El Salvador’s Race to Be the Bitcoin Capital of the World

After China’s crackdown, the cryptocurrency crowd is looking for a new haven. The Central American nation thinks it’s the answer.

Eric Grill is sitting on the patio of a house with multicolored walls, screeches of nearby tropical birds covering his voice as he expounds on the future of Bitcoin in El Salvador. Grill, an American man with blue eyes and short dark hair, is only mildly miffed. “It’s like a jungle here,” he says. “There’s been a little bit of an adjustment, but I have this place for a month. I’m here for the long haul.”

A few weeks ago, Grill listened to El Salvador president Nayib Bukele’s announcement, at a Bitcoin conference in Miami, that the country would adopt Bitcoin as a legal tender—and shrugged it off as the usual politico bluster. When the country actually passed a law implementing Bukele’s promise on June 9, Grill packed his bags and descended to the Central American country. Despite the house’s slow internet and lack of hot water, he’s optimistic.

As the CEO of Chainbyte—a company that manufactures Bitcoin ATM machines converting dollars into the cryptocurrency and vice versa—Grill decided to relocate his company’s production here from China. “We were having a lot of shipping problems with China,” he says. “We’re gonna export them from here to the United States. But we’re going to keep a lot of them here.” He expects that, as the Bitcoin law starts being applied on September 7, El Salvador’s demand for his machines will grow; he is already receiving inquiries from several local banks.

The passing of Bukele’s Bitcoin law has been met with skepticism and worry by essentially every financial institution on the planet, starting with the World Bank and the International Monetary Fund. Bitcoin’s volatility, exemplified by its plunge to about $30,000 this week, after grazing $65,000 in April, has been lambasted as a recipe for financial disaster. Citizens will be allowed to pay taxes in a currency that might depreciate in hours, suddenly draining the government’s coffers. Trust in Salvadoran government bonds is expected to be shattered. Anti-corruption experts worry that local and foreign gangs may take advantage of an announced governmental trust fund to swap bitcoin of dubious provenance with US dollars—El Salvador’s other currency, with which convertibility will be ensured. But one crowd has welcomed Bukele’s initiative with enthusiasm, and that is the bitcoin crowd.

Young, bearded, brash, and fluent in memes, 39-year-old Bukele always had the physique du role to cater to the laser-eye brigade. Since his Miami announcement, he has become a regular on Bitcoin podcasts and English-language crypto-confabs on Clubhouse. Building on his hobnobbing with the crypto-initiated, he has deftly landed more PR coups, announcing that anyone ready to invest 3 bitcoin (today, about $100,000) in El Salvador will be immediately granted permanent residency, and that capital gains on bitcoin will not be taxed. Bukele has also talked up the country’s volcanoes as ideal locations for Bitcoin miners hungry for cheap geothermal energy amid China’s crackdown on cryptocurrency. The volcano touting, in all its Bond villainesque glory, was bound to stick, and now a bunch of Bitcoin entrepreneurs sport volcano emojis—alongside El Salvador’s flag—in their Twitter bios.

The high point of El Salvador’s publicity offensive was the invitation of some 30 Bitcoin entrepreneurs to visit the country and meet with government officials, two weeks ago. Leading the delegation was Brock Pierce, a flamboyant former child actor and current cryptocurrency investor and advocate who last year ran for US president on a pro-technology platform. (Ahead of his visit, Pierce was mocked for tweeting the front page of a Spanish-language Long Island newspaper apparently reporting on his trip, which was nowhere to be found in the newspaper’s online archive. The front page eventually appeared in the archive two days later as a “special edition.”)

Pierce says he is impressed by the government’s drive. “This government is incredibly entrepreneurial,” he says. “They are like just getting things done at lightning speed.” He says that he is working to organize a “big conference” in the country. 

Lauren Bissell, a former Cambridge Analytica employee who later converted to blockchain and Bitcoin entrepreneurship, and was part of Pierce’s delegation, says she was “beyond impressed” by the government figures she met during the trip. 

Yet Bissel admits that the road map to Bitcoin adoption looks very ambitious. “There’s going to be a lot of hours of no sleep. There’s a lot of work to do,” she says. “But I think that the launch will go successfully.”

With the countdown to Bitcoin Day down to just 69 days, the nuts and bolts needed to make the cryptocurrency work as legal tender are still a mirage. Athena, a company that had been initially tipped to install 1,000 ATM machines in the country (and challenged by Bukele on Twitter to deploy 1,500) will start with just 14. Going from volcano emoji to reality will also take time. “What you have in El Salvador is, seemingly, an abundance of geothermal energy and, at least for the time being, a friendly jurisdiction,” says Alex Brammer, vice president of business development at Luxor, a cryptocurrency mining company. “Providing the infrastructure there is going to take years.” Even the Bitcoin law looks like unfinished business: Its redrafting of an entirely new monetary system is hastily sketched in two pages and 16 articles, which is why a more detailed regulation is expected to be issued soon.

What is really Bukele’s game? One oft-repeated case for his move is that Bitcoin would be “banking the unbanked.” That fusty mantra is usually balderdash, but it might have some merit here, as 70 percent of El Salvador’s population does not have a bank account or access to easy payment solutions. By this line of thinking, a government-backed Bitcoin wallet, as a smartphone app, could arguably reach more people than existing banking service providers do, and might offer a convenient, low-commission medium for the Salvadoran diaspora to send back remittances. A small-scale Bitcoin project in El Zonte—a seaside town in northern El Salvador—was moderately successful in making the local economy function more efficiently and is credited for inspiring Bukele. In this reading, Bukele is the edgy maverick wielding liberating technology to lift his people from the state of deprivation to which financial institutions have consigned it.

There are problems, however, with that narrative. Some have pointed out that only 45 percent of the country’s population has internet access—and that an internet connection will be required to use the app. Ricardo Barrientos, chief economist at ICEFI, a Guatemala-based research institute focused on fiscal studies, predicts that Bitcoin will be treated as a “weak currency,” with employers keeping their savings in dollars and using the more volatile Bitcoin to pay salaries to their workers. “This class divide could trigger social tensions—that’s a recipe for disaster,” Barrientos says. The report Barrientos cowrote for ICEFI on this subject subtly suggests that by making Bitcoin legal tender without installing any anti-money-laundering checks, the government plans to encourage a “certain kind of acquisitions or investments” by creating a parallel market where “opaque operations” can take place.

Barrientos expects Bukele to backtrack before September 7 under pressure from international financial institutions and of some of his own advisers. Were that not to happen, Barrientos hopes that Bitcoin won’t catch on among the population. “The best-case scenario for it is that no one uses it and everyone keeps using dollars, apart from some narcos,” Barrientos says. “Hopefully there will be a natural debitcoinization.”

Like other critics, Barrientos dismisses the whole enterprise under the rubric of Bukele’s dangerous antics. The president is widely criticized for his links to corrupt individuals and browbeating of the judiciary, all the while enjoying an incredible level of popular approval. For Barrientos, Bukele’s embrace of Bitcoin is just a “political show,” a bit of muscle-flexing aimed at demonstrating that “he can pass almost any law.”

A third way of looking at this falls somewhere in between the “Bukele-as-a-genius” and the “Bukele-as-Nero” arguments—and it is, simply, that Bukele loves the buzz. The cryptocurrency world is reeling from China’s repression of Bitcoin mining (over 60 percent of which was taking place in China as of April 2021). In the US, Bitcoin is in for a regulatory battering as nearly everyone from Elon Musk to Elizabeth Warren is chastising the technology for its energy consumption and potential involvement in criminal deeds. Bitcoin needs a safe redoubt, and along came El Salvador, ready to be just that. Regardless of whether El Salvador’s unbanked are eventually banked, if Bukele manages to get the crypto industry to come basking in El Salvador’s sun for a while, he may color himself satisfied. Until recently El Salvador was mostly known for having the world’s highest murder rate—now, it has graduated to farsighted Bitcoin proving ground. Interestingly, neither Bissell nor Pierce or Grill appear worried by El Salvador’s crime or gang violence.

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“Crime is a problem everywhere: violent crime, specifically. In my presidential run, you can see some of what I had to say about criminal justice reform,” Pierce says. “The best way to address these issues is typically by creating opportunity and economic prosperity.”

It is worth wondering whether the advent of cartloads of English-speaking, techno-literate bitcoiners on their shores will necessarily elicit Salvadorans’ joy. Pierce’s own initiative, launched in 2018, to establish a crypto hub in hurricane-stricken Puerto Rico was met with hostility by some locals. But El Salvador might be just the first of a string of small, relatively poor countries gunning for a piece of the spurned crypto-elite. Last week, rumors about Paraguay also making Bitcoin legal tender made the rounds, before legislators clarified that that was not the case, even if a “digital assets” bill is in the works. Panama is working on its own bill which, according to Aldo Antinori, cofounder of the Panama Digital Blockchain Chamber of Commerce, is likely not to focus only on Bitcoin and will be “broader” and “more inclusive” of other cryptocurrencies.

Pierce, who claims he has become the first port of call for many national leaders looking into Bitcoin’s opportunities, is bracing for a deluge of phone calls. “Panama, Brazil, Nicaragua—half of Latin America, almost half—is now looking into it. I mean, I was on the phone with another prime minister this morning,” he says. “It looks like El Salvador has just kicked off a chain reaction.”

This story originally appeared on WIRED UK. 

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