The Village And The Strongman: The Unlikely Story Of Bitcoin And El Salvador

Tracing Bitcoin’s journey in El Salvador, from new hope in a small village to a new law by an increasingly authoritarian government.

I. As Fast As Lightning

I was standing in a small coffee shop just off of an unpaved street, in a Central American village with no traffic lights, an hour’s drive west on curvy jungle roads from the nearest major city.

I had walked there from my hotel, passing a half dozen restaurants with sheet metal and tarp roofs, trekking carefully down a steep and muddy ravine that locals use as a path to get from the main road to the beach. It was hot and humid in El Zonte, and the nearby ocean was rough and tinted brown from the sediment rushing into the sea from the summer rains.

There was no supermarket in town, and most of the residents I passed on the street had no bank accounts. Despite the lack of infrastructure and it being low season, the town was buzzing with activity. There was an excitement and feeling of hope and opportunity that had not been felt before. Something special was happening.

The coffee shop’s barista, Karla, had just finished making a perfect cappuccino, and was preparing my bill on a tablet on the counter in front of me. She spun it around in my direction, and presented a digital QR code. I took out my iPhone, opened my Bitcoin wallet, scanned the pixelated image, and pressed send. Less than two seconds later, Karla’s tablet flashed green. The transaction was settled.

I had paid for my coffee instantly, without using the banking system. I bought the drink, in effect, with digital cash.

Just as if I had paid with a $5 bill, Karla did not learn anything about me in the transaction. There were no third parties to vacuum up my identity, no social engineering programs learning about my preferences, no ability for corporations or governments to know my last purchase or predict my next one. In fact, better than a $5 bill, we did not have to deal with change.

I did not need to tell any bank or any financial company about my trip to El Salvador. I was not worried about my credit card not working. In El Zonte, one can glimpse the potential of a peer-to-peer global financial system. I was impressed by how many merchants accept bitcoin, how easy it was to pay, and how familiar most people were with the technology.

I wanted to tip Karla, so she took out her personal phone and flashed a QR from her own Bitcoin wallet. I scanned it and sent her $10 worth of BTC, which traveled instantly to her wallet over the appropriately-named Lightning Network. I told her that if she saved these 25,000 satoshis for 10 years, she could probably buy a car with them in 2031.

Karla had only been using Bitcoin for a few months, but seemed to understand that I was not joking. Like most Salvadorans — even the ones already in the Bitcoin economy — she’s still not sure about the new currency, and is still taking her salary in dollars. But she told me that she was saving her tips in bitcoin, and that all things considered, it was “worth the risk.”

Five days after my chat with Karla, a new national law came into effect in El Salvador, making Bitcoin legal tender alongside the U.S. dollar. First announced on June 5, 2021 by President Nayib Bukele, the move stunned the world and made headlines across the biggest media outlets.

Many Bitcoin enthusiasts had predicted that one day, governments would start adopting Bitcoin. But most thought the state would convert fiat to BTC to hold as a store-of-value reserve asset on a central bank balance sheet. Virtually no one foresaw that the first government to officially adopt Bitcoin would use it as a payments network as a medium of exchange.

With bitcoin now legal tender, Salvadorans do not have to pay capital gains taxes if their BTC rises in value against the dollar, and they can use it to settle debts with the banking system. If the government rollout proceeds as promised, they will soon be able to use Satoshi Nakamoto’s invention to buy goods or services anywhere in the country.

However, on the morning of the law’s implementation on September 7, skepticism filled the air. Would the state-run “Chivo” app work? Would Lightning be a part of the system? No one knew, as the administration, led by the young populist Bukele, had kept citizens in the dark about the rollout's details.

Just a few days before the law came into effect, I was one of many who doubted it would go smoothly. I certainly did not think that Chivo wallet functionality — which was kept a mystery to even project insiders until the last second — would integrate Lightning. So, on the morning of launch day, I was shocked to receive a message from a Salvadoran friend, telling me that they had somehow pulled it off.

He gave me his Lightning address and I sent him $5 of BTC. The funds settled from California to El Salvador instantly, with fees so small that my wallet said they were $0.00. Moments later, my friend used the Chivo wallet to send the $5 back to me, again, with virtually no fees.

Compare this to the typical experience of a Salvadoran trying to receive a remittance from the U.S. through Western Union, where one might have to get on a bus, spend an hour waiting in line, go through an intensive KYC process, only to receive $92 out of a $100 payment due to extortionate fees.

The humanitarian implications that Lightning apps could have for Salvadorans are massive. The nation’s GDP is 23% dependent on remittances, and the population is more than 2.5 times as reliant on these flows as is the rest of Central America. The funds mainly originate in the U.S. where more than two million Salvadorans live and regularly send money back to their families.

Later that morning, Bitcoin Magazine journalist Aaron van Wirdum walked into a McDonald’s in San Salvador expecting that it would not be ready to take bitcoin. To his enormous surprise, when he asked to pay in bitcoin the cashier presented him with a QR code that directed him to a webpage with a Lightning invoice. He paid it instantly, and went to enjoy his desayuno típico, astonished. The magic internet money that van Wirdum had written about for close to a decade was now usable as an easy and fast means of payment not just at McDonald’s, but at Starbucks, Pizza Hut and Wendy’s.

Van Wirdum conducted another demo a few days later, going to a Chivo cashpoint to try and withdraw $20. When the QR code popped up on the ATM screen, he took a photo of it and sent it to a friend abroad who then paid the invoice with their Bitcoin wallet, thousands of miles away. Without any fuss, the machine spit out a crisp $20. The only ID check van Wirdum encountered during the transaction was a simple text verification, which he passed with a phone number whose SIM card he had bought with cash from a merchant in El Salvador. This possibility would have blown the mind of any mid-1990s cypherpunk.

Launch day was a mixed bag. The government had to take Chivo offline early in the morning to iron out last-minute issues, and it was only released onto app stores gradually throughout the day. Some users reported problems with signing up and analysts spotted a variety of design issues. Concerns over bugs, surveillance and rug pulls abounded.

Bitcoin itself crashed 17% intraday against the dollar, leading Bukele to joke that he was “buying the dip” as he announced that the state had bought 550 bitcoin with public funds. The amount, roughly $21 million at time of purchase, was possibly done with respect to Bitcoin’s “21 million” monetary policy. The global media largely mocked the purchase, along with the rest of the rollout, which was derided everywhere from WIRED to The Wall Street Journal.

But at the end of the day,the Chivo app worked. Some of the more glaring bugs were fixed, even with a sense of humor. And debate over the logistics of the rollout obscured the bigger picture: a government had officially begun connecting its population to an open monetary network, a remarkable event in geopolitical history. Just as England once pioneered central banking and government money as notes, here was El Salvador, marking the start of perhaps a new era with a decentralized digital currency as legal tender. Bukele could have pursued a central bank digital currency, or a partnership with China, but instead chose free and open-source monetary software.

Two of the most most visible outcomes of the Bitcoin law’s implementation are the state-run Chivo app — which any Salvadoran can download, then use their national ID number to claim $30 of bitcoin gifted by the government — and the Chivo ATMs, which will apparently number close to 200, dotting El Salvador and locations inside the U.S. with physical places for citizens to convert Chivo balances to U.S. dollars, for free.

Bitcoin supporters and critics alike were surprised when the Bukele administration revealed that the rollout would begin just three months after it first announced the law. Politically, Bukele’s New Ideas party has a supermajority in parliament, and was able to pass the law quickly despite protests from the opposition. But technologically, no country had ever done this before.

Details have surfaced that in July and August, a collection of companies ranging from Athena to OpenNode to BitGo to IBEX Mercado helped the Bukele administration create, market and activate the Chivo wallets, Chivo cash points and merchant relationships across the country. The government claims to have allocated approximately $223 million to finance the Bitcoin rollout, all taken from funds loaned by the Central American Development Bank.

Over the last three months, the Bukele administration has operated in an opaque manner. Until the last second, no one knew which companies were hired to build the apps, ATMs and backend. No one knows what the government is going to do with the bitcoin it bought. No one knows exactly how the $150 million trust — established to provide liquidity for citizens who wish to trade their bitcoin for dollars — is going to work. Instead of sharing these details in a traditional manner, Bukele leaks them live, on occasion, through his Twitter account, personifying digital populism.

At the same time that the Bitcoin bill came into effect, Bukele’s government also announced that it would be purging more than 100 judges. The Supreme Court (which Bukele had stacked with his own supporters earlier this year) also ruled that he would be able to run for another presidential term in 2024, violating the constitution. The Human Rights Foundation, where I am employed, has been one of many international organizations to strongly criticize Bukele’s anti-democratic actions.

The contradiction is striking. On the one hand, there is a government rolling out a new currency to its people that cannot be debased, censored or remotely confiscated. On the other hand, the same government is following the blueprint Hugo Chávez used in the 2000s in Venezuela to consolidate power, only much faster.

The situation is filled with contradictions. A grassroots, peaceful, village-based movement started in El Zonte inspired a national, forced, top-down law. A money beyond government control was pushed by a government that wants to control more and more of Salvadoran society. A populist leader forced into law a bill that would not have stood a chance in a country like the U.S., where the financial system exerts such a high degree of control over elected politicians. These paradoxes make quick analysis difficult. It is not a black and white picture.

In 10 years, will the world look back at the Bitcoin law as a failed experiment, or as a visionary decision? Only time will tell. Meanwhile, debates over Bitcoin adoption will rage on between promoters and naysayers.

Zooming out, it seems borderline impossible that El Salvador of all places would be the first country to roll out a next-generation financial technology like Bitcoin. But in history books, the claim will not be held by Japan, the U.S., Germany, or even Brazil. Instead, students decades from now might read about El Salvador, or, as the country’s name reads when translated from Spanish, “The Savior.”

II. An Unlikely Place For A Financial Revolution

Sandwiched between Guatemala and Honduras, El Salvador — the smallest and most densely populated country in Central America, with an average GDP per capita of around $3,500 — is a most unlikely ground zero for a financial revolution.

And yet, baristas, pupusa sellers and surf instructors in the village of El Zonte are more familiar with the concept and use of Bitcoin than most titans on Wall Street and in Silicon Valley, and have a far deeper understanding of what it is than most central bankers or Fortune 500 CEOs.

How a country where the average monthly income is less than $300 ended up beating all of the world’s industrial powers in being first to adopt the Lightning Network as a national payments system seems the stuff of a Hollywood film. But, as they say, the truth is stranger than fiction.

Historically, El Salvador has suffered a fate similar to many Global South nations, where despite rich agricultural resources, the country must import food. Large-scale commercial operations have dominated El Salvador over the past century, harnessing the best agrarian pockets for export to global consumers, at the expense of locals. The fight over land ownership culminated in 1932 with La Matanza, the country’s most deadly massacre, where the army killed more than 30,000 peasants.

Most of the country’s land consolidation historically revolved around coffee, which was known as el grano de oro, or the grain of gold. By the 1920s, the crop constituted 90% of the country’s exports. By the late 1970s, coffee accounted for half of El Salvador’s GDP, making the country the world’s third-largest producer. Ten percent of the country’s territory is still covered in coffee plantations. The phrase “Banana Republic” is a cruel one, but in some ways accurately describes the fate of many Salvadorans, as they have often fallen subservient to the interests of multinational corporations and foreign powers.

In 1979, a brutal civil war broke out, rising up from the decades-old conflict over land and external control, pitting a right-wing regime against leftist guerillas. Salvadorans were victims of a Cold War proxy conflict between the U.S. and USSR. The U.S. backed the Salvadoran regime with weapons and cash to fight off revolutionaries who vowed to claim back land from alien corporations.

The official American narrative was that these guerillas were part of a communist plot backed by the USSR, Cuba and East Germany. And for many years, the Soviets had indeed supported the radical left-wing FLMN with arms and training. At the end of the Carter Administration, the U.S. responded by backing the “largest counterinsurgency campaign since the Vietnam War.”

The Salvadoran regime was sensationally brutal, but gained constant support from the U.S. in its war against Marxist terror. In 1980, Archbishop Oscar Arnulfo Romero, who had used his platform to criticize the junta — calling for them to “stop the repression” — was assassinated while giving a private mass. The shooter was Roberto D’Aubuisson (also known as “Blowtorch Bob” after one of his favorite methods of torture), who had graduated from the School of Americas, an infamous military training center at Fort Benning, Georgia. After the murder, national violence metastasized.

The U.S. ended up giving $5 billion to the Salvadoran regime during the 1980s to keep communism at bay. The flow of funds was frozen briefly in 1980 by an outgoing Jimmy Carter, after regime forces raped and murdered three American nuns and a U.S. missionary, but were activated again shortly before Ronald Reagan took office. When the decision to renew support was publicly questioned, Reagan’s policy advisor Jeanne Kirkpatrick defended the move, saying that the nuns “were not just nuns… [they] were also political activists.”

In the early 1980s, more U.S. aid dollars and military support flowed to El Salvador than to any other country, save Israel or Egypt. The U.S. embassy staff in San Salvador was the size of its staff in New Delhi, despite serving a country that was 200 times smaller. El Salvador was, in Washington’s eyes, a critical line of defense against Soviet influence.

The 12-year civil war destroyed the country’s infrastructure, setting manufacturing, commerce, agricultural production, and living standards back decades. By 1998, for example, the purchasing power of urban Salvadorans was only one third of what it was in 1980. For a war that was in part a conflict over wealth and land distribution, the tragedy was that inequality and real wages were worse off after the war than before.

More than 1 million people were displaced and more than 75,000 were killed, often in barbaric fashion as a warning to the rest of the population. According to a U.N. truth commission, some 85% of victims were murdered by U.S.-backed paramilitaries and death squads.

Historians are still digging up the remains of those killed by U.S.-backed forces in the early 1980s, including at the site of one horrific incident in El Mozote. In this mountainous area of small villages in December 1981, more than 900 people were massacred by the Atlacatl Battalion, a special armed unit that had been trained on American soil. Two hundred and forty eight of the dead were children less than six years old. It is considered the largest massacre in modern Latin American history, and a “central parable” of the Cold War.

First-hand accounts from El Mozote are painful to read. The unspeakable cruelty of the rampaging soldiers is vividly captured in a New York Times report, written by a journalist who visited the area a few weeks after the atrocity. And yet, a few months later, Reagan certified to the U.S. Congress that “although serious problems remain, we conclude that the Government of El Salvador is making a concerted and significant effort to comply with internationally recognized human rights.”

Defenders of U.S. involvement during El Salvador’s civil war justify the bloodshed by saying that if Americans had not intervened, the country would have fallen the way of communist Cuba. But 75,000 lives and 15 years of lost economic activity is a heavy price to pay. Over the past 25 years, El Salvador has been healing and recovering, but remains without strong rule of law and is still marked by an extraordinary amount of violence.

More than 500,000 Salvadorans fled during the 1980s, establishing a strong flow of migrants to the U.S. But after the civil war ended in 1992, President Clinton allowed special rules for Salvadoran migrants to expire. Tens of thousands were sent back home empty handed. Many of these young men formed and joined gangs, for example, MS-13, which was founded in Los Angeles and only pushed to El Salvador by Clinton’s decision.

Between 2000 and 2017, approximately 2.5 million people were murdered in Latin America, Central America, and the Caribbean, compared to 900,000 killed in wars in Syria, Iraq, and Afghanistan over that same time. El Salvador lies at the center of this violence, mostly as a result of gang warfare. In 2015, it was considered the most dangerous country in the world not at war.

According to a 2015 report, “fear permeated daily life, particularly in poor communities where the gangs stake out most of their territories. Residents who cross the invisible line between them — usually an innocuous-looking bridge, road or park — risk beatings or even death. Taxi drivers dread wrong turns that can lead to robbery or kidnap. Shopping trips, lovers’ trysts and football matches are all circumscribed by safety concerns. Even staying at home is no guarantee of safety…

“Shopkeepers, hairdressers and restaurant owners are frequently assailed by extortionists, who typically threaten arson attacks or to cut off the ears or fingers of spouses or children. Parents watch with rising alarm as their sons and daughters approach pubescence — and the inevitable pressures that follow to join the local gang. There is often no one to turn to for support: teachers are intimidated by students and police are afraid to enter many communities.”

Regardless of one’s views on Bitcoin, it is stunning that a place that was spoken about like a war zone not so long ago is now being discussed worldwide as a pioneer of a new financial technology.

III. The Trauma Of Dollarization

A national economic struggle has accompanied El Salvador’s post-war violence. Today, coffee, cattle, lumber, and fishing make up a commodity export base that cannot meet the needs of the growing population. The country has seen progress since the end of the war, but has been unable to settle its external debt, and remains reliant on foreign aid, borrowing, and remittances. Economic growth has also been set back by catastrophic natural disasters, with destruction from Hurricane Mitch in 1998 causing $400 million in damage and a 7.6 magnitude earthquake in 2001 causing $2.8 billion in damage.

As the Salvadoran saying goes, “our greatest export is our people.” Research points to remittances as one of the major reasons for El Salvador’s decline in poverty over the past 25 years. The flows — making up roughly a quarter of GDP — are vital, but all of that time and effort expended by Salvadorans in Los Angeles, Washington or New York goes towards building things and providing services to Americans, not Salvadorans at home.

In 2001, the Salvadoran government implemented the U.S. dollar as legal tender, in a move that quickly replaced the traditional colón as the national currency. President Francisco Flores announced the transition in November 2000, and implementation occurred on January 1, 2001, just 39 days later. The country was 98% dollarized in only 18 months. The sudden shift gave no space for public discussion, and raised suspicion that the move was made to benefit elites, and not the majority of the population.

Unlike in Ecuador, which was dealing with severe inflation, dollarization in El Salvador was not brought in to fix an emergency. Inflation was 4.3% in the year 2000. Rather, dollarization was a macroeconomic prescription. Advocates said it would help preserve the purchasing power of workers and protect them from government monetary abuse. It was billed as something that would make commerce easier, prevent debt monetization, attract foreign investment, and lower interest rates. Banks especially could benefit, as lower interest rates meant they could borrow more cheaply from abroad and lend out inside the country for profit.

However, according to Silvia Borzutsky, a professor of political science at Carnegie Mellon University who studied El Salvador’s dollarization, the policy “had extremely negative effects on the lowest-income groups without doing much to help the overall economy.”

A 2002 survey conducted by the Instituto Universitario de Opinion Publica showed that only 2% of Salvadorans considered dollarization an achievement, while 62.2% thought it had been damaging to the nation. Another 2002 survey by the University of Central America found that 61% of Salvadoran respondents said that dollarization had a “negative effect on their personal economic situation.” According to a University of Central America paper, “the most benefited sector from the dollarization process has been the financial system, which no longer faces the risk that its payments will be increased from possible devaluation decided by the political circle.”

At the time of dollarization, 21% of El Salvador’s population could not read, and an even larger percentage had trouble pricing things in the dollar economy, where everything was divided by the 8.75 colón-to-dollar exchange rate. According to a contemporary study, “businesses were not permitted to increase prices in dollars over what they cost in colónes. Thus, in the formal market, prices are rounded up to the next cent, and inflation from rounding up is minimal. In the informal market, where the poor operate, the situation is entirely different… there is almost no regulation, so vendors have often set prices in dollars much higher than what they were charging in colónes. One participant observed, ‘some people take advantage of the change, and for what used to be seven colónes they now charge a dollar.’ From seven colónes to a dollar is 25 percent inflation.”

Even more loss of purchasing power came as a result of the difference in spending habits among poorer classes, who buy things several times per day as opposed to once a week or month like the middle or upper classes do, resulting in a more constant exposure to rising prices. The major stated benefit of dollarization — lower interest rates — even escaped lower-income populations, as the poor do not typically get loans from banks, but rather from the extortionate informal sector. According to data from 2002, 70% of the credit in El Salvador was lent at the time by four banks, with loans to 400 clients constituting 60% of the total borrowing.

Other frustration from dollarization came from a feeling that the policy was pulled over the population quickly and without consultation, and that the native currency was replaced by an imperial one, from a foreign power that had helped a brutal regime destroy the country during the civil war.

Negative attitudes about dollarization persisted for many years. In a 2007 Los Angeles Times report, a potato seller named Janette was interviewed, saying that she used to sell 100 pounds every day, but now was “lucky to move that much in a week.” She was quoted as saying “life is harder now. The dollar is a curse.”

In the mid-2000s, average Salvadoran wages rose just 4%, while food and drink prices rose 14%. Farmers and agricultural vendors faced the struggle of not just higher commodity prices, but less demand for their products. Another character in the Los Angeles Times story is a chicken farmer who was forced to cull her flock and abandon her business as a result of dollarization, resulting in an outcome where she could no longer even afford to eat chicken herself.

In a fate shared by other countries that use a more powerful economy’s currency — like, for example, the CFA countries of West and Central Africa — dollarization meant that the Salvadoran government could not tweak the currency to keep goods and services competitive, and that wages remained expensive compared to those of other countries. Five years after dollarization, El Salvador’s imports had grown “nearly three times faster than exports,” which were harmed by the rise of China, which devalued its currency to stay competitive.

Even today, 20 years later when the macro effects of dollarization seem to have been positive on El Salvador as a whole, there are negative trends that do not show up in the official data. For example, when the U.S. government monetizes debt in order to pacify financial crises and artificially boost the value of American stocks and real estate, U.S. citizens are provided stimulus checks, and U.S. corporations receive bailouts. But these lifelines are not extended to the average Salvadoran, who feels the cost of rising prices, without the benefits.

Dollarization is a painful memory for many Salvadorans, and the idea of a new top-down currency change is scary. This summer’s sudden announcement and implementation of the Bitcoin law brings back old fears.

Usually, when a government changes the currency, it is not good for the people.

Will this time be different?

IV. The Village

One could say that the unlikely story of Bitcoin adoption in El Salvador all started about 15 years ago, before anyone had ever heard of Satoshi Nakamoto, when Jorge Valenzuela and Ramon “Chimbera” Martinez got lucky.

Growing up in El Zonte, a seaside village of no more than 3,000 people, they told me that there were precious few opportunities for young men like them to do something different. Their families had for generations lived in the area, taking care of property for wealthy landowners from the capital, or fishing off the coast.

“My father is a fisherman, Jorge’s father is a fisherman,” Martinez told me. “We live in a natural paradise, with warm weather, good food … and friendly people, but our families never had real economic opportunities.”

Their lives might have continued along that path, had it not been for a social worker, who came to El Zonte and planted a seed of inspiration in them, taught them about hope, and tried to set them on a new path. “We grew a dream to change our reality,” Martinez said.

The social worker’s investment paid off. Valenzuela and Martinez found careers in building restaurants, managing properties, and teaching people how to surf. Bit by bit, they helped build El Zonte into what it is today.

“We learned that to change our community, we had to change other people first,” Martinez said. “If you just change on your own, it’s not enough.”

But the road was tough. Martinez said that while he and Valanzuela had benefited from mentorship, most people around them did not.

“We lost friends, we lost family, we started to see kids that didn’t dream anymore,” said Martinez. The economic depression and gang violence was bad, but that was not the main problem. It was the missed opportunities that really hit hardest.

In 2006, Martinez and Valenzuela, along with their friend Hirvin Palma, created a program that they call a “point of light in the darkness,” which aimed at creating families for kids without them.

“A lot of kids don’t have a father,” Martinez said. “So we created a social fabric to tackle that, to create change through children.”

They would mentor kids who lost their way and give them a new support network. Over the years, some of the hundreds of students they have worked with have made it to university, instead of into gangs. They called the program Fill Up The Tank Of Love.

“We all have a tank,” Martinez said, “but it needs to be full.”

The problem was, Martinez and Valenzuela’s programs started to lose steam a few years ago, as cash flows began to dry up. One day, Martinez said, an American came to them with an idea.

After the civil war, surfers and backpackers started to come to the area around El Zonte. One of those tourists was a Californian named Mike Peterson.

“When we first met Mike,” Martinez said, “he was one of the few that actually started spending time with us locals, who started to believe in this community.”

Around 2013, the three started working together in earnest, providing scholarships, mentorships and jobs for youth in the area.

In 2019, an anonymous donor came to Peterson and promised a large gift to the community, under the condition that it would be sent in bitcoin and was spent in El Zonte in a circular fashion.

“We didn’t know anything about Bitcoin,” Martinez said, “but we are dreamers, and we believed in Mike.”

The first vendor to accept bitcoin was Valenzuela’s mother, who goes by Mama Rosa. In 2019, she started selling pupusas for bitcoin to kids who had earned satoshis through Martinez and Valenzuela’s programs for doing community work.

One evening, I walked down the street in El Zonte with a group of friends to Mama Rosa’s pupuseria. It is a modest road-side operation, a few feet away from the local highway, but serves as a popular gathering point for locals and is a place with special history in the El Zonte story.

We ordered a variety of pupusas, and paid in bitcoin. At the end of our meal, I sat down with Mama Rosa and asked her: What was it like when her son said she should start taking payments in a magic internet money? Did she think he was crazy?

She laughed. “I didn’t think he was crazy, but I was hesitant about the currency,” she told me.

The last time the government made a big currency change, she had suffered. When I brought up dollarization, Mama Rosa grimaced, as if in physical pain.

“We didn’t want the dollar, we wanted to keep the colón,” she said. After the transition began, she encountered significant price inflation. “It was very difficult,” she said.

So, at first, with this in mind, she was not sure about Valenzuela’s plan. But she believed in him, and started accepting the new currency, and more notably, started saving some of it on her phone wallet.

Today, she keeps all of her earnings in bitcoin. She knows it is volatile, but has accepted that feature. She proudly pointed behind her to an impressive truck that was sitting next to the restaurant, and told me that she was able to buy it recently as the result of the growth of her bitcoin savings. When I asked her if she was surprised at the rise of bitcoin’s value, she laughed.

“Of course I’m surprised,” she said. “I’m making bank!”

She told me that she is incredibly proud of her son, not only because he made smart and wise decisions, but because he is improving the lives of so many people.

I asked her what advice she would give her fellow countrymen and women who are afraid of the Bitcoin law.

“There is a lot of mistrust of anything new,” she said. “On top of that, scammers have been here calling people, trying to defraud them out of their bitcoin by asking them to send it to them for a good or service and then disappearing. To get the full benefits, we need education and knowledge.”

“But in the end,” she said, “there’s nothing to fear. It’s just another currency.”

V. Bitcoin Beach

Valenzuela told me that the initial idea behind Bitcoin Beach had little to do with remittances. The goal was to create a circular economy. A key part of the effort was the construction of Hope House, a modern multi-story building in El Zonte where education around Bitcoin could happen.

But a big challenge remained. Merchants said: “If I can’t touch it, I won’t use it.”

So, at first, Bitcoin Beach leadership gave paper claims to students and others who were part of the program. If bitcoin dipped, Hope House would make them whole. At first, the students all wanted to trade their claims for dollars. But eventually, they started keeping more and more of their claims, and eventually learned how to be their own bank and hold actual bitcoin in their own wallets.

Valenzuela told me that when they finally convinced the first small merchants in town to accept bitcoin, it was the first time most of them transacted digitally, and the first time they started to think seriously about savings.

“Remember,” Valenzuela said, “people here don’t have bank accounts.”

“In our communities we have no financial literacy courses, and no one provides advice to the youth,” Valenzuela said. “But Bitcoin is a great teacher.”

Families started saving up for assets for the first time in their lives.

“People here don’t have access to stocks or real estate,” said Valenzuela.

Bitcoin helped bring inclusion to the financial system. Valenzuela said that you could feel the community starting to save for the future, and that it was a big psychological shift.

Bitcoin Beach educated a group of community leaders to help people navigate the waters of how to use the new currency. Valenzuela called them a “tribe for financial inclusion.” Thanks to them, he said, “the outcome is that kids are not as interested in going to the dark side. They are more interested in the future.”

This is why they named Bitcoin Beach’s flagship new building — nicely built and well-equipped by any standard — Hope House. Martinez said it is part of a dream about a future where people would have the freedom to choose their destiny.

Thanks to the new paradigm, Martinez said, people worldwide are now talking about El Salvador in a different way. It is not just about gangs and money laundering. People are talking about a rhetoric and narrative that is optimistic.

“People talk about the food, the pupusas, the surfing, the weather, the investment options — it’s becoming a land of opportunity,” Martinez said.

“When we first brought an ATM machine in,” Martinez said, “People laughed. They aren’t laughing now.”

“We’re finally first in something besides murder rate. All of this innovation happened not in Europe or the United States or even Silicon Valley,” Martinez said, “but right here in El Zonte. Other towns and cities are now calling us, asking us for our secret. There is no secret. Only hard work and community building.”

Today, Bitcoin Beach is sharing its philosophy with other communities in the region, one by one. Valenzuela and Martinez go to new towns every week, and help people set up wallets, and give them a bit of bitcoin. If the government did this, they said, people would be skeptical. But because they are villagers like them, they are open.

“It’s beautiful that the entire country can now have access to the financial system. This is what we hoped for 15 years ago,” Martinez said, with a big smile. “The beginning of the dream has been achieved. Our hometown is not a scary spot on a map anymore, but an exciting place to go. So now we are celebrating.”

“But the Bitcoin law is just the beginning. It’s not going to make our work any easier,” Martinez said. “It took us two and a half years to build a community around this idea with just 3,000 people. A country of six million? That will take time.”

VI. The Gift

When I sat down with Peterson on his porch at his home in El Zonte, he told me that he originally came to El Salvador in 2004. Things seemed like they were on the upswing. It had been a decade since the civil war, and people were hopeful.

His family bought a home in the small surf town, and started spending several months a year there, volunteering and helping with community efforts connected to church groups that were running orphanages, helping with ex-gang member rehabilitation, and working with victims of sex trafficking.

But the Great Financial Crisis, spawned by Wall Street, hit El Zonte and El Salvador hard. The gangs were already a problem, he said, but got much worse in 2008 and 2009. The violence crescendoed in 2016.

Today, a skate park sits across the street from Peterson’s house, right on the beach. But a few years ago, a small home was located on the property.

On the night that Donald Trump was elected U.S. president in the 2016 election, Peterson was watching the results come in at home. He heard a series of bangs, and went outside to look. He could not see anything, so went back inside. But in the morning when he went out on the street, he saw the police pulling a body out of the house across the way.

His neighbor was murdered with 40 bullets, just a stone’s throw from where I was sitting, interviewing Peterson five years later. That was the third person murdered in three weeks on Peterson’s block in El Zonte, he said. People during that time did not go out at night, he said. Some even fled the country, going to Nicaragua or Guatemala. Local business owners were paying protection money to gangs.

“If you didn’t pay,” he said, “they would kill you.”

Peterson said this was a cycle that impacted the lower classes the most: The impoverished feel like the wealthy are keeping them down, so they respond with violence, but in the end mostly the lower class gets hurt, as only the wealthy can afford to hire private security.

In the middle of all this, Peterson was in his third year of working with Valenzuela and Martinez on community projects in El Zonte. He said there were 10 to 15 leaders active in the community, pushing everything forward, but called Valenzuela the “quarterback of the operation.” They kept their heads down and kept working throughout 2017 and 2018. Thankfully, national and local crime dropped steeply during that time. But they still faced funding issues.

In the spring of 2019, one of Peterson’s friends asked if he wanted a connection to a donor who was interested in Bitcoin philanthropy. He said sure, he’d be happy to talk. He had been a fan of Bitcoin, but had never thought of implementing it into his work until that point.

The donor was anonymous, so Peterson met with his liaisons. The requirement was that a gift could be made toward community work in El Zonte, but it would be made in bitcoin, and Bitcoin needed to be baked into the local programs. The donor did not want the bitcoin to be sold into dollars, they wanted it to circulate, to become part of the local philosophy and not just a “hoop to jump through.”

Peterson was open to the idea because the local banking system was extortionate, bureaucratic, and broken. It was “so hard” to get money in from the U.S., with hour-long bus rides, long waits, high fees and inexplicable delays a common occurrence.

In his own personal experience, about 10 years ago, Peterson tried to buy a car, but had trouble getting the money out from his American account through an ATM to make the purchase. The wire took weeks, and by the time he finally got the cash, the car owner had sold it to someone else. He noted that when foreigners try to buy property and develop the area, there’s a one to two week lag time between sending and clearing, where both parties are taking risk, and deals often fall through.

But these are just minor inconveniences compared to the high fees that the impoverished deal with.

“They always pay the highest price,” said Peterson.

So, Peterson came up with a pitch for the donor, including hand-drawn diagrams of how bitcoin would circulate in town, and a three-year plan for adoption. By the end of the summer, the gift was approved, and Bitcoin Beach started running official programs to pay individuals in bitcoin for cleaning up the community, doing road repair and starting construction projects.

Peterson also made contact with the Chicago-based company Athena, which helped sneak a Bitcoin ATM into town. This, Peterson said, made a big psychological difference, as residents appreciated how they could easily cash out bitcoin into dollars on demand. By the fall, Peterson said middle class people from the capital were driving down to El Zonte on the weekends to buy bitcoin at the ATM. Momentum was starting to build.

In November 2019, Peterson traveled to a Bitcoin conference in Uruguay, where he met the British podcaster Peter McCormack. He told McCormack that he should visit El Zonte. Peterson was shocked when McCormack said “that sounds great, I’ll come this week.”

After his visit, McCormack recorded an interview with Peterson, which made the rounds on his popular show “What Bitcoin Did.” This ended up being important, Peterson said, as it was how many people in the Bitcoin community first heard about El Zonte.

In July 2020 an article in Forbes came out, profiling Bitcoin Beach. It was, according to Peterson, the “first time El Salvador had ever been featured in a positive light” in a world-class financial magazine.

Between the Forbes article and McCormack’s podcast, future key contributors to El Zonte including Galoy founder Nicolas Burtey, Strike founder Jack Mallers and Square product lead Miles Suter, would find out about the community, inspiring future visits in the fall and following spring.

As a result of the pandemic, tourism ground to a halt in El Zonte in 2020. Most hotels closed. Bitcoin Beach responded with a UBI-type program, where $40 worth of bitcoin was distributed on regular occasions to families in need. If one of these payments had been saved until now, it would be worth $400.

By the end of 2020, Peterson, Valenzuela and Martinez thought that not just El Zonte but the whole country could potentially grow to have bitcoin as a currency. But they never envisioned the kind of aggressive rollout that would come the following year.

In early 2021, Peterson said that he drove to the capital with Suter, Martinez and Valenzuela for a meeting with the minister of tourism. They spoke for two hours about the idea of El Salvador adopting a Bitcoin strategy. Peterson said that they pitched it as a cheap and easy idea to help change the national narrative from gangs to opportunity. They argued it was like a “life hack” for international recognition. Peterson said that she seemed to get it, but only a little bit.

By May, though, Peterson could feel that something was happening. Instead of making overtures to the government, officials were coming down to El Zonte, and looking at the operations of Hope House closely. In April and May, the vice minister of education and the minister of tourism visited personally.

Peterson said that the transition “hasn’t been all roses” since the Bitcoin law announcement in June. Salvadorans are suspicious of a scheme from a central government with a long history of corruption.

When it comes to the strong national opposition to the Bitcoin law, Peterson said that in general, people do not understand Bitcoin and feel in the dark, unconsulted and believe the new program will be used to steal from the public — a fair concern given that the last three Salvadoran presidents all looted the country.

Peterson said that people are also skeptical of the story of El Zonte. It is rare — or even unheard of — for anonymous people to make big gifts in El Salvador, so there is a lot of suspicion around the founding gift made to Bitcoin Beach. Peterson’s response is that “if someone had wanted to create a scheme, would they have started it with two Salvadorans who didn’t go to high school and a computer illiterate foreigner in a small village? No, you’d start in the capital.”

Despite broad national skepticism, Peterson sees Bitcoin adoption going well over the next few years.

“It’s typical for a technology to ‘leapfrog’ in the developing world and be embraced faster: skipping over landlines straight to cell phones, for example,” he said. “Especially because Bitcoin doesn’t require a lot of capital investment or need a huge new infrastructure beyond the ATMs. Everything is software; the leapfrog can happen because people already have phones.”

Peterson thinks that long term, the Bitcoin law will have four big impacts:

First, by creating a culture of savings. Today, he said, if you drive around San Salvador there’s a ton of fast food restaurants and the price of those meals does not compare favorably with daily wages. Many people, he said, spend their remittance on fast food and, in general, the money is not put to productive use because there is no hope for tomorrow. Bitcoin allows them to break this cycle.

Second, by providing business opportunities. He said that between hotel development, tech sector back office support for payments, and consulting for other countries and businesses around the world that want to add Bitcoin payments, the job creation could be significant.

Third, the efficiencies that will be gained as a result of saving fees and time on remittances are massive. It is hard for Americans to understand, Peterson said, but people spend hours of their week dealing with remittances, wait in huge lines and pay high fees.

Fourth, the sense of pride that you see in people knowing that they are leading the way instead of following from behind. The difference, he said, between subsisting in poverty and breaking out. In a country with such a tragic history and cycles of violence, going from a dark spot on the map to an exciting destination is priceless.

So, what’s next for Bitcoin Beach?

“We’ve had to wrestle through this,” Peterson said. “Do we focus on El Zonte, or do we go national?”

He said that they ultimately decided to return to their roots and work on promoting Bitcoin as a tool for the local youth. Others can handle the national work.

“Our goal is for young people to be successful and build a better future, not to do Bitcoin adoption,” Peterson said. “But we believe the latter will bring more benefits.”

Peterson said that communities like Bitcoin Beach are replicable, but only if the objective is deeper than just promotion of the technology. The mission has to be to improve a community.

If bitcoin had crashed last year, he said, they would still be doing what they are doing with dollars. But he said that Bitcoin had all kinds of benefits he did not predict: helping people with financial literacy, thinking about the future and delaying gratification.

“Bitcoiners have hope,” Peterson said. “And that feeling is spreading here. We think the future will be better than today.”

VII. The Strongman

A political chameleon and opportunist, 40-year-old Bukele has evolved in his career from a member of the leftist FMLN to creating his own party, New Ideas, which is broadly characterized as right-wing. His approval rating rests around 90%, making him the most popular politician in the hemisphere and possibly in the world.

Bukele’s popularity comes in large part from a perception that he has helped clean up crime and build new infrastructure to make the country more safe and attractive. El Salvador’s murder rate had already dropped from more than 100 homicides per 100,000 people in 2015 to around 40 by the time he came into office — declining into the 20s during his administration — but he gets a lot of credit for the overall shift. Independent newspapers like El Faro allege that Bukele has reduced violence by making deals with big gangs, but few would complain about the decline.

The big problem is that Bukele has abused his popularity to dismantle democratic institutions. The world saw a glimpse of this behavior in early 2020, when Bukele pushed a spending bill through the National Assembly by encircling the building with snipers and bringing armed troops into the chamber. In February of this year, his party won a legislative supermajority, and in the past few months, he has commandeered the judiciary. Five Supreme Court judges were sacked in May and replaced with his supporters. At the same time, Bukele fired the attorney general, who was investigating corruption in his government. Sparking concerns about transparency, he also told the National Assembly to keep pandemic-related government expenditures secret.

On August 31, the legislature passed a bill that purges all judges with more than 30 years of service or over the age of 60 — amounting to about a third of the body — and allows Bukele to replace them. Some of these judges were investigating war crimes committed in the 1980s by the government against civilians, including the atrocities at El Mozote. If the cases are closed, it is possible that no one will be held accountable for what happened there. Also in August, Bukele officials pushed forward a proposal to rework the constitution that, among other changes, removes a clause that forbids one-party rule.

On September 3, the Supreme Court, now sympathetic to Bukele, ruled that presidents could run for a second-consecutive turn, paving the way for him to run for re-election in 2024. The decision clearly goes against the constitution.

The U.S. ambassador to El Salvador recently compared Bukele to Hugo Chávez. But as Human Rights Watch has pointed out, it took Chávez five years to get control over Venezuela’s Supreme Court, seven years to conduct a mass judicial purge, and 10 years to bypass electoral limits. It took Bukele just two years to do the same.

It is likely no coincidence that the Bitcoin implementation took place at the same time as the Supreme Court ruling. Bukele has a world-class Twitter game, and has been using it masterfully lately — even poking fun at the International Monetary Fund (IMF), and telling the U.S. to mind its own business — but has not said anything about the Supreme Court. Similarly, the day before Bukele announced his plan in June to make bitcoin legal tender in El Salvador in a video at the Bitcoin 2021 conference in Miami, his government broke an anti-cooperation agreement with the Organization of American States.

In the blueprint for dictators — used by Putin, Erdogan, Chávez, and so many others worldwide — once a leader consolidates political control, he typically goes after the media, and then any powerful business people who might get in their way. This summer, Salvadoran officials made a move in this direction by expelling the El Faro journalist Daniel Lizárraga.

As El Faro wrote, “In previous administrations, journalistic investigations revealed the improper use of public funds and systemic corruption. Among other outcomes, these investigations led to the prosecution of corruption cases at the highest levels of government, as well as the discrediting of the two main political parties covering up those acts. Those investigations paved the way for Bukele and his party.”

The newspaper argues that he is trying to disable the very institutions that made it possible for him to get where he is today.

When I spoke to El Faro editor Carlos Dada by phone, he told me that a country like Switzerland or Germany should have experimented with Bitcoin, “not El Salvador, where the people have no way of seeing what the government is doing, and where no one knows what Bitcoin is. With dollarization, at least we knew what the dollar was.”

He later summed up his position on social media: “Bitcoin has been imposed on an impoverished population by an opaque, authoritarian and corrupt government.”

Dada has received death threats for his work. He told The New Yorker that he was looking up from his desk one day earlier this year and saw a drone floating outside the window. He gave it “the opportunity to biometrically examine my middle finger.”

Privacy advocates like Matt Odell have voiced concerns that the Chivo app could grow to replace cash transactions, which have, by default, excellent privacy. Moving these payments into a digital system where the government has full knowledge over all aspects of transactions could push the country in the direction of a surveillance state.

In the end, why did Bukele push the bill? Was it to distract the world from his brazen consolidation of power? To — as his critics most often allege — launder money through a network that’s harder to monitor than the banking system? Or to try and get citizens into his Chivo system, where he can better surveil and control them? Was it to make a back-up plan, in case international lenders cut him off? Perhaps — as his supporters say — to strike first in a digital arms race, modernize the country, and attract investment and talent? Or was it simply to put El Salvador, and his own persona, on the international map?

Any mix of these reasons is possible, but one thing is for sure: Bukele is a lot more internationally famous today than he was six months ago, and is now the most recognizable leader in Central America.

Geopolitically, there is a $1 billion IMF loan to El Salvador pending, and the U.S. and other international entities may try to pressure Bukele to make concessions before the money gets cleared. They prefer he stays on the Washington consensus, and not start a Nakamoto consensus trend. Whether these concessions would be targeted with regard to his erosion of democracy, or his promotion of Bitcoin, is not yet clear. Shortly after the Bitcoin Law was passed, the Biden Administration sanctioned 11 Salvadorans close to Bukele for corruption. And on September 5, the U.S. State Department published a press release accusing Bukele of undermining democracy.

Critics say that Bukele will use Bitcoin as a tool to fight back against U.S. sanctions. But as The Economist pointed out, it is unlikely that the U.S. will pressure Bukele too strongly: Biden is facing an immigration crisis, and instability in El Salvador could increase the flows of migrants into the U.S., causing political problems for the White House. On August 27, the U.S. government made a military gift to the Salvadoran army, including eight helicopters.

On June 8, as the Bitcoin law was being passed by the Salvadoran legislature, Bukele joined a Twitter Spaces organized by the investor and entrepreneur Nic Carter and answered questions from an audience that numbered more than 20,000. I had the opportunity to ask him two questions: One, would Salvadorans be able to use any wallet they want, or would they be forced to use the Chivo wallet (he said the choice would be theirs). And also, I asked if the state had planned to do any Bitcoin mining with its natural resources. On the latter, he initially said no, but then quickly began describing the idea of using volcanoes to mine Bitcoin with El Salvador’s stranded geothermal energy.

The next day, Bukele posted a video taken at a geothermal site, saying the state was preparing to mine Bitcoin using 95 megawatts (MW) of 100% clean energy. He later posted sketches of a futuristic Bitcoin mining facility. If his administration is able to effectively set up these operations, it could provide a non-IMF revenue stream and a way to finance development that other emerging market countries could emulate.

Despite its upside for empowering individuals, improving remittances, and putting El Salvador on the map, the Bitcoin law is perhaps the most unpopular action Bukele has taken since becoming president. According to a recent poll admi

Read more: https://bitcoinmagazine.com/culture/the-polarity-of-bitcoin-in-el-salvador

Text source: Bitcoin Magazine: Bitcoin News, Articles, Charts,