Blogs & Articles: 3 Ways El Salvador Has Changed Bitcoin Forever 🔗 3 years ago

Well, that escalated quickly.

Back in May, I chatted with ubiquitous bitcoin podcaster Peter McCormack while he was stationed in El Salvador, witnessing first-hand not only the adoption of bitcoin as a transactional currency within Salvadoran communities but also a full-blown proliferation of Lightning Network, an application that instantly settles bitcoin transactions between users.

Only a few weeks later, rumors swirled around the Bitcoin 2021 conference in Miami. The word was that a country was going to “adopt” bitcoin as legal tender. Immediately, El Salvador came to my mind due to that conversation in May with McCormack, but I never could have imagined the course of events that would unfold this week.

At the conference, Lightning Network prodigy Jack Mallers took the stage and emotionally struggled through an announcement that would shake the digital currency landscape over the following days; everybody watching could see how much this particular announcement meant to him. Mallers shared his passion about Lightning Network and described his efforts in the small Central American nation and then, shockingly, was followed by Nayib Bukele, the President of El Salvador, who then announced his plans to send a bill to the Salvadoran legislature that would make bitcoin legal tender in his nation.

Not surprisingly, the breaking news set off a buzz, and then the dominoes truly began to fall. Select public officials in Paraguay, Panama, Argentina, Brazil, Colombia, Mexico, and Ecuador began joined the movement to classify bitcoin as legal tender in their nations, and the flurry of pro-bitcoin tweets en Español culminated in a late-night congressional session in El Salvador that officially passed a law declaring bitcoin legal tender.

While the jury is out on the exact details of the legislation, as well as the true intent of any of these Latin American politicians (a healthy skepticism of all political promises is a wise default stance), what matters most are the reverberations from the Salvadoran bill.

Here are a few of my key thoughts and takeaways:

1. The idea that “governments will ban bitcoin” is officially buried and now bordering on absurd. Sure, some dictators will find a reason to criminalize the ownership and usage of bitcoin to protect their tyrannical regimes, but we now have at least one country that deemed bitcoin as legal tender. Cautioners are sure to remind us how tiny a nation El Salvador is, or how the government officials there might be corrupt or dictatorial. But we must keep looking at the bigger picture: bitcoin is financial empowerment and now some nations are beginning to recognize this. As long as enough nations not only classify bitcoin as legal, but actually embrace it, regulatory arbitrage will drive bitcoin owners and businesses to bitcoin-friendly nations.

2. The idea that “bitcoin is not a currency because of volatility” is also dead, thankfully. Those in the West need to check their financial privilege and realize that just because they trust the dollar or euro, many around the world have no such luxury. A nation has chosen bitcoin to operate as a parallel system, and Latin American politicians are only getting started. The momentum is palpable, and the cat is officially out of the bag: Central and South Americans want the option to denominate their life and labor in bitcoin. Also, it’s important to point out how the bill that passed in Salvadoran Congress was a bitcoin-centric bill. It made bitcoin legal tender, not any other cryptocurrency, US-dollar stablecoin, central bank digital currency (CBDC) or supranational digital currency (IMF Special Drawing Rights, for example), volatility entirely notwithstanding. Bitcoin is a currency because people are willing to use it and trade in it, and, because of that, entire nations are now willing to classify it as legal tender.

Bitcoin isn’t risky to use for a nation due to its price volatility in dollar terms; rather, currencies that are not bitcoin, such as the US dollar, are risky for a nation without its own currency (like El Salvador) to rely upon, especially given the fiscal and monetary profligacy of the United States. Agree or disagree with US economic policies, Salvadorans don’t have any say in the matter. With bitcoin, policy is set in stone by an algorithm, leveling the monetary playing field for nations both powerful and geopolitically inconsequential.

3. Bitcoin is geopolitics. The Salvadoran bitcoin bill and subsequent Latin American nations hopping on board the momentum-driven bitcoin train bring up a crucial aspect of the current bitcoin monetary revolution. Many nations in Latin America have an intense love/hate relationship with the US dollar. El Salvador, Ecuador, and Panama are completely dollarized and therefore have economies and inflation rates that are all subject to policy actions levied north of their borders. They, however, largely depend on the American consumer and American trade relations for a healthy economy.

The latest Salvadoran legislation reminds us that Latin American nations won’t stay in the shadow of the United States forever. Century-old exploits by American fruit conglomerates, Western-sponsored military coups, and IMF loan sharking have shaped a Latin American distrust of the dollar-centric monetary system. Now, their leaders and citizens are realizing that, for the first time in modern history, there is an exit.

And let’s be clear, Bitcoin adoption around the world isn’t bad for the United States or even necessarily the US dollar as an international currency: the American public and American businesses stand to benefit from a bitcoin revolution because sizable bitcoin wealth is already stationed in the United States. But now, the US must take a stance and shape its own public policy around bitcoin. Because if it doesn’t, bitcoiners and bitcoin businesses will leave its borders, likely heading south.

What are your thoughts? Comment below!

-Nik Bhatia, author of Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies (now available on Audible)

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