21 ms·

El Salvador adopts Bitcoin as official currency, first country to do so

222 points by TOMDM 5y ago

remir 5y ago
Why go with Bitcoin specifically? Why not use the Celo blockchain or Algorand instead and create their own stable coins on there? Both these networks are proof of work, transactions are very fast and cheap as well. Bitcoin is slow to validate transactions, is environmentally costly, and its value fluctuate, so I'm not sure what they were thinking. I wonder what the 30$ they receive from the gov is worth today after the dip.
- snissn 5y ago
  Lazer eyes
- doomroot 5y ago
  Because bitcoin is by far the most scalable decentralized censorship resistant cryptocurrency. That isn’t a popular opinion here but it’s true. Improvements to the protocol are slow and often boring. The kind of thing that countries want in a cryptocurrency.
- option_greek 5y ago
  Algorand is not proof of work. Its a variation of PoS with very interesting use of VRF functions.
  - Tenoke 5y ago
    More than a year after its smart contract introduction devs have still failed to create a single DEX (let alone something more complex) there despite trying. The one Algo were hyping about having a dex last October (idex i believe) have quietly removed mentions of Algo on their site after failing despite all the PR. This should tell you how good of a choice Algo is for anything. There's plenty other promising POS chains on which devs are actually successfully managing to build stuff on to be focusing on Algo.
    - option_greek 5y ago
      True. They never had any good growth strategy anyway. Also there is no good plan to keep the ledger size sane. Like I mentioned, their consensus algo is innovative the execution beyond that is lacking because there wasn't any organic growth happening.
    - encryptluks2 5y ago
      Solana would be a much better choice IMO. They already have Saber and Serum.
      - Tenoke 5y ago
        And raydium which is the 4th biggest DEX in crypto[0]. Yes, from those I follow Solana would also be my choice if I had to bet because they are already at/close to the point where they can have high tps, low fees, POS, and still be decentralized (more work on that end is needed but now they are nearing 1k validators). They also have built their chain in 2 years which is barely enough time to implement minor changes for competitors. Additionally, they just got the hype/huge investments so they have the users and attention, too. 0. https://www.coingecko.com/en/dex https://www.coingecko.com/en/dex
    - gnarcoregrizz 5y ago
      is it because of programming difficulties with their runtime (non-turing complete?), bugs in their runtime, or just no one interested in programming on their platform?
      - Tenoke 5y ago
        I believe the first (incomplete implementation). There's definitely plenty that tried (with money behind them). I hear that with some changes to the chain it might be feasible soon (there are some demos on their testnet, none on mainnet) but I've stopped following them much.
    - dQw4w9WgXcQ 5y ago
      Is AlgoDex not working? What would be the purpose of rushing out tools and smart contracts that need to be verified and routinely cause irreparable damage due to security and bugs? There are already two HN startups using Algorand: 1) Lofty.AI, which has been a smash hit for tokenizing real estate and making daily income and 2) Algofi, which is S21 and intended for lending. There's also ANote + Opulous for owning tokenized music royalties, and AlgoGems for NFTs + Yieldly for NLLs, etc. With the recent news that El Salvador will use Algorand for their infra and the $100M+ ArringtonXRP investment fund, Algorand is only getting started. Devs are flocking to Algorand for how easy it is to use the wallet and create unique tokens on a fast and scalable network.
- ohhhhhh 5y ago
  The "problems" you've listed have been very clearly debated for the past 5 years. You can find answers. Youre just repeating talking points.
  - amusedcyclist 5y ago
    Please point me to good answers on why proof of work is a reasonable way to run a currency
    - doomroot 5y ago
      https://bitcoin.org/bitcoin.pdf https://bitcoin.org/bitcoin.pdf
      - amusedcyclist 5y ago
        I understand how it works thanks, i'm looking for an explanation as to why this waste of energy is a good way to run a currency
      - solveit 5y ago
        Downvoted for snark that doesn't contribute to the discussion. I would like to see less of this on HN.
    - solveit 5y ago
      Well, it's the only way to run a trustless currency that has been tested at scale. I dislike energy waste as much as anyone else, but that's the current state of things. We will eventually move past this phase with PoS or something, but all the approaches are still in their infancy.
    - 0x000000001 5y ago
      Security
- spraveenitpro 5y ago
  What about just give all the salvadorans one eth rock nft?
- space_rock 5y ago
  Shill those coins. Let me guess you have no idea about the technical tradeoffs involved in bitcoin
- gnarcoregrizz 5y ago
  algorand is proof of stake and is still essentially centralized. they've created and gifted coins to themselves since the start (the early distribution was awful). imo PoS is only viable and "fair" if its bootstrapped by PoW. need to put something in to get something out, at least until there are a lot of stakeholders.
- emersonrsantos 5y ago
  Celo is a proof-of-stake blockchain.
  - remir 5y ago
    You're right. I made a mistake and now it's too late to edit my comment.
- Nursie 5y ago
  Because the president has fallen prey to the 1% fallacy. He’s on record at a Bitcoin conference saying “BTC is worth x billion dollars, if we can attract just 1% of that to El Salavador as investment…”
- dQw4w9WgXcQ 5y ago
  They will be using Algorand for much of their blockchain infrastructure: https://www.coindesk.com/events/2021/08/31/el-salvador-to-launch-government-blockchain-infrastructure-on-algorand-by-2021/ https://www.coindesk.com/events/2021/08/31/el-salvador-to-la... What's likely is they'll end up with wrapped Bitcoin on the Algorand chain and using all the Algo tools.
imtringued 5y ago
I wonder if this will prompt the USA to import more products from El Salvador to reduce the size of the remittances sector and thereby lessen the reason people use Bitcoin in the first place. Before anyone tells the Salvadorians to export more products... they do... and they do it by working in a country that exports to El Salvador.
- noelsusman 5y ago
  I doubt the US government cares enough about this to do much of anything, and I'm not sure how importing more products would even work. Would Congress just buy a bunch of Salvadoran coffee beans?
- JumpCrisscross 5y ago
  > prompt the USA to import more products from El Salvador to reduce the size of the remittances sector and thereby lessen the reason people use Bitcoin Who in America would benefit from fighting this? Crypto is a real industry. It’s more profitable for the financial sector than similar activity in U.S. dollars. And the Fed doesn’t thoroughly love that it has to take international factors into account when its political mandate is purely domestic. There is the interventionist foreign policy elite, but they aren’t on strong footing right now. The claim that the U.S. is hellbent on preserving the primacy of the U.S. dollar is largely a myth.
  - imtringued 5y ago
    >Who in America would benefit from this? Well, there would be less immigration from Salvador to the USA so basically people concerned about economic refugees. I don't mean this in a xenophobic way. Balanced trade will improve the conditions in El Salvador and thereby let people stay in their home country voluntarily rather than be forced out for economic reasons.
  - lottin 5y ago
    > Crypto is a real industry. Not really. An industry produces goods and services. What does crypto produce?
washedup 5y ago
As a country where remittances make up roughly 20% of the GDP, and with remittance fees as high as 20% or more, this could boost GDP by 4-5%. Not surprising to see them be the first to do this. Others will likely follow.
- arcticbull 5y ago
  Well if you include the fact you have to pay 1-2% to an exchange to move USD->BTC, and your $0.50-60.00 transaction fee then wait a day or so, and deal with astronomical FOREX risk in the meantime (like today's 30% instant drop in BTC) suddenly Western Union doesn't look so bad. Especially since Western Union actually hands you cash which you have to get out of one of the Bitcoin ATMs that eats 20% of your withdrawal lol. Remember Strike is a centralized custodial wallet offering so not actually Bitcoin. They only use their own private LN to transfer Bitcoin between their own two custodial accounts (which they could elide entirely by using a spreadsheet lol). If they really cared about remittances Bukele would make a deal with TransferWise. That's not what this is about, at all.
  - quantumBerry 5y ago
    What exchange are you using? A major exchange like Kraken charges ~.25% for small traders and lower for bigger ones. You can also buy face to face from someone; if you're lucky someone may need to dump some coin and be willing to trade at par with market. If I'm an el salvadoran with no documentation in the US I can send my $15k wages for like $40 to any individual in El Salvador (who can now use it as currency once on the appropriate local network) without getting rammed by Uncle Sam's large dong while trying to transfer. It's incomparable to Western Union.
    - arcticbull 5y ago
      Coinbase. Where I suspect most people actually transact.
      - quantumBerry 5y ago
vavooom 5y ago
Found this interesting deck[1] on El Salvador's digital climate while looking for smart phone adoption statistics. It would appear that there are more than enough smart devices to allow for such a transition successfully. Already on Twitter we're seeing crypto-punks there using Bitcoin to pay for their McDonalds, paying something like 0.000002 Bitcoin. I can't help but wonder what the outcome +1 year / + 5 years will be. [1] https://datareportal.com/reports/digital-2021-el-salvador https://datareportal.com/reports/digital-2021-el-salvador
- hsavit1 5y ago
  what an awful waste of energy. Each bitcoin transaction uses the energy equivalent the entire lifespan of a tree. Effectively, each bitcoin transaction is cutting down of tree... in this case, for a hamburger
  - bethecloud 5y ago
    Nope. Bitcoin use and mining power are completely uncorrelated. By mining bitcoins, your earn as much as the computational fraction you are representing. So, indeed, there was a race to more and more mining power in the recent years but it can completely be reversed. For example if electricity prices rises. Bitcoin could be used by the whole world with mining only happening on a laptop. That would not change anything for Bitcoin users.
    - simiones 5y ago
      > Bitcoin could be used by the whole world with mining only happening on a laptop. That would not change anything for Bitcoin users. No, that is completely inaccurate. First of all, with current parameters that would mean that you need a good few hundred years to process a few seconds of world-wide transactions. And if the parameters were adjusted such that it would be that easy to mine blocks, bitcoin would become valueless, as everyone with a laptop could produce their own longest blockchain where they have half of all bitcoin. Proof of work systems will always require absurd wastes of energy - that is, by definition, the only way they ensure the correctness of the blockchain.
rglover 5y ago
Best part is the President trolling the IMF on Twitter: https://twitter.com/nayibbukele/status/1435263064933285898 https://twitter.com/nayibbukele/status/1435263064933285898
- richwater 5y ago
  Yea, best to troll on Twitter than fix your country that has the literal highest homicide rate in the world. Murder good for Bitcoin?
  - bpodgursky 5y ago
    Fixing crippling poverty a big part of fixing murder. The president thinks that this is their path to leap-frogging into the lead w/ a digital economy and giving people opportunities not linked to drugs and crime. Is it how I do it? Probably not exactly. But it's disingenuous to say that economic and financial changes are not a piece of fixing social problems like persistent crime.
  - doomroot 5y ago
    Good argument. /s
  - Geee 5y ago
    He fixed the homicide rate already. [0] [0] https://foreignpolicy.com/2021/03/03/el-salvador-homicide-historic-low-2020-gangs-migration/ https://foreignpolicy.com/2021/03/03/el-salvador-homicide-hi...
    - arcticbull 5y ago
      ... by looking the other way while the cartels operate with impunity. My understanding was there was a handshake deal with the narcos that if they stopped murdering they'd stop checking in on them. [1] So yes, if you allow the state to become an arm of the cartels then I suppose you can call it a job well done that they're not murdering as many people. [1] https://www.bbc.com/news/world-latin-america-54192736 https://www.bbc.com/news/world-latin-america-54192736
pwm 5y ago
I read the whitepaper around early 2011 if my memory serves right. I remember finding it rather intriguing but also quite far-fetched for the lack of a better word. A whacky thought experiment on how to reimagine money only just after the GFC. Now 10 years later that whacky thought experiment is an official tender of a country. We truly live in interesting times :)
- stiltzkin 5y ago
  Can't take you serious if you find it "whacky" or "far-fetched".
booleandilemma 5y ago
It’s amazing how countries are wholeheartedly adopting this thing as an official currency that we have no idea who invented and for what purpose. I mean sure, there’s a white paper that says why it was invented, but why should anyone believe it? If it does turn out to be malicious it’s going to make for one hell of a cautionary tale.
- doomroot 5y ago
  Malicious in what way? Do you mean the software? The software has been developed in the public for 10+ years.
  - amusedcyclist 5y ago
    The software isn't malicious but the decision to use it could be driven by malicious intent . Wonder what the presidents investment portfolio looks like
    - deleted 5y ago
      [deleted]
- jp42 5y ago
  Actually it's far more transparent and verifiable by anyone than you would think. I highly encourage you to read more about it. I have no doubt the more understand the more you appreciate it.
  - cwkoss 5y ago
    Is there any fiat currency with better transparency properties than Bitcoin? I don't think so... certainly not to non-banker members of the public.
- deleted 5y ago
  [deleted]
- TheBlight 5y ago
  You don't have to "believe" anything. The "why" doesn't matter. The code is completely open and auditable.
aazaa 5y ago
> To warm up a skeptical public, Bukele has promised every citizen $30 in bitcoin if they sign up for a government digital wallet. Ahead of the launch, El Salvador bought 400 bitcoins, Bukele said, helping drive the currency price above $52,000 for the first time since May. > In the early hours of Tuesday the wallet had not appeared on Apple Inc., Google and Huawei’s app download platforms, however, prompting a series of tweets from Bukele, including one with a red-faced “angry” emoticon. The involvement of a government-issued wallet gives this story an even stranger dimension. First, it's not clear how the government will identify those eligible to receive the $30 bitcoin deposit. Second, why would the government be involved at all in developing a wallet? There are plenty to choose from now, so what features exactly were missing in those? Finally, what government in its right mind would hitch its fortunes to the vagaries of a walled-garden App Store based in the US, a country clearly hostile to the Salvadoran experiment?
- rgrieselhuber 5y ago
  I’d be skeptical about using a government wallet as well, though it could potentially make initial disbursements easier.
  - ridethebike 5y ago
    This probably eliminates this whole "bitcoin is privacy and independence from government" thing but I think for majority of bitcoin buyers it was not more than just a nice talking point anyway.
    - rgrieselhuber 5y ago
      The best argument for Bitcoin is that it’s not created out of thin air and then lent to people with interest, IMO.
      - okl 5y ago
        Sure, it's created out of hot air and instead of interest you have crazy transaction fees.
Proven 5y ago
Doesn't seem particularly useful, but who cares! Let's see what happens. I suspect someone in the government was long BTC. In any case, this won't change anything.
mimikatz 5y ago
Down 1.6 million the first day. Good luck 400 coins BTC-USD Bitcoin USD 47,256.78 -4,285.39 -8.31%
- JumpCrisscross 5y ago
  What fraction of their reserves are and will be held in Bitcoin? Would a Bitcoin crash prompt a balance of payments crisis?
- dmichulke 5y ago
  In Jan 2020, the USD monetary base (= the other legal tender in El Salvador) was 15.3 trillions, in Jan 2021 it was 19. That's a drop of 24% in purchasing power. https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2
  - deleted 5y ago
    [deleted]
  - rory 5y ago
    > That's a drop of 24% in purchasing power. No, it's not, because purchasing power doesn't scale linearly with M2 money supply.
    - quantumBerry 5y ago
      It's a drop relative to what it would be if the money supply had not increased accordingly, not versus what the purchasing power was at that point in time.
      - rory 5y ago
        No, again that's simply not correct. We can empirically observe purchasing power and money supply, so there's no need to speculate. One-time changes to M2 of that magnitude have been shown to have small to no effect on inflation [0]. [0] https://www.commonfund.org/blog/chart-of-the-month-money-supply-and-inflation https://www.commonfund.org/blog/chart-of-the-month-money-sup...
skizm 5y ago
How are they getting around the very long wait times and large fees for transaction confirmations? I'm guessing the "government digital wallet" is just an account on a government service that changes values in a (centralized) database while holding a bunch of btc under the hood? Or maybe there are private bank options that do the same?
- dahfizz 5y ago
  Credit card transactions take 3 days to clear the visa network, but swiping your card to pay for something is still instant. These things have already been solved in the application layer.
  - el-salvador 5y ago
    This is one of the reasons that many Uber drivers in El Salvador cancel rides paid with credit cards. They prefer to be paid in cash.
- m00dy 5y ago
  They use lightning network.
- doomroot 5y ago
  The mempool is relatively empty to fees are pretty minimal at the moment. But you are mostly right about holding balances on the app on a centralized database. However they are partnered with large lightning payment providers like Strike to make bitcoin transactions over the lightning network to non-government wallets.
- la_fayette 5y ago
  They use layer 2 lightning network.
- Geee 5y ago
  Lightning Network. [0] [0] https://lightning.network https://lightning.network
m00dy 5y ago
Now, we all know where to wash our bitcoins.
amusedcyclist 5y ago
An authoritarian banana republic is pretty much the only place where something like this would happen : https://www.hrw.org/news/2021/05/21/us-can-stop-el-salvadors-slide-authoritarianism-time-act https://www.hrw.org/news/2021/05/21/us-can-stop-el-salvadors...
- doomroot 5y ago
  Generally speaking banana republic is an offensive term to those living the states you’re referring to.
  - solveit 5y ago
    Only if you like said country.
  - beervirus 5y ago
    So is “shithole country” but that doesn’t make either term inaccurate.
  - amusedcyclist 5y ago
    The phrase is meant to be insulting to the leader not the people of the country
ouid 5y ago
Good thing no one has to write any long term contracts in El Salvador.
- doomroot 5y ago
  If you’re worried about it denominate it in USD? I don’t see why the problem is here.
liuliu 5y ago
Because they have both Dollar and Bitcoin as legal tender, the result is unclear. In theory, because USD is still cheaper (if Bitcoin is supplied constrained as it is promised), people will trade with USD and hoard Bitcoin. However, when crossing borders, USD is more cumbersome to move around, that may deter people to import products with "cheap" USD. It would be very interesting to observe, whether they will eventually move to Bitcoin only (if the bull market keeps going) based on Economics history (because domestic market will hoard Bitcoin, causing outflow of USD). And if that happens, would be interesting to observe the other factors (wage and services) deflate as the theory predicts.
- JumpCrisscross 5y ago
  Gresham’s law [1] would (EDIT: loosely) predict Bitcoin gets hoarded while U.S. dollars trade. [1] https://en.m.wikipedia.org/wiki/Gresham%27s_law https://en.m.wikipedia.org/wiki/Gresham%27s_law
  - thehappypm 5y ago
    You're joking right? The "bad currency" here is clearly Bitcoin, which cannot actually be used to buy things in 99.999% of global market situations. If El Salvadorian businesses want to buy computers, trucks, fertilizer, food, whatever, BTC is meaningless and will need to get converted to USD.
    - imtringued 5y ago
      Salvadorians in USA convert their USD in BTC and Salvadorians in El Salvador convert it back to USD. They aren't trying to invest or hold onto Bitcoin.
      - thehappypm 5y ago
        You’re agreeing with me. You wouldn’t want to hold onto Bitcoin because it’s the inferior currency option.
  - 5y ago
atlacatl_sv 5y ago
yep, That's why protests are taking place in El Salvador. We have also uncovered some security holes. https://twitter.com/Rchr2M/status/1435236141112905732 https://twitter.com/Rchr2M/status/1435236141112905732 https://twitter.com/david_a_garcia/status/1435259111965446146 https://twitter.com/david_a_garcia/status/143525911196544614... Protests: https://twitter.com/OscarMachon/status/1435272669189087236 https://twitter.com/OscarMachon/status/1435272669189087236
- gruez 5y ago
  >We have also uncovered some security holes. What security holes? The first tweet seems to be some sort of some sort of app saying it's a virus, and the second seems to say that it collects IMEI information. Neither constitute good evidence of "security holes".
  - atlacatl_sv 5y ago
    My mistake, I should have not said security holes. It's leaking and collecting private information. Did you look into the Android Manifest for the virus tweet link? Merci beaucoup for correcting my mistake.
    - staplers 5y ago
      It's leaking and collecting private information. How is this any different from any banking app?
      - el-salvador 5y ago
        Not much.
  - boudin 5y ago
    And sends contacts to a server and ask for the microphone permission as well (claimed by the tweet)
alberth 5y ago
Monetary Policy. Can someone explain how a country plans to implement a monetary policy (e.g. inject new currency during a recession to fund expansion) when they don’t control their national currency (Bitcoin).
- azinman2 5y ago
  It seems their monetary policy is remittances. My guess is ppl will quickly cash out to dollars. But how will the dollars get back to the local exchanges unless people are buying bitcoin there? This seems like a disaster in the making.
  - toomuchtodo 5y ago
    Indeed, but it’s still a natural experiment to observe.
    - azinman2 5y ago
      On a very poor population where even a 1% swing in valuation can make a huge difference in someone’s life. There’s also no recourse for fraud here — the industry has all kinds of scrupulous players and isn’t as locked down as traditional banking. To me, it seems like El Salvador should have created a MoneyGram competitor and left it at that. They could remove/reduce commission without all the rest of the risks.
      - toomuchtodo 5y ago
        To your point, they could've partnered with TransferWise/Wise.com or OFX to build a white label app that allowed for frictionless remittance and fiat management for their citizens and "wallet management" (ie deposit accounts), and your usual fintech wallet accounts. This would be no different than the UK's Faster Payment's service being a managed service by Vocalink [1]. Some have proposed the US Fed issuing FedAccounts, deposit accounts held at the Fed with no fees, to sidestep inequity and predatory behavior from commercial banks. This would be very similar, except the El Salvador government outsourcing these functions (as they rely primarily on the US dollar as their currency) and the cross border exchange. Onboard citizens using their DUI (Documento Único de Identidad) or Passport number, voilà, they're banked and can store or transfer monetary value. Subsidize physical hardware for those who can't afford a smart phone. Does El Salvador need a blockchain or crypto? No, of course not. They need inexpensive facilitation of domestic financial services and cross border remittance to reduce currency import drag. Instead, inept politicians (for various reasons out of scope for this thread) are going to cause a lot of suffering, but it will be helpful to have a case study to point to in order to demonstrate the nation state policy failure. This is worse than being reliant on another country's monetary policy and central bank. You're tying your economy to a speculative asset with few governance mechanisms. C'est la vie. [1] https://www.vocalink.com/payment-processing/real-time-payments/ https://www.vocalink.com/payment-processing/real-time-paymen...
Anon84 5y ago
What could possibly go wrong with moving a non-trivial fraction of a countries economy to an account that can be controlled by a single bureaucrat with absolute power to transfer the funds as they see fit with no possibility of appeal?
thaumasiotes 5y ago
What are the US tax implications of Bitcoin being an official foreign currency?
- junon 5y ago
  This is also my question. This blurs all sorts of lines.
arcticbull 5y ago
Congratulations El Salvador on replacing the Federal Reserve with Paolo Ardoino's unlimited Bahamian money printer (note that all executives at Tether received DOJ target letters for bank fraud recently [1] - and are banned from doing business in New York [2]), and letting your exchange rate be managed by Alameda Research and Cumberland/DRW [3]. I can't imagine this going poorly in any way what so ever. So join me and Bukele in raising a big ol' middle finger to the IMF. [4] Maybe next they can move to Bitfinex Securities, a Kazakstan corporation, to manage their stock exchange! [5] [edit] I mean, holy shit, what did I even write? This truly is the dumbest timeline. Well, second dumbest - after all the entire country of Albania got swept up in Ponzi schemes, jailed their finance minister and had a civil war over it. You know what they say about history rhyming. [6] [1] https://fortune.com/2021/07/26/tether-crypto-bank-fraud-doj-investigation/ https://fortune.com/2021/07/26/tether-crypto-bank-fraud-doj-... [2] https://ag.ny.gov/press-release/2021/attorney-general-james-ends-virtual-currency-trading-platform-bitfinexs-illegal https://ag.ny.gov/press-release/2021/attorney-general-james-... [3] https://protos.com/tether-minted-usdt-stablecoin-crypto-two-alameda-cumberland/ https://protos.com/tether-minted-usdt-stablecoin-crypto-two-... [4] https://www.france24.com/en/live-news/20210610-imf-warns-of-risks-after-el-salvador-adopts-bitcoin https://www.france24.com/en/live-news/20210610-imf-warns-of-... [5] https://cointelegraph.com/news/bitfinex-launches-security-token-platform-regulated-in-kazakhstan https://cointelegraph.com/news/bitfinex-launches-security-to... [6] https://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm https://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.ht...
- deleted 5y ago
  [deleted]
grey-area 5y ago
Shame it’s a terrible currency.
29athrowaway 5y ago
It is weird that they decided to use Bitcoin instead of another currency.
- stickfigure 5y ago
  El Salvador (and Panama) already use USD as a currency. Which other currency do you have in mind?
  - 29athrowaway 5y ago
    Ethereum or another crypto.
melenaboija 5y ago
Could someone explain me the intuition behind the BTC drop? Why changing the owners of a small fraction of an asset that is not affected by any policy should reflect this? Is it just the feeling from some investors that BTC can not be taken seriously? It is hard for me to understand the logic of it and the only reason that could come to my mind is that some investors don't understand what they are buying.
- im_down_w_otp 5y ago
  Insofar as I can tell I think it's the opposite. They know exactly what they're investing in, and acting accordingly. Investment activity around cryptocurrency doesn't look at all like the incredibly boring world of currency swaps.
- Geee 5y ago
  Maybe it was someone protesting, or sending a message. It was a big trader(s) selling or shorting a lot of bitcoin and causing a cascade of liquidations on leveraged trades (over $1B). However, when the margin traders have been liquidated, the price has a better support for continued upside.
- cwkoss 5y ago
  The tinfoil hatters all believe it is the global banking cartel trying to punish El Salvador for fighting dollar hegemony. Seems a bit farfetched, but maybe.
99_00 5y ago
El Salvador's currency is pegged to the US dollar. They have a low degree of monetary sovereignty. I don't know the pros and cons of a country like that adopting bitcoin. But their willingness to take the high risk road to do the experiment will benefit all of us. A country the like US who has a high degree of monetary sovereignty has a lot to loose and very little go gain by adopting bitcoin. If you believe in Modern Monetary Theory. Given the way things have gone since 2008 financial crisis i believe MMT is the best model available. Any discussion surrounding adoption of bitcoin should focus on what you gain and what you loose. Because there are always tradeoffs.
- Ancapistani 5y ago
  > A country the like US who has a high degree of monetary sovereignty has a lot to loose and very little go gain by adopting bitcoin. If you believe in Modern Monetary Theory. Given the way things have gone since 2008 financial crisis i believe MMT is the best model available. I’m a huge proponent of the free market, and opponent of Keynesian economics - but even I freely admit that the US moving to a fully free market system would have disastrous consequences. That doesn’t mean a “fully floating” currency is better; it means that there is a barrier to exit. There are lots of things in life that are easier to adopt than to abandon :)
Devasta 5y ago
Let's ignore that Bitcoin is climate arson, and that its only used for money laundering and buying drugs. Bitcoin has a max throughput of 7 transactions per second. It's utter lunacy to suggest that it could function as a currency for a country. This will only end in tears.
- kleer001 5y ago
  Energy use is not energy source. There's been no full accounting of the carbon footprint of bitcoin mining, only its use. Much of it is done using geothermal or other renewable sources. (edit, incorrect) That El Salvador is adopting it refutes your second claim. Then there's the lightning network which increases the transaction throughput. Everything is going to be okay.
  - okl 5y ago
    Here are some estimates: https://digiconomist.net/bitcoin-energy-consumption https://digiconomist.net/bitcoin-energy-consumption Do you think they are wrong? By how much?
  - edgefield 5y ago
    Bitcoin and cryptocurrency in its current form is environmental lunacy. I don't know what problem digital currency solves when the planet can no longer sustain human life due to climate change.
    - cwkoss 5y ago
      100 corporations are responsible for 71% of global emissions. https://www.theguardian.com/sustainable-business/2017/jul/10/100-fossil-fuel-companies-investors-responsible-71-global-emissions-cdp-study-climate-change https://www.theguardian.com/sustainable-business/2017/jul/10... I struggle to find hand wringing about bitcoin's energy consumption as anything but naive or sour grapes. Society is never going to voluntarily reverse total energy consumption. Either price bitcoin mining out of the market, or focus on voting with your wallet and regulating carbon emissions at the energy production level. Arguing about how people should spend their money on energy is a waste of political energy. Millions of people believe that bitcoin is worth the energy costs. "Too much" energy usage is entirely subjective.
aeturnum 5y ago
On one hand, the 'digital gold' aspect of bitcoin make it attractive for countries that want access to a non-US-dollar currency. However, it seems like the most sane version of such a system would basically use a private blockchain (or even a basic centralized tabulation service) run by the central bank. Having your central bank run a centralized system through bitcoin isn't much different than running a centralized system through some other currency. On the other hand, the power requirements of Bitcoin seem like they make it a very poor choice - both from an ethical point of view and a practical point of view. In the same way that using a foreign currency exposes you to the ups and downs of that currency, El Salvador now has to deal with the operational realities of bitcoin. This seems potentially worse than simply adopting another fiat currency because you've handed over control of how transactions work.
TenJack 5y ago
Why not use a stablecoin? Or are they dealing with Bitcoin volatility in another way?
- Ancapistani 5y ago
  What advantage would a stablecoin have over using the underlying currency directly? It has the significant disadvantage of adding an additional trust entity (the backing bank) which could prove untrustworthy. Over a long enough timescale, I would argue that all backing banks have proven to be untrustworthy.
  - TenJack 5y ago
    Doesn’t it seem concerning to tie a countries currency to something so volatile that it could literally halve over night? Not trying to argue. Just trying to understand.
    - cwkoss 5y ago
      Fiat currencies can go to zero in an instant via political changes. (Ex, see indian demonitization in 2016). All forms of money have risks. I think the diversification of supporting BOTH USD and BTC seems to get a bit of the best of both worlds.
      - TenJack 5y ago
        Right so why not USD coin instead of Bitcoin?
        cwkoss 5y ago
        USD-pegged stablecoins kind of have the worst of both worlds - the risks of crypto AND the risks of fed monetary policy. Stablecoins shouldn't be used as a store of value, only as a medium of exchange.
        5y ago
bob229 5y ago
Waste of time, blockchain is a garbage technology
jedimastert 5y ago
I'm really interested that they chose BTC as opposed to making their own, which as I understand it isn't super hard to do? Tying to an already-established commodity, and an exceptionally volatile one at that, seems wildly irresponsible to me, but I'm very VERY under-educated in this area
- Ancapistani 5y ago
  Considering only “Bitcoin-like” proof of work blockchains, starting an independent chain subjects you to security risks. If the computing resources of the entire country of El Salvador were devoted to mining their Bitcoin fork 24/7365, it would still likely be possible for a richer country to temporarily allocate more computing resources and “undoing” transactions, effectively destroying the validity of the transaction history.
- lottin 5y ago
  They gave up on having their own currency a long time ago. Basically El Salvadorans decided that they aren't competent enough to manage a currency of their own, and adopted someone else's currency instead.
aretzky 5y ago
I honestly don't get it. I sent BTC from one wallet to another, and it took like 90 minutes. And $20 fees. I cannot imagine paying for anything with this. How can user experience be compared to paying with VISA, PayPal or anything else?
- pavlakoos 5y ago
  I tried sending XRP from one wallet to another, and it took a little more than a minute. Much much better than BTC, but still not credit cards...
  - quantumBerry 5y ago
    It takes days for a credit card transaction to settle, and the buyer could file a chargeback and erase not only your profits but your cost basis. That (many cryptos) is a hell of a lot faster and more secure for a merchant.
- xur17 5y ago
  This comes up in every thread about Bitcoin, and in every thread there are numerous responses stating "lightning network is the solution to the fees". And.. that's exactly what El Salvador is using. Instant settlement, with basically 0 fees.
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222 points by TOMDM 5y ago

Why go with Bitcoin specifically? Why not use the Celo blockchain or Algorand instead and create their own stable coins on there? Both these networks are proof of work, transactions are very fast and cheap as well. Bitcoin is slow to validate transactions, is environmentally costly, and its value fluctuate, so I'm not sure what they were thinking. I wonder what the 30$ they receive from the gov is worth today after the dip.

snissn 5y ago
Lazer eyes
doomroot 5y ago
Because bitcoin is by far the most scalable decentralized censorship resistant cryptocurrency. That isn’t a popular opinion here but it’s true. Improvements to the protocol are slow and often boring. The kind of thing that countries want in a cryptocurrency.
option_greek 5y ago
Algorand is not proof of work. Its a variation of PoS with very interesting use of VRF functions.
- Tenoke 5y ago
  More than a year after its smart contract introduction devs have still failed to create a single DEX (let alone something more complex) there despite trying. The one Algo were hyping about having a dex last October (idex i believe) have quietly removed mentions of Algo on their site after failing despite all the PR. This should tell you how good of a choice Algo is for anything. There's plenty other promising POS chains on which devs are actually successfully managing to build stuff on to be focusing on Algo.
  - option_greek 5y ago
    True. They never had any good growth strategy anyway. Also there is no good plan to keep the ledger size sane. Like I mentioned, their consensus algo is innovative the execution beyond that is lacking because there wasn't any organic growth happening.
  - encryptluks2 5y ago
    Solana would be a much better choice IMO. They already have Saber and Serum.
    - Tenoke 5y ago
      And raydium which is the 4th biggest DEX in crypto[0]. Yes, from those I follow Solana would also be my choice if I had to bet because they are already at/close to the point where they can have high tps, low fees, POS, and still be decentralized (more work on that end is needed but now they are nearing 1k validators). They also have built their chain in 2 years which is barely enough time to implement minor changes for competitors. Additionally, they just got the hype/huge investments so they have the users and attention, too. 0. https://www.coingecko.com/en/dex https://www.coingecko.com/en/dex
  - gnarcoregrizz 5y ago
    is it because of programming difficulties with their runtime (non-turing complete?), bugs in their runtime, or just no one interested in programming on their platform?
    - Tenoke 5y ago
      I believe the first (incomplete implementation). There's definitely plenty that tried (with money behind them). I hear that with some changes to the chain it might be feasible soon (there are some demos on their testnet, none on mainnet) but I've stopped following them much.
  - dQw4w9WgXcQ 5y ago
    Is AlgoDex not working? What would be the purpose of rushing out tools and smart contracts that need to be verified and routinely cause irreparable damage due to security and bugs? There are already two HN startups using Algorand: 1) Lofty.AI, which has been a smash hit for tokenizing real estate and making daily income and 2) Algofi, which is S21 and intended for lending. There's also ANote + Opulous for owning tokenized music royalties, and AlgoGems for NFTs + Yieldly for NLLs, etc. With the recent news that El Salvador will use Algorand for their infra and the $100M+ ArringtonXRP investment fund, Algorand is only getting started. Devs are flocking to Algorand for how easy it is to use the wallet and create unique tokens on a fast and scalable network.
ohhhhhh 5y ago
The "problems" you've listed have been very clearly debated for the past 5 years. You can find answers. Youre just repeating talking points.
- amusedcyclist 5y ago
  Please point me to good answers on why proof of work is a reasonable way to run a currency
  - doomroot 5y ago
    https://bitcoin.org/bitcoin.pdf https://bitcoin.org/bitcoin.pdf
    - amusedcyclist 5y ago
      I understand how it works thanks, i'm looking for an explanation as to why this waste of energy is a good way to run a currency
    - solveit 5y ago
      Downvoted for snark that doesn't contribute to the discussion. I would like to see less of this on HN.
  - solveit 5y ago
    Well, it's the only way to run a trustless currency that has been tested at scale. I dislike energy waste as much as anyone else, but that's the current state of things. We will eventually move past this phase with PoS or something, but all the approaches are still in their infancy.
  - 0x000000001 5y ago
    Security
spraveenitpro 5y ago
What about just give all the salvadorans one eth rock nft?
space_rock 5y ago
Shill those coins. Let me guess you have no idea about the technical tradeoffs involved in bitcoin
gnarcoregrizz 5y ago
algorand is proof of stake and is still essentially centralized. they've created and gifted coins to themselves since the start (the early distribution was awful). imo PoS is only viable and "fair" if its bootstrapped by PoW. need to put something in to get something out, at least until there are a lot of stakeholders.
emersonrsantos 5y ago
Celo is a proof-of-stake blockchain.
- remir 5y ago
  You're right. I made a mistake and now it's too late to edit my comment.
Nursie 5y ago
Because the president has fallen prey to the 1% fallacy. He’s on record at a Bitcoin conference saying “BTC is worth x billion dollars, if we can attract just 1% of that to El Salavador as investment…”
dQw4w9WgXcQ 5y ago
They will be using Algorand for much of their blockchain infrastructure: https://www.coindesk.com/events/2021/08/31/el-salvador-to-launch-government-blockchain-infrastructure-on-algorand-by-2021/ https://www.coindesk.com/events/2021/08/31/el-salvador-to-la... What's likely is they'll end up with wrapped Bitcoin on the Algorand chain and using all the Algo tools.

imtringued 5y ago

I wonder if this will prompt the USA to import more products from El Salvador to reduce the size of the remittances sector and thereby lessen the reason people use Bitcoin in the first place. Before anyone tells the Salvadorians to export more products... they do... and they do it by working in a country that exports to El Salvador.

noelsusman 5y ago
I doubt the US government cares enough about this to do much of anything, and I'm not sure how importing more products would even work. Would Congress just buy a bunch of Salvadoran coffee beans?
JumpCrisscross 5y ago
> prompt the USA to import more products from El Salvador to reduce the size of the remittances sector and thereby lessen the reason people use Bitcoin Who in America would benefit from fighting this? Crypto is a real industry. It’s more profitable for the financial sector than similar activity in U.S. dollars. And the Fed doesn’t thoroughly love that it has to take international factors into account when its political mandate is purely domestic. There is the interventionist foreign policy elite, but they aren’t on strong footing right now. The claim that the U.S. is hellbent on preserving the primacy of the U.S. dollar is largely a myth.
- imtringued 5y ago
  >Who in America would benefit from this? Well, there would be less immigration from Salvador to the USA so basically people concerned about economic refugees. I don't mean this in a xenophobic way. Balanced trade will improve the conditions in El Salvador and thereby let people stay in their home country voluntarily rather than be forced out for economic reasons.
- lottin 5y ago
  > Crypto is a real industry. Not really. An industry produces goods and services. What does crypto produce?

washedup 5y ago

As a country where remittances make up roughly 20% of the GDP, and with remittance fees as high as 20% or more, this could boost GDP by 4-5%. Not surprising to see them be the first to do this. Others will likely follow.

arcticbull 5y ago
Well if you include the fact you have to pay 1-2% to an exchange to move USD->BTC, and your $0.50-60.00 transaction fee then wait a day or so, and deal with astronomical FOREX risk in the meantime (like today's 30% instant drop in BTC) suddenly Western Union doesn't look so bad. Especially since Western Union actually hands you cash which you have to get out of one of the Bitcoin ATMs that eats 20% of your withdrawal lol. Remember Strike is a centralized custodial wallet offering so not actually Bitcoin. They only use their own private LN to transfer Bitcoin between their own two custodial accounts (which they could elide entirely by using a spreadsheet lol). If they really cared about remittances Bukele would make a deal with TransferWise. That's not what this is about, at all.
- quantumBerry 5y ago
  What exchange are you using? A major exchange like Kraken charges ~.25% for small traders and lower for bigger ones. You can also buy face to face from someone; if you're lucky someone may need to dump some coin and be willing to trade at par with market. If I'm an el salvadoran with no documentation in the US I can send my $15k wages for like $40 to any individual in El Salvador (who can now use it as currency once on the appropriate local network) without getting rammed by Uncle Sam's large dong while trying to transfer. It's incomparable to Western Union.
  - arcticbull 5y ago
    Coinbase. Where I suspect most people actually transact.
    - quantumBerry 5y ago

vavooom 5y ago

Found this interesting deck[1] on El Salvador's digital climate while looking for smart phone adoption statistics. It would appear that there are more than enough smart devices to allow for such a transition successfully. Already on Twitter we're seeing crypto-punks there using Bitcoin to pay for their McDonalds, paying something like 0.000002 Bitcoin. I can't help but wonder what the outcome +1 year / + 5 years will be. [1] https://datareportal.com/reports/digital-2021-el-salvador https://datareportal.com/reports/digital-2021-el-salvador

hsavit1 5y ago
what an awful waste of energy. Each bitcoin transaction uses the energy equivalent the entire lifespan of a tree. Effectively, each bitcoin transaction is cutting down of tree... in this case, for a hamburger
- bethecloud 5y ago
  Nope. Bitcoin use and mining power are completely uncorrelated. By mining bitcoins, your earn as much as the computational fraction you are representing. So, indeed, there was a race to more and more mining power in the recent years but it can completely be reversed. For example if electricity prices rises. Bitcoin could be used by the whole world with mining only happening on a laptop. That would not change anything for Bitcoin users.
  - simiones 5y ago
    > Bitcoin could be used by the whole world with mining only happening on a laptop. That would not change anything for Bitcoin users. No, that is completely inaccurate. First of all, with current parameters that would mean that you need a good few hundred years to process a few seconds of world-wide transactions. And if the parameters were adjusted such that it would be that easy to mine blocks, bitcoin would become valueless, as everyone with a laptop could produce their own longest blockchain where they have half of all bitcoin. Proof of work systems will always require absurd wastes of energy - that is, by definition, the only way they ensure the correctness of the blockchain.

rglover 5y ago

Best part is the President trolling the IMF on Twitter: https://twitter.com/nayibbukele/status/1435263064933285898 https://twitter.com/nayibbukele/status/1435263064933285898

richwater 5y ago
Yea, best to troll on Twitter than fix your country that has the literal highest homicide rate in the world. Murder good for Bitcoin?
- bpodgursky 5y ago
  Fixing crippling poverty a big part of fixing murder. The president thinks that this is their path to leap-frogging into the lead w/ a digital economy and giving people opportunities not linked to drugs and crime. Is it how I do it? Probably not exactly. But it's disingenuous to say that economic and financial changes are not a piece of fixing social problems like persistent crime.
- doomroot 5y ago
  Good argument. /s
- Geee 5y ago
  He fixed the homicide rate already. [0] [0] https://foreignpolicy.com/2021/03/03/el-salvador-homicide-historic-low-2020-gangs-migration/ https://foreignpolicy.com/2021/03/03/el-salvador-homicide-hi...
  - arcticbull 5y ago
    ... by looking the other way while the cartels operate with impunity. My understanding was there was a handshake deal with the narcos that if they stopped murdering they'd stop checking in on them. [1] So yes, if you allow the state to become an arm of the cartels then I suppose you can call it a job well done that they're not murdering as many people. [1] https://www.bbc.com/news/world-latin-america-54192736 https://www.bbc.com/news/world-latin-america-54192736

pwm 5y ago

I read the whitepaper around early 2011 if my memory serves right. I remember finding it rather intriguing but also quite far-fetched for the lack of a better word. A whacky thought experiment on how to reimagine money only just after the GFC. Now 10 years later that whacky thought experiment is an official tender of a country. We truly live in interesting times :)

stiltzkin 5y ago
Can't take you serious if you find it "whacky" or "far-fetched".

booleandilemma 5y ago

It’s amazing how countries are wholeheartedly adopting this thing as an official currency that we have no idea who invented and for what purpose. I mean sure, there’s a white paper that says why it was invented, but why should anyone believe it? If it does turn out to be malicious it’s going to make for one hell of a cautionary tale.

doomroot 5y ago
Malicious in what way? Do you mean the software? The software has been developed in the public for 10+ years.
- amusedcyclist 5y ago
  The software isn't malicious but the decision to use it could be driven by malicious intent . Wonder what the presidents investment portfolio looks like
  - deleted 5y ago
    [deleted]
jp42 5y ago
Actually it's far more transparent and verifiable by anyone than you would think. I highly encourage you to read more about it. I have no doubt the more understand the more you appreciate it.
- cwkoss 5y ago
  Is there any fiat currency with better transparency properties than Bitcoin? I don't think so... certainly not to non-banker members of the public.
deleted 5y ago
[deleted]
TheBlight 5y ago
You don't have to "believe" anything. The "why" doesn't matter. The code is completely open and auditable.

aazaa 5y ago

> To warm up a skeptical public, Bukele has promised every citizen $30 in bitcoin if they sign up for a government digital wallet. Ahead of the launch, El Salvador bought 400 bitcoins, Bukele said, helping drive the currency price above $52,000 for the first time since May. > In the early hours of Tuesday the wallet had not appeared on Apple Inc., Google and Huawei’s app download platforms, however, prompting a series of tweets from Bukele, including one with a red-faced “angry” emoticon. The involvement of a government-issued wallet gives this story an even stranger dimension. First, it's not clear how the government will identify those eligible to receive the $30 bitcoin deposit. Second, why would the government be involved at all in developing a wallet? There are plenty to choose from now, so what features exactly were missing in those? Finally, what government in its right mind would hitch its fortunes to the vagaries of a walled-garden App Store based in the US, a country clearly hostile to the Salvadoran experiment?

rgrieselhuber 5y ago
I’d be skeptical about using a government wallet as well, though it could potentially make initial disbursements easier.
- ridethebike 5y ago
  This probably eliminates this whole "bitcoin is privacy and independence from government" thing but I think for majority of bitcoin buyers it was not more than just a nice talking point anyway.
  - rgrieselhuber 5y ago
    The best argument for Bitcoin is that it’s not created out of thin air and then lent to people with interest, IMO.
    - okl 5y ago
      Sure, it's created out of hot air and instead of interest you have crazy transaction fees.

Proven 5y ago

Doesn't seem particularly useful, but who cares! Let's see what happens. I suspect someone in the government was long BTC. In any case, this won't change anything.

mimikatz 5y ago

Down 1.6 million the first day. Good luck 400 coins BTC-USD Bitcoin USD 47,256.78 -4,285.39 -8.31%

JumpCrisscross 5y ago
What fraction of their reserves are and will be held in Bitcoin? Would a Bitcoin crash prompt a balance of payments crisis?
dmichulke 5y ago
In Jan 2020, the USD monetary base (= the other legal tender in El Salvador) was 15.3 trillions, in Jan 2021 it was 19. That's a drop of 24% in purchasing power. https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2
- deleted 5y ago
  [deleted]
- rory 5y ago
  > That's a drop of 24% in purchasing power. No, it's not, because purchasing power doesn't scale linearly with M2 money supply.
  - quantumBerry 5y ago
    It's a drop relative to what it would be if the money supply had not increased accordingly, not versus what the purchasing power was at that point in time.
    - rory 5y ago
      No, again that's simply not correct. We can empirically observe purchasing power and money supply, so there's no need to speculate. One-time changes to M2 of that magnitude have been shown to have small to no effect on inflation [0]. [0] https://www.commonfund.org/blog/chart-of-the-month-money-supply-and-inflation https://www.commonfund.org/blog/chart-of-the-month-money-sup...

skizm 5y ago

How are they getting around the very long wait times and large fees for transaction confirmations? I'm guessing the "government digital wallet" is just an account on a government service that changes values in a (centralized) database while holding a bunch of btc under the hood? Or maybe there are private bank options that do the same?

dahfizz 5y ago
Credit card transactions take 3 days to clear the visa network, but swiping your card to pay for something is still instant. These things have already been solved in the application layer.
- el-salvador 5y ago
  This is one of the reasons that many Uber drivers in El Salvador cancel rides paid with credit cards. They prefer to be paid in cash.
m00dy 5y ago
They use lightning network.
doomroot 5y ago
The mempool is relatively empty to fees are pretty minimal at the moment. But you are mostly right about holding balances on the app on a centralized database. However they are partnered with large lightning payment providers like Strike to make bitcoin transactions over the lightning network to non-government wallets.
la_fayette 5y ago
They use layer 2 lightning network.
Geee 5y ago
Lightning Network. [0] [0] https://lightning.network https://lightning.network

m00dy 5y ago

Now, we all know where to wash our bitcoins.

amusedcyclist 5y ago

An authoritarian banana republic is pretty much the only place where something like this would happen : https://www.hrw.org/news/2021/05/21/us-can-stop-el-salvadors-slide-authoritarianism-time-act https://www.hrw.org/news/2021/05/21/us-can-stop-el-salvadors...

doomroot 5y ago
Generally speaking banana republic is an offensive term to those living the states you’re referring to.
- solveit 5y ago
  Only if you like said country.
- beervirus 5y ago
  So is “shithole country” but that doesn’t make either term inaccurate.
- amusedcyclist 5y ago
  The phrase is meant to be insulting to the leader not the people of the country

ouid 5y ago

Good thing no one has to write any long term contracts in El Salvador.

doomroot 5y ago
If you’re worried about it denominate it in USD? I don’t see why the problem is here.

liuliu 5y ago

Because they have both Dollar and Bitcoin as legal tender, the result is unclear. In theory, because USD is still cheaper (if Bitcoin is supplied constrained as it is promised), people will trade with USD and hoard Bitcoin. However, when crossing borders, USD is more cumbersome to move around, that may deter people to import products with "cheap" USD. It would be very interesting to observe, whether they will eventually move to Bitcoin only (if the bull market keeps going) based on Economics history (because domestic market will hoard Bitcoin, causing outflow of USD). And if that happens, would be interesting to observe the other factors (wage and services) deflate as the theory predicts.

JumpCrisscross 5y ago
Gresham’s law [1] would (EDIT: loosely) predict Bitcoin gets hoarded while U.S. dollars trade. [1] https://en.m.wikipedia.org/wiki/Gresham%27s_law https://en.m.wikipedia.org/wiki/Gresham%27s_law
- thehappypm 5y ago
  You're joking right? The "bad currency" here is clearly Bitcoin, which cannot actually be used to buy things in 99.999% of global market situations. If El Salvadorian businesses want to buy computers, trucks, fertilizer, food, whatever, BTC is meaningless and will need to get converted to USD.
  - imtringued 5y ago
    Salvadorians in USA convert their USD in BTC and Salvadorians in El Salvador convert it back to USD. They aren't trying to invest or hold onto Bitcoin.
    - thehappypm 5y ago
      You’re agreeing with me. You wouldn’t want to hold onto Bitcoin because it’s the inferior currency option.
- 5y ago

atlacatl_sv 5y ago

yep, That's why protests are taking place in El Salvador. We have also uncovered some security holes. https://twitter.com/Rchr2M/status/1435236141112905732 https://twitter.com/Rchr2M/status/1435236141112905732 https://twitter.com/david_a_garcia/status/1435259111965446146 https://twitter.com/david_a_garcia/status/143525911196544614... Protests: https://twitter.com/OscarMachon/status/1435272669189087236 https://twitter.com/OscarMachon/status/1435272669189087236

gruez 5y ago
>We have also uncovered some security holes. What security holes? The first tweet seems to be some sort of some sort of app saying it's a virus, and the second seems to say that it collects IMEI information. Neither constitute good evidence of "security holes".
- atlacatl_sv 5y ago
  My mistake, I should have not said security holes. It's leaking and collecting private information. Did you look into the Android Manifest for the virus tweet link? Merci beaucoup for correcting my mistake.
  - staplers 5y ago
    It's leaking and collecting private information. How is this any different from any banking app?
    - el-salvador 5y ago
      Not much.
- boudin 5y ago
  And sends contacts to a server and ask for the microphone permission as well (claimed by the tweet)

alberth 5y ago

Monetary Policy. Can someone explain how a country plans to implement a monetary policy (e.g. inject new currency during a recession to fund expansion) when they don’t control their national currency (Bitcoin).

azinman2 5y ago
It seems their monetary policy is remittances. My guess is ppl will quickly cash out to dollars. But how will the dollars get back to the local exchanges unless people are buying bitcoin there? This seems like a disaster in the making.
- toomuchtodo 5y ago
  Indeed, but it’s still a natural experiment to observe.
  - azinman2 5y ago
    On a very poor population where even a 1% swing in valuation can make a huge difference in someone’s life. There’s also no recourse for fraud here — the industry has all kinds of scrupulous players and isn’t as locked down as traditional banking. To me, it seems like El Salvador should have created a MoneyGram competitor and left it at that. They could remove/reduce commission without all the rest of the risks.
    - toomuchtodo 5y ago
      To your point, they could've partnered with TransferWise/Wise.com or OFX to build a white label app that allowed for frictionless remittance and fiat management for their citizens and "wallet management" (ie deposit accounts), and your usual fintech wallet accounts. This would be no different than the UK's Faster Payment's service being a managed service by Vocalink [1]. Some have proposed the US Fed issuing FedAccounts, deposit accounts held at the Fed with no fees, to sidestep inequity and predatory behavior from commercial banks. This would be very similar, except the El Salvador government outsourcing these functions (as they rely primarily on the US dollar as their currency) and the cross border exchange. Onboard citizens using their DUI (Documento Único de Identidad) or Passport number, voilà, they're banked and can store or transfer monetary value. Subsidize physical hardware for those who can't afford a smart phone. Does El Salvador need a blockchain or crypto? No, of course not. They need inexpensive facilitation of domestic financial services and cross border remittance to reduce currency import drag. Instead, inept politicians (for various reasons out of scope for this thread) are going to cause a lot of suffering, but it will be helpful to have a case study to point to in order to demonstrate the nation state policy failure. This is worse than being reliant on another country's monetary policy and central bank. You're tying your economy to a speculative asset with few governance mechanisms. C'est la vie. [1] https://www.vocalink.com/payment-processing/real-time-payments/ https://www.vocalink.com/payment-processing/real-time-paymen...

Anon84 5y ago

What could possibly go wrong with moving a non-trivial fraction of a countries economy to an account that can be controlled by a single bureaucrat with absolute power to transfer the funds as they see fit with no possibility of appeal?

thaumasiotes 5y ago

What are the US tax implications of Bitcoin being an official foreign currency?

junon 5y ago
This is also my question. This blurs all sorts of lines.

arcticbull 5y ago

Congratulations El Salvador on replacing the Federal Reserve with Paolo Ardoino's unlimited Bahamian money printer (note that all executives at Tether received DOJ target letters for bank fraud recently [1] - and are banned from doing business in New York [2]), and letting your exchange rate be managed by Alameda Research and Cumberland/DRW [3]. I can't imagine this going poorly in any way what so ever. So join me and Bukele in raising a big ol' middle finger to the IMF. [4] Maybe next they can move to Bitfinex Securities, a Kazakstan corporation, to manage their stock exchange! [5] [edit] I mean, holy shit, what did I even write? This truly is the dumbest timeline. Well, second dumbest - after all the entire country of Albania got swept up in Ponzi schemes, jailed their finance minister and had a civil war over it. You know what they say about history rhyming. [6] [1] https://fortune.com/2021/07/26/tether-crypto-bank-fraud-doj-investigation/ https://fortune.com/2021/07/26/tether-crypto-bank-fraud-doj-... [2] https://ag.ny.gov/press-release/2021/attorney-general-james-ends-virtual-currency-trading-platform-bitfinexs-illegal https://ag.ny.gov/press-release/2021/attorney-general-james-... [3] https://protos.com/tether-minted-usdt-stablecoin-crypto-two-alameda-cumberland/ https://protos.com/tether-minted-usdt-stablecoin-crypto-two-... [4] https://www.france24.com/en/live-news/20210610-imf-warns-of-risks-after-el-salvador-adopts-bitcoin https://www.france24.com/en/live-news/20210610-imf-warns-of-... [5] https://cointelegraph.com/news/bitfinex-launches-security-token-platform-regulated-in-kazakhstan https://cointelegraph.com/news/bitfinex-launches-security-to... [6] https://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm https://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.ht...

deleted 5y ago
[deleted]

grey-area 5y ago

Shame it’s a terrible currency.

29athrowaway 5y ago

It is weird that they decided to use Bitcoin instead of another currency.

stickfigure 5y ago
El Salvador (and Panama) already use USD as a currency. Which other currency do you have in mind?
- 29athrowaway 5y ago
  Ethereum or another crypto.

melenaboija 5y ago

Could someone explain me the intuition behind the BTC drop? Why changing the owners of a small fraction of an asset that is not affected by any policy should reflect this? Is it just the feeling from some investors that BTC can not be taken seriously? It is hard for me to understand the logic of it and the only reason that could come to my mind is that some investors don't understand what they are buying.

im_down_w_otp 5y ago
Insofar as I can tell I think it's the opposite. They know exactly what they're investing in, and acting accordingly. Investment activity around cryptocurrency doesn't look at all like the incredibly boring world of currency swaps.
Geee 5y ago
Maybe it was someone protesting, or sending a message. It was a big trader(s) selling or shorting a lot of bitcoin and causing a cascade of liquidations on leveraged trades (over $1B). However, when the margin traders have been liquidated, the price has a better support for continued upside.
cwkoss 5y ago
The tinfoil hatters all believe it is the global banking cartel trying to punish El Salvador for fighting dollar hegemony. Seems a bit farfetched, but maybe.

99_00 5y ago

El Salvador's currency is pegged to the US dollar. They have a low degree of monetary sovereignty. I don't know the pros and cons of a country like that adopting bitcoin. But their willingness to take the high risk road to do the experiment will benefit all of us. A country the like US who has a high degree of monetary sovereignty has a lot to loose and very little go gain by adopting bitcoin. If you believe in Modern Monetary Theory. Given the way things have gone since 2008 financial crisis i believe MMT is the best model available. Any discussion surrounding adoption of bitcoin should focus on what you gain and what you loose. Because there are always tradeoffs.

Ancapistani 5y ago
> A country the like US who has a high degree of monetary sovereignty has a lot to loose and very little go gain by adopting bitcoin. If you believe in Modern Monetary Theory. Given the way things have gone since 2008 financial crisis i believe MMT is the best model available. I’m a huge proponent of the free market, and opponent of Keynesian economics - but even I freely admit that the US moving to a fully free market system would have disastrous consequences. That doesn’t mean a “fully floating” currency is better; it means that there is a barrier to exit. There are lots of things in life that are easier to adopt than to abandon :)

Devasta 5y ago

Let's ignore that Bitcoin is climate arson, and that its only used for money laundering and buying drugs. Bitcoin has a max throughput of 7 transactions per second. It's utter lunacy to suggest that it could function as a currency for a country. This will only end in tears.

kleer001 5y ago
Energy use is not energy source. There's been no full accounting of the carbon footprint of bitcoin mining, only its use. Much of it is done using geothermal or other renewable sources. (edit, incorrect) That El Salvador is adopting it refutes your second claim. Then there's the lightning network which increases the transaction throughput. Everything is going to be okay.
- okl 5y ago
  Here are some estimates: https://digiconomist.net/bitcoin-energy-consumption https://digiconomist.net/bitcoin-energy-consumption Do you think they are wrong? By how much?
- edgefield 5y ago
  Bitcoin and cryptocurrency in its current form is environmental lunacy. I don't know what problem digital currency solves when the planet can no longer sustain human life due to climate change.
  - cwkoss 5y ago
    100 corporations are responsible for 71% of global emissions. https://www.theguardian.com/sustainable-business/2017/jul/10/100-fossil-fuel-companies-investors-responsible-71-global-emissions-cdp-study-climate-change https://www.theguardian.com/sustainable-business/2017/jul/10... I struggle to find hand wringing about bitcoin's energy consumption as anything but naive or sour grapes. Society is never going to voluntarily reverse total energy consumption. Either price bitcoin mining out of the market, or focus on voting with your wallet and regulating carbon emissions at the energy production level. Arguing about how people should spend their money on energy is a waste of political energy. Millions of people believe that bitcoin is worth the energy costs. "Too much" energy usage is entirely subjective.

aeturnum 5y ago

On one hand, the 'digital gold' aspect of bitcoin make it attractive for countries that want access to a non-US-dollar currency. However, it seems like the most sane version of such a system would basically use a private blockchain (or even a basic centralized tabulation service) run by the central bank. Having your central bank run a centralized system through bitcoin isn't much different than running a centralized system through some other currency. On the other hand, the power requirements of Bitcoin seem like they make it a very poor choice - both from an ethical point of view and a practical point of view. In the same way that using a foreign currency exposes you to the ups and downs of that currency, El Salvador now has to deal with the operational realities of bitcoin. This seems potentially worse than simply adopting another fiat currency because you've handed over control of how transactions work.

TenJack 5y ago

Why not use a stablecoin? Or are they dealing with Bitcoin volatility in another way?

Ancapistani 5y ago
What advantage would a stablecoin have over using the underlying currency directly? It has the significant disadvantage of adding an additional trust entity (the backing bank) which could prove untrustworthy. Over a long enough timescale, I would argue that all backing banks have proven to be untrustworthy.
- TenJack 5y ago
  Doesn’t it seem concerning to tie a countries currency to something so volatile that it could literally halve over night? Not trying to argue. Just trying to understand.
  - cwkoss 5y ago
    Fiat currencies can go to zero in an instant via political changes. (Ex, see indian demonitization in 2016). All forms of money have risks. I think the diversification of supporting BOTH USD and BTC seems to get a bit of the best of both worlds.
    - TenJack 5y ago
      Right so why not USD coin instead of Bitcoin?
      - cwkoss 5y ago
        USD-pegged stablecoins kind of have the worst of both worlds - the risks of crypto AND the risks of fed monetary policy. Stablecoins shouldn't be used as a store of value, only as a medium of exchange.
        5y ago

bob229 5y ago

Waste of time, blockchain is a garbage technology

jedimastert 5y ago

I'm really interested that they chose BTC as opposed to making their own, which as I understand it isn't super hard to do? Tying to an already-established commodity, and an exceptionally volatile one at that, seems wildly irresponsible to me, but I'm very VERY under-educated in this area

Ancapistani 5y ago
Considering only “Bitcoin-like” proof of work blockchains, starting an independent chain subjects you to security risks. If the computing resources of the entire country of El Salvador were devoted to mining their Bitcoin fork 24/7365, it would still likely be possible for a richer country to temporarily allocate more computing resources and “undoing” transactions, effectively destroying the validity of the transaction history.
lottin 5y ago
They gave up on having their own currency a long time ago. Basically El Salvadorans decided that they aren't competent enough to manage a currency of their own, and adopted someone else's currency instead.

aretzky 5y ago

I honestly don't get it. I sent BTC from one wallet to another, and it took like 90 minutes. And $20 fees. I cannot imagine paying for anything with this. How can user experience be compared to paying with VISA, PayPal or anything else?

pavlakoos 5y ago
I tried sending XRP from one wallet to another, and it took a little more than a minute. Much much better than BTC, but still not credit cards...
- quantumBerry 5y ago
  It takes days for a credit card transaction to settle, and the buyer could file a chargeback and erase not only your profits but your cost basis. That (many cryptos) is a hell of a lot faster and more secure for a merchant.
xur17 5y ago
This comes up in every thread about Bitcoin, and in every thread there are numerous responses stating "lightning network is the solution to the fees". And.. that's exactly what El Salvador is using. Instant settlement, with basically 0 fees.

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