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How Bitcoin grew up in El Salvador

This article originally appeared on VICE Belgium.

This year El Salvador became the first nation on earth to introduce Bitcoin as its legal currency. A law passed on September 7, 2021 resulted in companies across the country having to accept cryptocurrency as a means of payment.

Shortly after the law came into effect, President Nayib Bukele, the 40-year-old leader of the center-right Grand Alliance for National Unity, announced plans to build a “Bitcoin City” at the foot of a volcano. Not everyone was impressed: is El Salvador at the forefront of a fiscal revolution or has its hip, young president taken a huge risk? I went to El Zonte, known by many as “Bitcoin Beach” to find out.

Bus line 102 runs from El Salvador International Airport to the coastal town of El Zonte. Reggaeton pumps out of the loudspeakers of the converted American school bus. On the right the street is flanked by street vendors who are selling their goods between banana and coconut trees. On the left is the Pacific Ocean. What was once a surfer’s paradise is now home to one of the cryptocurrency’s potential greatest victories to date.

The drive to El Zonte takes an hour and a half at best. The city’s dusty, dirt streets are empty save for a few pickaxe-swinging workers busy maintaining the infrastructure. “There is too much to do,” says one of them. “The number of visitors has increased enormously in the last few months and it gets very crowded on the weekends. So we go street by street to fix things. Everything has to look flawless. “

We’re going to a small supermarket. A QR code on the wall informs us that Bitcoin is accepted along with El Salvador’s other official currency, the US dollar. Nilson, a 21 year old employee, notices us confused and explains how it works. All we have to do, he says, is scan this QR code. “We all use it here for our daily transactions,” he adds. “It changed our lives.” We’ll buy a coconut and go.

It’s not a complete surprise that Bitcoin took off in El Zonte. The small, poor city with around 3,000 inhabitants has been thirsting for positive changes since the early 2000s. Over the years, individual social initiatives have been set up, all of which support the city’s youth.

One of them is Hope House, an organization founded in 2007 with the aim of making positive change for young people. “Our focus is on school and education, digitization, leisure and spirituality,” says Ismael Galdames, a 19-year-old who is involved in the program. He has been a proud member of Hope House for many years. When we speak to Galadames, he is wearing a Bitcoin T-shirt.

“With our work we want to prevent young people from leaving our beaches and looking for a better life elsewhere, which has often happened in the past,” adds Roman Martinez, who works as Community Manager in El Zonte. is working . Due to the small size of the city and relative poverty, many young people are looking to America as a place to find stable work. “The aim was and is to spread knowledge. We offer classes in English and computer science, even first aid courses and surfing lessons for more than a hundred families per week. “

For the first 12 years of its existence, Hope House was kept afloat by donations. Everything changed one day in 2019 when an anonymous gift changed the fate not only of Hope House but also of El Zonte himself. It was a different kind of donation. “There was a condition attached to it,” Martinez recalls. “We had to create a circular economy based on Bitcoin.”

It wasn’t the first time the residents of El Zonte had encountered currency; they had even experimented with it in their workshops. “We thought about it most of the time [the donation] to keep our social work going, ”says Martinez. “In the end, the local population found out about finances. For example, I’ve seen people start saving for the first time. “

The transition wasn’t exactly smooth. Martinez names the town’s merchants as the hardest people to sell. “There was an ingrained belief here that money is something to be touched. This is no longer true. The shopkeepers have now realized that. ”If his mission was to turn them into crypto converts, then he will be successful.

The president is encouraging Bitcoin users across the country to use Chivo, a virtual wallet that can be used to store and trade cryptocurrencies. He claimed that two million people – in a country of just under 6.5 million people – downloaded the wallet, which, in Bukele’s words, means that it “has more users than any single bank in El Salvador”.

In order to get more people excited about using the virtual wallet, the government gives each person 26 euros when they open an account – a considerable amount in a country where the average monthly income is around 330 euros. “It is impossible to say how many people downloaded the app just to access this € 26,” says Haegebaert.

Martinez sees it similarly: “Bitcoin’s growth has been driven from a social point of view. It is unacceptable for the government to use its own wallet to try to hack this initiative. “

We meet Nilson’s family a few blocks from the nonprofit headquarters. “Bitcoin was a breath of fresh air in El Zonte,” says Maria, his mother. “Tourists from all over the world come and spend money here. We earn more money and my oldest daughter was finally able to move to school in the capital. We couldn’t have imagined that three years ago. ”This was also President Bukele’s argument at the Latin American Bitcoin Conference on November 20th. “The Bitcoin rich of the world will come to El Salvador. Look at El Zonte. There, Bitcoin has increased tourism, revenue and employment opportunities, ”he noted.

The family has no use for repeated criticism of the country’s newfound love for cryptocurrency. “Everyone has to decide for themselves how to deal with digital developments and whether or not to accept them. We no longer wait for advice or approval from the government, ”says Maria. “If you don’t want to have anything to do with Bitcoin, you don’t have to use it. Nobody is forced. But one thing is certain: it’s here to stay, so better get used to it. “

In a documentary called Bitcoin in El Salvador, Dutch writer Arnold Hubach discusses the country’s dependence on US monetary policy, a side effect of the introduction of the dollar in El Salvador in 2001: a digital financial system. In a country where 70 percent of the population don’t have a bank account, that can definitely make a difference. “

For a journalist who also publishes Bitcoin magazine, it is not surprising that Hubach praises the currency as emancipatory. “With Bitcoin, anyone can download an app and log into an open network that enables transactions around the world.”

Global financial freedom appears to be an important part of El Salvador’s long-term financial strategy, but the president is currently busy with local plans – namely the development and construction of the aforementioned Bitcoin City. This city will be a larger version of El Zonte, with a focus on the environment. Plans suggest that the city’s central square will be shaped like the Bitcoin logo.

Bukele hopes to harness the geothermal energy of an extinct volcano slumbering near the city’s planned location. In his opinion, this will immediately dispel the criticism of the environmental costs of cryptocurrencies.

Establishing a new city requires huge investments in infrastructure, which creates major problems in a non-rich country like El Salvador. The solution proposed by Bukele is to address the global financial markets by issuing Bitcoin bonds in US dollars with a coupon of six and a half percent and a ten-year term. “From the sixth year on, bondholders will earn additional dividends, provided that Bitcoin is doing well,” he clarified at the time. “Half of the money made available through the sale of these bonds is immediately invested in Bitcoin. The other half will be used for building the city. “

The International Monetary Fund (IMF), the UN body that keeps an eye on the stability of the monetary system, has sharply criticized the Salvadoran government. “The high price volatility means that the use of Bitcoin carries significant risk to consumers, financial integrity and financial stability,” the institute said. They would much rather use Bitcoin sparingly “to protect consumers and curb money laundering and terrorist financing”.

Levi Haegebaert, a Belgian crypto expert, is significantly more lukewarm than Bukele when it comes to the potential feasibility of the new development. “The whole thing is still in its infancy. There is still a lot of room for growth and success is never guaranteed. ”

He also sees many reasons to ease the current bitcoin fuss. “It’s very volatile. Having it in your wallet can be a great way to lose money without spending a dime. That is already a big risk, especially in countries like El Salvador, where the poverty rate is high. “

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