The Extraordinary Ramifications Of Bitcoin As Money In El Salvador

Privacy advocates and Salvadorans discuss the rollout of El Salvador’s Bitcoin law, government wallet and more.

Watch This Episode On YouTube

Listen To This Episode:

The government of El Salvador recently made a historic move by declaring bitcoin as legal tender, but the implementation of this new monetary network on the nation-state level hasn’t come without its fair share of obstacles. Alex Gladstein, chief strategy officer of the Human Rights Foundation, recently wrote an outstanding piece called “The Village And The Strongman” detailing the state of Bitcoin in El Salvador, and he joined a Twitter Spaces hosted by Bitcoin Magazine to discuss exactly what’s been going down.

One of the main issues with the government implementation has been a lack of privacy and transparency surrounding the Chivo app. By moving toward a cashless society, there is potential for citizens’ financial behavior to be surveilled and restricted if they don’t learn Bitcoin best practices for privacy and self custody.

“There’s a bit of a concern here that you could have a lot of users flock to the government wallet, because it gives you free money, and it’s easiest to use,” said Matt Odell, Bitcoiner and privacy advocate, during the Spaces conversation. “As a result, they end up having no financial privacy, and their funds can get seized at will, which is the current situation if users are using the Chivo wallet, the government wallet.”

Complications have also arisen from new users being introduced to bitcoin’s inherent short-term volatility. Bitcoin’s price suffered heavily on the day of launch, which was likely jarring for people who don’t understand why their purchasing power may be decreasing.

“They see their balances going down and they feel that the money has been stolen” said Enzo Rubio, owner of Point Break Café in El Zonte. “It’s difficult when you don’t have the right education. I think education is one big part that the government is not doing right now. Possibly, because they are trying to fix the technical difficulties a bit more than the education part.”

Ultimately, the benefits of adopting a monetary network that can grant people unseizable property rights outweigh the turmoil that has occurred during the rollout. Bitcoin represents hope and opportunity, especially for the younger generation that is embracing this new technology and all that it has to offer.

Gerson Martinez, a Salvadoran Bitcoiner whose father had to leave El Salvador at 19 years old because of civil unrest and corruption, is excited and hopeful for the next generation of Salvadorans.

“It gives me so much joy and pride in my heritage to know that there’s young people, in particular, young people, who are so hopeful about their country now, and that the first thought isn’t, ‘Let me get out of here. Let me figure out how and when I can get out of here to go look for a better life,’” Martinez said. “Rather, ‘I can build the life that I want here.’ In my view, having adopted this monetary network is a gigantic step in that direction towards freedom and sovereignty. I’ll leave it at that.”

Gladstein reinforced his position that this move by El Salvador is unprecedented and will likely incite action from other world leaders around the globe.

“I want to be clear that from my perspective, this is a historic thing. It is the march of open-source software,” Gladstein said. “It is remarkable that this government chose Bitcoin. They could have banned Bitcoin. It really puts the pressure on a lot of institutions internationally and corporations to get with the program.”

The full recording of this Spaces conversation includes many more details and discussion. To read the whole conversation, check out the unedited transcript below:

[00:00:06] CK: Welcome, welcome, welcome everyone. This is ck_snarks with Bitcoin Magazine. Got a good Twitter Spaces all set up for you. Really excited for this one. It’s going to be with Alex Gladstein. we’re going to be talking about what is happening in El Salvador. Bitcoin is obviously happening in El Salvador, but a lot else is happening there. Alex wrote an article for Bitcoin magazine titled The village and the Strong Man, really diving into the unlikely story and talking about how Bitcoin in El Salvador became a thing to begin with. Also, the character of Bukele, what’s happening around human rights there, what’s happening around democracy there, etc.

It’s a nuanced, complicated subject. We’ve been talking about El Salvador a lot here on Bitcoin Magazine. Obviously, something that is very, very pertinent to Bitcoin and very big news. Want to continue to continue covering this. We are a little early here getting the room started, but waiting and excited for Matt Odell, for Aaron Van Wirdum, for several other folks to join in and lead the conversation along with Mr. Gladstein. What’s up Aaron? Hey, just for everyone who is unfamiliar with Aaron, he is our lead technical writer, and he is on the ground in El Salvador and pretty much has been since before the news of the Bitcoin law.

[00:01:35] AVW: Hey, hey.

[00:01:36] CK: Aaron, in between the Bitcoin legal tender law became official at Bitcoin 2021, you went to El Salvador, just because it was starting to really become a place, El Zonte in particular, for folks to make a pilgrimage. Can you talk a little bit about how El Salvador has really changed from before the law and after the law? As well as Bitcoin 2021 and that experience?

[00:02:05] AVW: Well, you mentioned that it has become a cool spot for Bitcoiners to visit El Zonte in particular. I’ve spent some time in El Zonte. I spend more time in San Salvador. I’m in San Salvador now. I’ve described it as like a rolling Bitcoin conference almost. You can go there, and more often than not, there will be other Bitcoiners in town that you can have a beer and just the types of conversations you’ll find at Bitcoin meetups. That’s cool. I don’t know what you mean with the last question. In fact, I don’t remember what your last question was.

[00:02:38] CK: No. Just saying, what was the experience at Bitcoin 2021, seeing that news, and how that shifted how you thought about El Salvador before?

[00:02:48] AVW: I’ll answer a different question. Because I don’t know how to answer that question. It was interesting. I mean, so for us at Bitcoin 2021, this announcement came in, and it was a huge surprise for everyone. You had a standing ovation in the crowd, and everyone was cheering, and everyone was happy.

Then you get to El Salvador, and you learn that it was equally a surprise here, but the reaction was a little bit different, I would say. A lot of people here had a feeling like, “What the fuck is going on? What is this Bitcoin thing? Why do we have to deal with this?” I did feel there was a conference. It was a surprise for everyone. Bitcoiners, of course, were very happy with this surprise. People here were mostly just a little bit confused about this surprise.

I had mixed reactions, I think. I mean, it’s definitely put Bitcoin on the map. A lot of people are thinking about it, talking about it. That’s a good thing. At the same time, a lot of people aren’t necessarily very happy with the way the law is being implemented, and the way it’s being rolled out without any public debate before the law was implemented.

[00:03:51] CK: Awesome. Thanks for that insight. Alex, welcome.

[00:03:55] AG: I’ll just give an overview first, and I really want to hear from Matt Odell as well. Then we can get Enzo and Gerson’s take. I wanted to do this article for two reasons. One was to show the mainstream media who have reached out to me about this article, people from the New York Times and elsewhere have been reading this article and interpreting it and digesting it. I wanted them to understand that yes, on its face, this seems quite contradictory to have a government that clearly is heading in an authoritarian direction.

What is the contradiction there between that and then the fact that they’re adopting a nation state currency that’s decentralized, and beyond their power to manipulate at a root level, this is a fascinating geopolitical contribution that’s going to have a lot of human impact, not just in El Salvador, but beyond?

I wanted to create something that showed some nuance with regard to the fact that yes, this is historic. Yeah, it’s incredible that this government chose Bitcoin and not some central bank, digital currency, or some Chinese surveillance coin, or they chose Bitcoin as the legal tender for the nation. It’s still stunning to think about. On the other hand, what are the goals of this government? How will this serve them? I think, at the end of the day, it comes down to the idea of self-custody, and the idea of like, is it going to be 2 million people using Chivo, which is really promises to pay Bitcoin that are confiscateable? Or is there really going to be an organic movement of Salvadorans who actually, like starting in El Zonte, who actually learn how to use Bitcoin the proper way, and then it grows organically from there.

These are two very contradictory and paradoxical themes. Matt Odell, obviously, talks a lot about privacy and surveillance, but also, about government adoption of Bitcoin and the game theory of that. I’d love to hear Matt and his take on this so far. Then we’ll get into Gerson and Enzo.

[00:05:50] MO: Hey, guys. it’s an honor to be here. First of all, Gladstein, really, really appreciate you going down there firsthand, and writing such a nuanced and comprehensive write-up on the current situation. It was really helpful from my point of view as someone who has not been able to get down there yet. One thing I mean, I would definitely highlight that you mentioned in the piece, I think a lot of Americans aren’t really aware of, is how much harm we’ve done in that country, intervening and forcing our will upon the Salvadoran people.

I want to be very conscious that I’m not being an American trope over here and giving my opinions on something that I have not been on the ground firsthand. In general, my concern stems mostly from a skepticism of government and the skepticism of large corporations who often neglect their user base’s privacy, and abuse the relationship that they have with those users and the control they have over those users.

There’s a lot of things that I’m very optimistic about with the new Salvadoran Bitcoin law. Specifically, when you mentioned the fact that they can use any wallet is massive. I think, something that I did not expect to happen in any country for maybe even a decade, way ahead of the curve on that.

One of the things you really highlighted in the piece that I think is key here is there’s a huge education element. I think, Bitcoiners from around the world, as a community, that’s something that’s really actionable that we can get around, just in educating people in the best practices when using Bitcoin, because there is so many nuances when you’re trying to use it privately, and when you’re trying to use it as an individual, that is not necessarily as simple as just installing the government wallet.

There’s a bit of a concern here that you could have a lot of users flock to the government wallet, because it gives you free money, and it’s easiest to use. As a result, they end up having no financial privacy, and their funds can get seized at will, which is the current situation if users are using the Chivo wallet, the government wallet.

[00:08:07] AG: Yeah. Something you brought up, which I think is very important to point out is that currently, in many countries, including El Salvador, the cash economy is very important for a lot of people. This is the same case in Palestine and many other places around the world, obviously. It provides a level of not just privacy, but actually, disconnection from the regime and the government. It provides a place that the government doesn’t have a lot of control or oversight over in a good way. It allows people to actually conduct business in a peer-to-peer way that’s much more within their control.

Now, if this is part of a government strategy to basically get people to move from the cash economy to the Chivo economy, then we’re concerned. Because then, all these little transactions that are done using cash, which is of course, it can be debased. With the dollar, the Salvadorans are less worried about that. The problem is with cash, you have privacy, and you have a bearer asset that can’t be confiscated remotely.

Now, we’re shifting potentially, to people using a government digital dollarized wallet, that can be remotely confiscated and frozen, and has a lot more surveillance restrictions. One of the concerns is that this is part of a general global movement of moving from a cash economy to maybe a Chivo economy. Now, obviously, using things like, self-custodial Bitcoin wallets, and developing a peer-to-peer economy, that’s how we’re going to fight that trend. It just seems unclear across the country of El Salvador, like how that’s going to play out. Matt, do you want to weigh in on that?

[00:09:37] MO: Yeah. I mean, I just wanted to agree that I mean, that’s absolutely a trend we’re seeing globally. We’re seeing cash get phased out, not only by governments intentionally trying to phase out its usage and discourage its usage, but also, by individuals who are choosing more convenient digital options. I think, personally, President Bukele is a very savvy politician. He’s a populist. He’s very good at using Twitter. He probably has, like most people, many motives for implementing this. I think, it would be pretty naive to assume that one of the motives isn’t discouragement of the cash economy, which he has no insight into. The government has pretty much no insight into this cash economy that is supposedly a pretty major aspect of Salvadoran economy.

I would be very surprised that that isn’t one of his incentives, and one of his goals is to try and people – move people over to this more digital surveilled economy. At the same time, if you are going to do that, obviously, it’s strictly better that it’s being done on an open monetary network, like Bitcoin, where you can use other applications that are not run by the government, as opposed to a lot of these so-called central bank digital currency plans we see coming out of China and even the United States.

[00:10:49] AG: Right. Obviously, as long as the Chivo app still connects to the Bitcoin network, meaning that you can still withdraw funds into Bitcoin, and receive Bitcoin and Lightning payments from abroad, it’s a powerful tool, and it’s one that obviously, no other government has dared to implement. I don’t want to underestimate the power, the humanitarian upgrade that Bitcoin presents. This is what the mainstream totally misses. They might be accurate in their criticisms of Bukele from a political point of view.

You have to really understand what a massive upgrade this does present for people, when they can receive a payment, perhaps a remittance $50, a $100, $500 from anyone to their phone instantly. Then they can keep that in dollars without a bank account, or withdraw it into cash, or withdraw it to their own Bitcoin wallet. I mean, that’s just such an incredible tool.

Again, I have two guest speakers here. One was initially at least more positive about the law, and one was more negative about the law. We’ll hear from Gerson first, because he was more positive. Then we’ll hear from Enzo and then we can go back and forth. Gerson, go ahead. Tell us about your perspective on this as it’s unfolded over the last three months.

[00:12:01] GM: Sure. Yeah. First of all, thanks, Alex. First of all, for writing that article, and getting the story of El Salvador a pretty dense analysis of El Salvador’s history in front of so many eyeballs. I think, that’s really, really important. I want to agree with a lot of what you and Matt just said, with respect to the importance of this law, from the perspective of the human rights aspect, of giving people access to the Bitcoin network, and particular, in a country where 70% of the country is unbanked and doesn’t have the resources, or documentation necessary to open up a traditional financial instruments.

As you said, I’ve been very, very optimistic about this whole endeavor. Look, I don’t discount the possibility that a president with a supermajority in the legislative body who’s wildly popular, almost like, cultishly popular in some pockets of the country, I don’t discount the possibility that this man could also become corrupt, or have absolute power corrupts absolutely. I don’t discount that possibility. However, I think we’re all highlighting here that the monetary network that he’s opting the country into is one that he can’t control.

I cannot stress how, I think, meaningful that is to me as a Bitcoiner. Because at the end of the day, he’s not saying we’re going to go back on to the Colon standard, from pre-2001. I actually wanted to just, if you give me just a second, I wanted to touch on my own family’s history. My parents are both from El Salvador. They emigrated to the US about 40 years ago, in the middle of the Civil War, that was being fought by basically, a really bifurcated political system. A far, far right party against the guerrillas that turned out to be the far-left party in the country.

I would want to rewind the clock even further than that. About five or six generations ago in my family, on my dad’s side, they were coffee cultivators in a part of the country called [inaudible 00:13:55], where they owned the land that they cultivated, that they grew coffee on. Then somewhere in the early 1900s, a subsidiary of United Fruit Company comes by and effectively, doesn’t give anyone an option, and begins to buy up all the land. You can obviously, a lot of folks in this space can imagine, these are multinational interests, bedfellows with political leaders who give them the right of way in their country, start buying up all this land and then telling all the farmers, “You’re still going to work here, but now we’re going to pay you. Now, we’re going to pay you whatever wage we deem is profitable for us.”

That happened to my dad’s grandparents. Fast forward to 1957 when my dad is born in El Salvador, into abject poverty. Because their ability to build wealth had been taken from them, and so he was born into abject poverty. Further down the line when he was 19-years-old, because of that civil unrest and poverty and corruption in the country, you get a civil war, where if you’re 19-years-old, you have no option but to walk out the door and pick a side. You have to pick a side. What does my dad do? He comes to America, because that’s a rational actor’s best choice is just to leave, because those were bad options down there.

I’m going through this here, because I think my experience here in America has been one that we and I come. I’m just as American as I am Salvadoran. We as Americans look at Salvadoran immigrants and just look at the, “Oh, my God. What are you doing here?” We are unable to peel back the layers of history and understand what propels people to come to this country. At least in my family’s history, these are the dynamics, the underlying dynamics that drove our family into poverty and thus, up toward the United States.

For me, this is coming full circle now. I went down to El Zonte in July, and I can’t – I know, Jim Beda’s on here. It gives me so much joy and pride in my heritage to know that there’s young people, in particular, young people, who are so hopeful about their country now, and that the first thought isn’t, “Let me get out of here. Let me figure out how and when I can get out of here to go look for a better life.” Rather, “I can build the life that I want here.” In my view, having adopted this monetary network is a gigantic step in that direction towards freedom and sovereignty. I’ll leave it at that.

[00:16:24] AG: Thanks. Could you also just briefly comment on the remittance structure? How you would normally send money and what new opportunities this presents here?

[00:16:33] GM: Absolutely. Yeah. I mean, it’s very simple. Folks like my mom who routinely send a couple $100 a month to different folks, they are 100% accustomed to paying 6% fees on a remittance payment of a $100, something like that. This is presuming that that is to a person who has a bank account in El Salvador. There’s just the 6% transactional costs. My mom and every other person who sends remittances, they’re just used to it. That’s the way of the world.

Well, Strike comes along, well, more specifically, the Lightning Network comes along, suddenly, all of us are able to send those payments, first of all, and have them settle instantly. Meaning, the person can receive and use that money instantly, and with 0.3% fees. It’s absolutely game-changing. Most specifically, of course, for the folks on the receiving end of the remittance, not only is there not a financial cost. More of the money is actually arriving.

Not only that, but to the folks who are unbanked and who have to go to their commercial center in their town to go collect the cash, there’s far less risk. I’m sure everybody on this call already understands that. You don’t have to take three hours of time off of work, to go to the place to collect your cash, to stick it in your pocket and then go back home. The ability to send remittances over the Lightning Network is game-changing, I think, for the country.

Now to something that Matt said earlier, there’s a huge learning curve for anyone. When any of us came into this space, there’s so much – the topic is so dense. There’s a huge learning curve necessary both in El Salvador and also, I would offer here in the US. Because there’s 2 million of us here in the US, who are the ones who send the remittances. We need the education here in the US as well, and for all those Salvadoran, the diaspora, who’s up here sending the remittances down.

[00:18:29] AG: Okay, great. Yeah. Look, and there’s obviously, look, there’s attention in the Bitcoin space, I felt, between really strict freedom maximalists, libertarians who say Strike is a betrayal, because it has KYC. Chivo wallet, we should – I agree, we should protest Chivo wallet. This idea of even something like Strike, which is a private company, that it’s somehow is this betrayal.

Then on the other hand, there are people who are like, “Okay, let’s be practical about this. From a humanitarian perspective, this is a really useful tool.” In the same way that a lot of Americans find cash up very useful to convert fiat, maybe their income into Bitcoin, even though they make the trade off to KYC. Salvadorans are making that same decision. I think that’s an interesting tension I’ve noticed here in the Bitcoin space.

All right, so now we’ll go to Enzo, who has a different perspective. Enzo, welcome.

[00:19:22] ER: Thank you very much for inviting me. My name is Enzo Rubio. I’m owner of Point Break Café in El Zonte. I’ve been taking Bitcoin since November 2020. I’m very happy about it. My kudos to Gerson. He has explained in five minutes perfectly what is going on and basically, our views. I have changed from the last time we talked, Alex, I think I’ve changed my mind. I’ve been doing more research and stuff. I think, it’s a very positive thing that can come out of Bitcoin. Obviously, it cannot be the silver bullet to get out of poverty and stuff, but..