For a long time, I was in close quarters with a successful bitcoin investor. In fact, he was my roommate of about 7 years. At one point during that time, because he invested early, he became one of the rare bitcoin success stories out there. He's navigated the landscape for years. Me, having been around someone 'in the business,' I've been able to pick up on the lingo and know that there are still some parts I don't understand.
I'm not sure where to begin with Crypto Currency. People, or investors, put money in a digital 'coin' they like and if the coin gets more money invested, it raises in value. That's the highest level I can describe it. Like gold, silver, or any other commodity, the demand sets the price. The thing that sets cryptocurrencies apart is that you shouldn't be able to 'fake' having one or a piece of one. That's the "blockchain part" but I won't get into that. Let's just say that when you have a bitcoin, everyone knows it and it's owned by you. No one can copy it.
I admit, I am also a small-time crypto investor. I started years ago and have been lying in wait and dormant for quite some time. I've never really sold out, but have had some of my funds locked or lost due to fraud upstream in the 'industry.' I've also never used a 'coin' for any transaction like the name suggests. I wouldn't know how to even pay for anything with them.
Crypto a realm of finance like the wild west, with pump-and-dump schemes and fraudsters that are both legal and illegal due to the new nature of the landscape. It's a tough place to find stability. People are wooed by success stories and videos of wealth. The crypto world also attracts people of a libertarian mindset of all ends of its spectrum, from people just looking for unique investment strategies to anarcho-capitalist conspiracy theorists. There are people that understand far less than I that have far more of their life savings invested.
FAST FACTS
In 2021, El Salvador adopted Bitcoin as legal tender and it's kind of been a disaster. Here are some quick facts:
After the legislature went against public opinion and made Bitcoin legal tender, an app was rolled out to help Salvadorans use it. The app would have a $30 sign-on bonus.
Bitcoin ATMs cropped up across the country, where people would log in and accept their bonus in USD.
20% of people never used the bonus.
60% of people used the bonus and never used the app again.
Thousands used the app to claim the bonus as someone else, a rampant form of identity theft.
Only 20% of businesses take bitcoin even if it's required by law.
14% of businesses have had any transactions in Bitcoin.
3% of businesses find it useful.
The government of El Salvador purchased ₿400, worth about $20.9 million at the time of purchase on September 6 2021, the day before the Bitcoin Law came into effect.
Transactions in bitcoin are not subject to capital gains tax in El Salvador.
Foreign bitcoin investors who invest over ₿3 in the country are eligible for permanent residence.
The price of bitcoin dropped after purchase, threatening the stability of El Salvador's economy. Moody's downgraded El Salvador's credit rating stating bitcoin was a factor.
The government has stated they have not 'lost' money because they have not yet sold their investment. It is still possible it could rise and El Salvador could make money off of the Bitcoin they've purchased.
BITCOIN CITY
Bitcoin mining, or "creating" bitcoins, requires computers to calculate algorithms to create a coin. Bitcoin's price ended up taking a hit when it was released exactly how many emissions were being created in the process of mining bitcoin. Computers take energy, and energy typically comes from non-renewables. Climate change, being a very real threat, caused some investors to jump ship. Some new investors were turned away. To attract new ones, bitcoin miners have been looking to renewable forms of energy to run their servers / machines that mine bitcoin. El Salvador was no exception.
El Salvador's president stated he would found a new city near the Conchagua Volcano in southeastern edge of the country. The volcano would provide energy for machines that would mine the coin. Income taxes would not be collected from those who live and work in this city. In 2022, the government began drafting legislature for the creation of $1 billion in "Volcano Bonds" but the project was suspended. They state that global economic factors, including the war in Ukraine, were the reasons for the suspension of the project.
So far, the plan is no where near being executed in any way.
BITCOIN BEACH
When I was in El Zonte, also known as Bitcoin Beach, I found a slew of businesses with aging signs that stated they accepted bitcoin. They look about as aged as any "Mask Required" signs still hanging on from the Pandemic. Some of the businesses there had no floor, only dirt, yet they were taking bitcoin. It was pretty strange to see.
At one point back in 2019, 2 years before Bitcoin was legal tender across the country, the city of El Zonte started accepting the Crypto Currency as legal tender after an anonymous donor donated $100,000 worth of bitcoin to the city. When word spread that a government, no matter how small, was accepting the coin, the crypto community rejoiced. Many flocked to El Zonte to see ground zero for their brave new world, and the city saw a noticeable uptick in investments and tourism after the move.
While in El Zonte, I'd asked locals if they'd used the currency, they'd all stated that they either had no use for it, they used it once, or they couldn't use it because their bonus was stolen and they weren't sure from who. No one regularly used this currency.
Even if it hasn't been successful nation-wide in El Salvador, neighboring Guatemala and Honduras have also attempted 'bitcoin hubs' of their own where economic zones would accept the currency.
MY FIRST BITCOIN CLASSES
I ended up running into investors who were trying to evangelize the youth to the crypto movement. In a hotel in Suchitoto, I was invited to a table of bitcoin investors who were extremely excited and pumped with energy to see people interested in their way of economic life.
They were 3 US-born bilingual Latinos visiting from Los Angeles. They were in El Salvador to pitch a "Bitcoin Class" to children to teach crypto literacy in public schools.
With 9 out of 10 Salvadorans not understanding what a bitcoin was, it seems like the task is glaring them in the face. People don't know what bitcoin is, and these guys are setting out to change that.
They handed me a business card that said "My First Bitcoin" on it, a Non-Profit in Bitcoin Education. They have their own office, Facebook, Twitter, and Instagram accounts.
Their website states that the goal of their course is to help promote Salvadoran's independence, to use a currency decentralized from the state and self-sovereign. There are a slew of regularly scheduled classes across a couple major cities in the country, including virtual classes.
THE BITCOINERS
There was a man wearing a red shirt that had a 'coca cola' logo but instead it said 'Capitalism' and underneath it, it said "it works." He was very impressed with my Spanish, and even more impressed with the journey I was taking. He was very upbeat and excited to meet me.
I told the trio that I lived with a friend that was one of the lucky ones who got in very early. The red shirt man almost cut me off to assure me that there's still a lot of time, and that bitcoin is going to explode one day, we just need to wait. It still wasn't too late, according to him.
Due to me rubbing shoulders with a very-involved investor in the past, I was able to speak their language. I mentioned I knew about "the halfening" - a bitcoin event that will be coming up in a year. Historically, Bitcoin prices rise considerably one year after each 'halfening.' After I bought this up, they could tell I was more than a little knowledgeable.
After talking a little bit about my journey, which includes a visit to Argentina, the red shirt said I would be visiting Argentina at the perfect time. When I was inquisitive as to why, it was because there is a presidential election coming up in Argentina, and a man named Javier Milei was running for president. Milei is also a crypto anarcho-capitalist and he has campaigned on making Bitcoin a legal tender of Argentina as a plank of his platform.
"He's going to win. If he doesn't it's because of fraud. Because of, you know, the globalists." It was at that point that, in my book, he started skirting the line from anarcho-capitalist bitcoin bro to fascist. I played dumb, which I actually was dumb in the subject, and acted curious so that I could find out more.
The Argentinian presidential candidate is a known far-right politician whose policies align with Jair Balsonaro of Brazil, the disgraced, pro-sexual assault, rainforest-burning, election-denier who tried to use his supporters to overthrow his government much like Trump did on January 6th. If they are that similar, a Milei victory would surely mean democratic backsliding and another nation falling to right-wing extremism in the last decade like India, The Philippines, or Hungary.
WHAT DO I MAKE OF THIS?
In my perspective, after learning everything that's gone on in El Salvador, the use of bitcoin has been a failure, but not a total one. The price of bitcoin may still end up rising, saving the nation's investment and possibly turning a major profit.
The use of the word 'coin' in Bitcoin is disingenuous. No one is using bitcoin like a 'coin.' Practically no one is making transactions with it. It's complicated, clunky, and extremely volatile. I can't even imagine a nation that runs ONLY on Bitcoin and nothing else. It sounds economically disastrous. It's more of a commodity like silver or gold, where people buy it and sit on it hoping it will gain value. but WAY WAY less stable. There seems to be no practical usage of Bitcoin other than treating it like a roulette wheel.
In a nation like El Salvador, where technological literacy is almost as low as its internet penetration, I don't see bitcoin working. Only 1 other nation has made Bitcoin legal tender: the very poor, landlocked, war-torn Central African Republic. I don't see it being any more useful there than it is in the more-stable El Salvador.
When it comes to my investment, I'm waiting to get out. Even if it may seem like it'll raise, there are only so many more 'Bitcoin halfenings' left. I'm not convinced it will have long-term viability. It's possible something else may come along that corrects crypto volatility. Maybe in a few decades it'll stabilize. For now, I still see the crypto world as a refuge of anti-government conspiracy theorists and Ponzi schemes. Also, the more FTX scandals we have, the fewer people that'll invest. That goes for regular Joes and 1%ers alike. This keeps the price of cryptocurrencies from rising. FTX scared people and their story isn't the only one.
Even if, (or when) regulation comes along to stabilize it, the landscape may be unrecognizable to those libertarian folks that believed in it in the first place, like the 3 men I found in Suchitoto.
-JT
7/3/2023