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Adopting Bitcoin 2022
Today I am giving you a recap of my 8-day trip to the first country of Bitcoin “El Salvador” where I had the chance to participate as a speaker at the international conference Adopting Bitcoin in the capital San Salvador.
Is it possible in 2022 to live without a credit card, without a bank account and even without the good old cash? Is it possible to pay and get paid only in Bitcoin? Isn't that the promise of El Salvador? We are going to discuss today the results of Bitcoins's adoption as a legal tender following my 8-day visit to the field!
According to the mainstream media it is a big failure and the adoption is down. As proof of this, they point to the project of financing the country via volcano bonds in Bitcoin so much announced by President Nayib Bukele and which was delayed multiple times. In the current tumultuous context of the collapse of a major crypto exchange FTX following the collapse of Celsius and the crypto ecosystem Luna, I had a great immersion in El Salvador where I experienced instant cryptopayments in person with Bitcoin Lightning and you will see it's awesome! I'm also giving you a quick recap of the big conference entirely dedicated to the Bitcoin environment, which is broader than you think! And that too may surprise you a lot!
Let's go! go to El Salvador!
From Colon to Dollar to Bitcoin
Before diving into the heart of the matter, I offer you a brief reminder of the history (including monetary) of this magnificent country which will allow us to contextualize and understand why it dared and took up the challenge of adopting Bitcoin as its national currency.
El Salvador is a country in the heart of Central America, giving only to the Pacific Ocean, which is not the case of other central countries also open to the Atlantic Ocean. It consists of a small area of 20,700 km2 and a population of 6.3 million inhabitants. Despite its small size, it is a magnificent country, endowed with an environment very rich in greenery, forests and volcanoes, and its tropical climate makes it very attractive for tourism and immigration from cold northern countries such as the USA and Canada, and I can attest to this with new contacts that I have had, such as Two People in Paradise.
Historically, the name of the country comes from “Saint Savior” in reference to Jesus Christ. This name was given to it by the Spanish conquistador Pedro de Alvarado in the early 1500s in the 16th century. The history of this country dates back to the Mayan culture and still spoken Aztec languages such as Nahuat which calls the country "the place of gems" so it is a historical place for mining. Isn't it amazing how history follows patterns, not to say repeat itself with the mining of Bitcoin with renewable energy?!
El Salvador is the Central American country that sounded the "First Cry of Independence" out of colonial times from its capital San Salvador as early as 1811. It gained independence and incorporated in 1824. After a century and a half of civil wars, armed struggles, dictatorships and interference by the United States in its conflicts, El Salvador emerged from this tunnel of hell in 1992 with a peace agreement that put an end to massacres, including religious of the catholic church.
Before adopting Bitcoin, El Salvador had the Salvadoran colón since 1892, which was named after the navigator Christopher Columbus (Cristóbal Colón in Spanish). The failure of colón was due to several factors including very low banking activity, global crises in the country's systemic coffee industry, high immigration and dependence on remittances from expatriates.
The colón was used from 1892 to 2001. From 2001 to 2021 is the era of the dollar. On matters of international politics, El Salvador was aligned with the United States by even sending soldiers to the Middle East to fight alongside the Americans.
Before talking about Bitcoin, let's ask ourselves why El Salvador had abandoned its monetary sovereignty and succumbed to dollarization? From 2001 and for practical reasons, the country thought that this measure would be able to reactivate its economy and encourage American tourists to come to the country. This shift was possible thanks to the more than 1.5 million Salvadoran immigrants in the US who annually transfer nearly 1.5 billion USD. Dollarization is not just the fact that a country has chosen to make the dollar legal tender instead of or alongside its national currency. Dollarization means completely aligning with US monetary policy as well as US laws. This is what the extraterritoriality of the American dollar has been called. In France, which does not even recognize the dollar as legal tender, the BNPP paid a record fine of $9 billion in 2015, then others in 2019, for not respecting certain American sanctions abroad on the use of the dollar.
In El Salvador, the Monetary Integration Law of 2001 had therefore decreed the dollar as legal tender alongside the colón and therefore the economy could not escape Gresham's law. As a reminder, this principle states that “bad money drives out good money”. In the case of dual monetary circulation, the harmful consequence is that economic agents prefer to keep the good currency (the US dollar) to get rid of the bad as quickly as possible (the colón). The banks accumulated huge deposits in colón which was supposed to be a “stablecoin” of its time, i.e. at a fixed conversion rate against the dollar (reminds you of the fall of Terra USD, doesn’t it?). This is also what Lebanon had undertaken from 1991 to 2021, therefore during 30 years of price stabilization until the collapse of the Lebanese pound. The FED in the United States has control over El Salvador's monetary policy. You can also think that it is the case in France where it is the ECB which has the hand on the monetary policy in France, is not it?! It's not 100% similar, but it points to a vulnerability of dependence on a foreign entity and economy for its internal monetary policy, so it requires very strong integration of these 2 economies, which was not possible between the USA and El Salvador. The adoption of the dollar as legal tender was a monumental mistake and immediately caused Salvadorans to lose 50% of purchasing power.
For all these reasons El Salvador recently entered a period of insecurity, poverty and gang wars that President Nayeb Bukélé was forced to settle with an iron fist, but he at least succeeded in pacifying the country. The price was very high with 50,000 people held in prisons.
In this context, Bitcoin has come to put an end to “hyperdollarization”, high inflation and unacceptable fees on the transfers of 2.5 million immigrants to their country of origin.
Payment institutions such as Western Union and MoneyGram steal over 400 million USD per year as commission on these transfers! A transfer in Bitcoin Lightning is instantaneous and costs only a few satoshis (less than a penny per transfer and are uncensorable). Bitcoin has literally become a hope of El Salvador! I invite you to read President Bukele's article for September 2022: STOP DRINKING THE ELITE'S KOOL-AID.
Assessment of Bitcoin Adoption in EL Salvador
I expected to be able to pay in bitcoin, but thought it would be very difficult to find merchants who would accept it. The reality is quite different, just ask the upstream trader “paga con bitcoin” and you will quickly be able to decide if it is necessary to insist or not. Often traders will answer you “si”. Otherwise you have to insist that you do not have cash or cards. It is true that the people at the checkouts are not all trained or authorized, so they will ask their manager to look for an ePos smartphone that has a Bitcoin wallet (often Chivo or Bitcoin Beach) to accept a payment in Bitcoin Lightning. If the merchant really apologizes because he does not have the means at the time of your purchase, often it is enough to come back later or to go to the merchant next door.
Here is a first assessment: The legal tender forces traders to accept bitcoin but there is still a need to continue training traders and equipping points of sale. It is therefore a work in progress on the ground. Indeed Chivo wallets were complicated for merchants and need a lot of improvements. But currently 4 million out of 6.6 million Salvadorans have already downloaded and used it at least once (often to recover the 30 USD offered). The most important information is that 28% of Salvadorans have a bitcoin wallet still active in 2022 and 21% have used at least one bitcoin payment recently. These numbers certainly seem low to you, don't they? On the contrary ! In El Salvador there are already more active Bitcoin accounts than active bank accounts! Therefore the majority of transactions in the economy are still done in dollar cash which is still legal tender alongside bitcoin. But the momentum of bitcoin adoption remains strong and compared to banking.
For Bitcoin detractors, I remind you that Bitcoin has only been adopted in the country for a year, so it is a strong adoption in perspective. The changeover to the euro in France took more than 10 years between the Treaty of Maastricht in 1992 and the changeover in 2002 or, if you prefer, at least 3 years from the birth of the scriptural euro in 1999 and its entry into force in 2002.
Lightning vs Instant Payments
To deepen the question of Bitcoin as a means of payment, and as an expert in this field I absolutely wanted to compare instant payments in euros to Bitcoin Lightning, and I was not disappointed. I myself have helped several major banks in France to set up SEPA solutions (SCTInst) which provide Europeans with the means to make a transfer faster than the whole days required for traditional transfers. An instant payment requires 7 seconds on average, only if the receiving bank is connected to the system. To compare, as soon as I arrived at the airport, I paid for the taxi that took me back to the hotel: 14.8 EUR from my Phoenix wallet. This amount corresponds to something like ≈ 0.000063 bitcoins, which is why we display the amount in satoshis or 93458 satoshis (1 satoshi = 0.00000001 BTC). The commission for this cross-border payment is not 8% as with Western Union, a bank or with Visa + their exchange fees + card payment fees. The Bitcoin Lightning commission I got paid for this cross-border payment is less than a penny! Or a few satoshis. This is the huge advantage of cryptopayments in general. But what was most impressive was the speed of the transaction finality! The merchant did not receive the payment 5 to 7 days later in his bank account as for payments by Visa, not even in 7 seconds as during a so-called instant payments in Europe but instantly! in less than a second (700 milliseconds)!
Bitcoin Lighting sets the bar high for the competition in terms of efficiency and speed. As a reminder, a classic payment is authorized in a few seconds but takes more than 48 hours (more than 5 days for international) to be considered finalized and arrive on the merchant's account.
I recommend you all to download the Phoenix wallet that I use for example and try for yourself. it is a “non-custodial” wallet, which means that your cryptocurrency is not held at FTX or another regulated exchange that then goes bankrupt. Your money, you hold it by yourself in this wallet. With the possibility of restoring it personally in case of loss or theft of the smartphone. The Phoenix wallet is one of the native Bitcoin Lightning wallets that is very easy to use. If you need training do not hesitate to contact me to test it together! And if you are traders contact Valuechain for cryptopayment solutions.
Well, let's return to El Salvador, you're going to tell me, okay well done, a payment went well but you can really live daily with Bitcoin only, do your daily shopping, pay for the hotel, the shops, buy souvenirs, food, etc. ? The answer is YES, but not yet everywhere in the country. Here are some fascinating videos below of Bitcoin Lightning payments. For example a purchase of a very good chocolate croissant and a latte at Starbucks paid in bitcoin. and another cafe latte paid in bitcoin, I save you the payments for quesadilla dishes, pupusas, fish, tacos and beers as well as gifts… The most amazing payment in bitcoin is to be able to buy a small bag of popcorn at the beach from a street vendor. Admit that paying 1 dollar or even less in Bitcoin is just not possible by bank card for street vendors or very small businesses. I asked her the question, she does not accept the credit card nor its commissions higher than the amount itself… but “paga con Bitcoin?”, “si senior”!
Moreover, to pay by credit card in the mall, even using the card's very secure EMV chip and pin, the merchant asked for my passport to fight against fraud and do a KYC. Which was not the case for a payment in Bitcoin! Visa and MasterCard as well as money transfer specialists spend colossal budgets in the country to conquer it. Bitcoin grows more naturally.
I can tell you that I have used instant payments 3 times in my life so far in the past 4 years, but I have used Bitcoin Lightning dozens of times in 8 days in El Salvador. Why? Because the payment experience is 1000 times simpler, more efficient, more reliable and more secure. Yes because our payments in Europe lack Payment Request, a function built-in in Lightning Wallets, the payment is really final in less than a second, and the commissions are almost zero which allows micro-amounts and the icing on the cake is instant cross-border payments which is not even the case with Faster Payments or Instant Payments in the UK and EU! Lightning is light years ahead of the banking system.
You are probably now asking yourself the question, the merchant must surely get rid of these Bitcoins to quickly convert them into US dollars! In all seriousness, I cannot answer this question for all merchants. But be aware that they have the right to maintain their Bitcoin payments or immediately swap them to dollar stablecoins on the Bitcoin blockchain. Stablesats is an invention of the company Galoy and its French founder Nicolas Burtey. It allows holders of the Bitcoin Lightning wallet to maintain the stability of the value towards the dollar thanks to a balancing between profits and losses on the price of Bitcoin in dollars over the long term. This is a deep question that will require an independent video but know that this possibility reassures the merchants to choose to keep the bitcoins paid in Bitcoin or Stablesats.
In summary, not all merchants easily accept Bitcoin as payment yet, but the momentum is there. However, it remains a historical record the state of adoption of Bitcoin in El Salvador. A lot of work is still needed to provide reliable cryptopayment solutions and to continue education around Bitcoin. And it is in this context that the country organized its big Adopting Bitcoin 2022 conference! The conference was a great success, more than 1000 participants, double the number of last year! 46 media present on site, 164 international speakers, and more than 170 conference sessions, workshops and round tables over 3 days.
I had the opportunity to give a keynote entitled “Energy Efficiency of Cryptopayments: Bitcoin vs Banking” and you can find the full video on this link in the description. It was an opportunity for me to make this fundamental work known within the Bitcoin community to the whole world and in English. I was also able to discover the growing maturity of many use cases on the Bitcoin blockchain. The future of web3 is very bright thanks to the solid foundation of Bitcoin. If you are interested, it is for you that I have compiled the blockchain and cryptopayments online training. This is the best way to understand how to adopt this foundational and disruptive technology within your business.
To conclude this video, I encourage you to forget the FUD of mainstream media. You know the FUD is this technique of Fear, uncertainty and doubt, a rhetoric used in sales, marketing, public relations and political speech which serves to spread false information or manipulated information on a project for the purpose to discredit it and/or cause a price to fall. Bitcoin is currently the most secure cryptocurrency in the world, no fraud could take place on its blockchain, Bitcoin Lightning is growing rapidly allowing the fastest, secure and cheapest payments. For those interested in the ecological question, Bitcoin is more efficient than the banking industry by already consuming 10 times less. And a Bitcoin Lightning transaction is thousands of times more energy efficient than a bank transaction! Banks that adopt it to offer this service to their customers will be winners and will survive the ongoing banking revolution. This is why Valuechain exists to support banks and merchants in this transition.
And to conclude this immersion in El Salvador in style, President Bukele has just announced a bill for the issuance of the famous Volcano bonds in bitcoin. The amount of its treasury bonds is more than a billion dollars and will be remunerated at 6.5%. Half of the amount will allow the country to finance itself to carry out energy infrastructure projects, including for bitcoin mining based on geothermal renewable energy and for the construction of Bitcoin City in El Salvador. The other half will be invested in Bitcoin!
Happy bitcoin adoption to all of you!