The youth helped accelerate a circular bitcoin economy, and essentially became Bitcoin support specialists for the community.
This experiment has attracted the attention of Bitcoiners all over the world. Many have made the pilgrimage to El Zonte in order to see it all in action.
Enter Strike.Global
Strike has been in development for around a couple of years. Their app is based on the lightning network, a secondary scaling solution for Bitcoin. Lightning makes Bitcoin transactions basically free (satoshis per transaction) and instantaneous. Strike is looking to leverage the properties (speed and cheap transactions) of the lightning network in order to build a payments network that makes the current financial system interoperable with Bitcoin. That is, all fiat currencies will be able to be instantly traded, and exchanged with each other using Bitcoin as the underlying infrastructure. You will be able to send any fiat currency anywhere else in the world, and have the recipient receive their local currency; for free; instantly.
Strike has decided to launch in El Salvador first, according to the ethos of “Who Needs this Tech First?”. This reinforces the hypothesis that Bitcoin will be adopted by countries with the most to gain first, and the most to lose last. Part of the reason why El Salvador is first, is because much of the population is reliant on remittances from families working in other countries1. Strike is going to make it so families can get their money sooner, and keep more of it when it arrives.
The Countries with the Most to Gain
This move by El Salvador is the circumstance that analysts have been waiting for. We have not had a data point as significant as this one could be, for determining the ability for Bitcoin to lift countries, and citizens out of their current economic paradigm. El Salvador is considered to be a “Dollarized” country. This means the citizens value the dollar more than they value their government issued currency. To date, there has not been an effective way of getting out of dollarization once it has started. Bitcoinization may be the way of stopping dollarization, as it is entirely opt-in, and capable of detaching countries from their dependance on the dollar.
I am extremely interested to see how poverty, GDP, and quality of life changes after several years of Bitcoinization. The hypothesis is that Bitcoinization can really only benefit those who undertake the process, though this theory has yet to substantiated by mountains of evidence. Not because it hasn’t been occurring in pockets all over the world since 2009, but because substantial beneficial changes take decades to manifest.
The Countries with the Most to Lose
Of course America won’t adopt Bitcoin at the federal level for quite some time. They have much more to lose from adopting a Bitcoin standard than they have to gain. Specifically, they have the status of the USD as the global reserve asset, and all the Exorbitant Privilege that comes along with it. The term “Exorbitant Privilege” was famously first stated by the French minister of Finance when describing the power of the USD as the global reserve asset.
The power to decide what the globe calls money is the ability to determine how and what people value. It is the ability to dictate which countries can trade, who they can trade with, and what they can trade with one another. The adoption of a Bitcoin standard from the grass roots stands to erode that power, by establishing new censorship resistant channels through which countries can trade.
What Does This Mean for You?
If you’re a buyer of cryptocurrencies and have been skeptical of Bitcoin because of its “low transaction throughput”, pay attention. The ability for the lightning network to make payments possible for Bitcoin should not be underestimated.
If you’re someone who works, lives, or supports your family in another country, pay attention. Your remittances are about to get a whole lot cheaper.
If you’re working in the remittance industry, pay attention. There is major disruption headed your way.
For the rest of us, this is an exciting time for Bitcoin and the cryptocurrency industry. The fact that a country is taking steps towards Bitcoin adoption in a meaningful way is something we’ve all been waiting for, for a very long time.
All the best,
Keegan Francis