X Close

El Salvador’s cryptic Bitcoin revolution It's a paradise for globe-trotting libertarians

"The future is here" (MARVIN RECINOS/AFP via Getty Images)

"The future is here" (MARVIN RECINOS/AFP via Getty Images)


February 21, 2023   6 mins

Driving along El Salvador’s Pacific coast, I’m greeted by a sign: “Bitcoin Beach. The future is here.” As I turn onto a dirt road, another appears: “Pay in Bitcoin, $10 Pupusas and Beer”. Finally, I arrive at the beach — with its volcanic black sand, thunderous waves, and vendors selling refreshments for both cash and cryptocurrency. The Bitcoin logo of two lines through a “B” is plastered all over the resort, even spray-painted on plastic dustbins.

Bitcoin Beach, with its old shacks and gleaming new hotels, is home to an eclectic mix from El Salvador, the United States and beyond. Its residents include investors and fishermen, YouTubers and surfers, former beauty queens and former mercenaries. It is more than just a beach club; it is a symbolic landmark of an 18-month-old experiment to promote the cryptocurrency in El Salvador, whose economy is otherwise driven by farming, sweatshops and migrant remittances.

Salvador’s Bitcoin project is championed by globe-trotting entrepreneurs, known as “Bitcoiners”, but is also a key policy of President Nayib Bukele, a 41-year-old former marketing executive who has revolutionised politics for San Salvador’s six million inhabitants. Bukele is most famous for his crackdown on gangs, having suspended civil liberties and incarcerated 1% of the population. But while he has taken an authoritarian approach on crime, in Bitcoin he has embraced a flagship of many libertarians — the controversial blockchain system for digital payment transactions created by the pseudonymous Satoshi Nakamoto.

Bitcoin crept onto the world stage in 2008 and gradually rose in value, attracting hundreds of billions of dollars by the late 2010s. Amid various downturns and scandals (most recently the collapse of the FTX exchange), many dismiss the currency, but it still attracts investment and hardened Bitcoiners insist it will eventually replace physical cash. In September 2021, El Salvador became the first country to declare Bitcoin a legal currency, alongside its use of the US dollar. All Salvadorans received the equivalent of $30 if they signed up to the state-approved “Chivo Wallet”, while Bukele spent $100 million from Salvador’s state coffers on the crypto, shortly before it crashed, immediately diminishing this investment to $66 million. Despite this, Bukele announced “volcano bonds” to raise money for a tax-free Bitcoin City near the Conchagua volcano on the Gulf of Fonseca. At the 2021 Latin American Bitcoin and Blockchain Conference in El Salvador, Bukele was introduced with a giant screen displaying an avatar of him in his trademark hipster beard as a flying saucer beamed him down to earth.

For all the fanfare, it’s hard to figure out the mechanics of Bukele’s scheme, such as how Bitcoin City will pay for garbage collection with no tax. It is also unclear what the incentives are, with critics claiming it is really designed to attract money launderers. Like the currency itself, the experiment seems to mean different things to different people, have varying applications (some useful, some shams) and is as much about the image as the product. In short, Bitcoin El Salvador is as cryptic as the virtual money itself.

Likewise, it’s hard to classify exactly what Bitcoin Beach is. It is not an official district (and is not on Google Maps) but is part of an area called El Zonte. The Californian surfer, businessman and evangelical Christian Michael Peterson is credited with devising the concept in 2019, helping inspire Bukele to launch the currency nationally. Peterson had been visiting El Zonte for over a decade and conducted charity work through a non-profit called Missionsake. The Bitcoin Beach website describes itself as a Salvadoran initiative that Missionsake supports, and the beach as “a sustainable Bitcoin Economic ecosystem
 where the majority of people do not have access to bank accounts”. However, while almost all businesses in the area accept the crypto, it’s unclear how many of their transactions use it; one vendor tells me it’s only a tiny amount and he uses those sales for savings.

The project headquarters can be found at Hope House, a white building emblazoned with an orange Bitcoin logo. There, I meet Jorge Valenzuela, a 33-year-old “coordinator” from Zonte. Valenzuela says Bitcoin Beach is registered as an educational and social project which has taught local youths to get a foot in the financial system. But he concedes there are other goals, too. “We can do transactions in Bitcoin and it works. But beyond this there is tourism, economy, new jobs, opportunities, many journalists coming here to see what is going on,” he says. “We have changed the country now. The country of pupusas. The country of waves. The country of Bitcoin. The country of good people. Now nobody is remembering a bad country.”

As successful Bitcoiners have shown, crypto can be promoted not just as a currency or investment but as a lifestyle choice, involving living by the beach, working remotely, and rejecting government interference. Down the road in a gated community, I meet some of those attracted to this newfound libertarian side of Salvador. Nicki and James are a pair of Bitcoiners who moved from New Zealand in early 2022. James was an early adopter of Bitcoin from an entrepreneurial family; Nicki worked in finance. They met during the pandemic as New Zealand’s lockdown restrictions were getting increasingly harsh, especially for the unvaccinated. “They made a two-tier society. You couldn’t go to a cafĂ©. You couldn’t get your hair cut. You couldn’t do all those things,” Nicki says.

Then, in November 2021, El Salvador became one of the first countries in the world to remove all Covid travel restrictions. Nicki and James sold up, said goodbye to their families and began a new life by the Pacific, as well as a new YouTube show. Like the few hundred foreign Bitcoiners in the country, they do a mixture of remote work and social media in addition to investing in crypto. As well as saving Bitcoin, they also spend it at the local stores, using apps that can facilitate rapid transactions. “It’s really important for us to utilise it in both ways,” says Nicki. “Eventually, it would be really great to see the fiat system go.” James sees their decision as political: “We literally moved our monetary choices and our time spent to another currency system in another country,” he says. “That’s a really strong vote in our mind.”

The most famous Bitcoiners in the area are Max Keiser and his wife Stacy Herbert, formerly co-hosts of a financial news show on Russia Today. They are considered advisers to Bukele on Bitcoin, a badge that Keiser proudly announces on his Twitter handle to his half a million followers. Their podcast “Orange Pill” applauds Bukele, and discusses Bitcoin in terms laced with near-religious zealotry. “There is always a counterforce for everything in the universe, and Bitcoin is the counterforce to all this: that money-printing; those warmongers; those plunderers,” Herbert said in a recent episode. “Bitcoin cannot be stopped.”

One area where Bitcoin could certainly take off is with remittances, the money migrants send home from their work abroad, mostly in the US. In 2021, migrants wired $7.5 billion to El Salvador, representing more than a quarter of its entire GDP. They often send it in small amounts to their families, and pay high fees using transfer services such as Western Union. Bitcoin, with its blockchain technology, could massively reduce these.

In the more deprived areas of the capital San Salvador, however, residents seem less enthusiastic. Flogging bananas on a stall in the Margaritas slum, Yamileth Gonzalez, 40, says she received her initial $30 with the Chivo Wallet but hasn’t used it since. “It’s fiddly. A hassle. I prefer cash,” she says, although she is a firm Bukele supporter. Meanwhile, less than 2% of remittances used crypto. The migrants sweating in fields and restaurants seem to lack the patience and trust to turn their earnings into Bitcoin. This isn’t too surprising: many cryptocurrency ATMs in the country appear to be broken. Standing on a street corner in San Salvador, I watch a line of people try to use one, only to walk away empty-handed.

Yet a few streets away, there are signs of El Salvador’s Bitcoin revolution taking shape. Outside Chivo Pets, a government pet hospital that charges in Bitcoin, a trail of dog owners bursts out of the waiting room and onto the street. Here, customers who pay in Bitcoin are charged massively reduced fees — just a few dollars for hundreds of dollars worth of treatment. One queuing dog-owner, Veronica Serrano, tells me she is not a supporter of Bukele but thinks that launching Bitcoin was a popular policy, despite people not using it much. “People like the idea of Bitcoin because it seems modern and futuristic. It seems like we are going forward,” she says.

This strikes me as a key motivation for Bukele, a marketing executive who is very tuned in to the image of his policies. In terms of its PR value, for Bukele, the country’s broken crypto ATMs are a sideshow. As long as places like Bitcoin Beach and Chivo Pets continue to succeed and dominate the headlines, there will always be a victory for him to sell.


Ioan Grillo is a journalist based in Mexico and the author, most recently, of Blood Gun Money.

ioangrillo

Join the discussion


Join like minded readers that support our journalism by becoming a paid subscriber


To join the discussion in the comments, become a paid subscriber.

Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.

Subscribe
Subscribe
Notify of
guest

11 Comments
Most Voted
Newest Oldest
Inline Feedbacks
View all comments
Emre S
Emre S
1 year ago

People seem to lack an understanding of what Bitcoin is. In short, it’s effectively a trustless rapid international settlement system. Of course the dominant international settlement system is in USD which suffers from – you guessed it – financial sanctions. This is the underlying subtext for many of those who support Bitcoin or not in my observation.
There’s however also Ethereum and similar systems based on smart contracts. These also work as a form of settlement system if needed, but do much more than that. In some ways they’re less secure than Bitcoin which does only one thing well. These days this is where most of the innovation is taking place such as various derivatives using stable coins, play-to-earn games and other developing applications using NFTs which have provable uniqueness as building blocks.

Last edited 1 year ago by Emre S
Robbie K
Robbie K
1 year ago
Reply to  Emre S

It may well be an ‘international settlement system’, however that’s not why people buy and sell it, they are merely trading tokens relying on greater fool theory for profitability.

David Barnett
David Barnett
1 year ago
Reply to  Robbie K

Bitcoin is now big enough to be its own viable financial system. And given its distributed open ledger system, it has much less the character of “greater fool” than all the fiat currencies such as the US Dollar whose relentless creation benefits the first recipients of the new money at the expense of those down the line.
The ponzi nature of our fiat system (as it has evolved since 1971) is masked by the size of the transaction base. The real question is how will the pain of unwinding the fiat ponzi be distributed in our society?

Jon Hawksley
Jon Hawksley
1 year ago
Reply to  David Barnett

Unwinding Bitcoins is of course very easy. Without new buyers the funds available are zero so everyone gets zero and it really does not matter if the computers are turned off and there is no one to check you Bitcoin is valid. With fiat money you can at least vote for a Government that acts to limit inflation and tries to control the risks banks take.

Jon Hawksley
Jon Hawksley
1 year ago
Reply to  David Barnett

Unwinding Bitcoins is of course very easy. Without new buyers the funds available are zero so everyone gets zero and it really does not matter if the computers are turned off and there is no one to check you Bitcoin is valid. With fiat money you can at least vote for a Government that acts to limit inflation and tries to control the risks banks take.

Emre S
Emre S
1 year ago
Reply to  Robbie K

I don’t disagree with that. I typically see two types of buyers. Libertarian types who like the idea that it gets rid of fiat money (and by implication unlimited funding of social justice causes by leftwing governments), and greater fools chasing the shinier coins while the speculators make money.

David Barnett
David Barnett
1 year ago
Reply to  Robbie K

Bitcoin is now big enough to be its own viable financial system. And given its distributed open ledger system, it has much less the character of “greater fool” than all the fiat currencies such as the US Dollar whose relentless creation benefits the first recipients of the new money at the expense of those down the line.
The ponzi nature of our fiat system (as it has evolved since 1971) is masked by the size of the transaction base. The real question is how will the pain of unwinding the fiat ponzi be distributed in our society?

Emre S
Emre S
1 year ago
Reply to  Robbie K

I don’t disagree with that. I typically see two types of buyers. Libertarian types who like the idea that it gets rid of fiat money (and by implication unlimited funding of social justice causes by leftwing governments), and greater fools chasing the shinier coins while the speculators make money.

Jon Hawksley
Jon Hawksley
1 year ago
Reply to  Emre S

For trustless you must read there is no one to trust. As with most articles on crypto currencies the risks are not spelt out. Your risks depend on how you participate.
The least risk of participation is as a node with your computer using the bitcoin software to hold the entire blockchain. Your risk is that the miners are motivated to validate transactions and add them to the blockchain with the new bitcoins they mine in return for a transacion fee and the sale of the new bitcoins. Plus of course, as Robbie K points out, a ready supply of “greater fools” buying bitcoins to fund the miners and pay you out when you want real money. You also take the risk that the community of miners do not intentionally or inadvertently change the rules by changing the coding.
One removed from this is to have a private wallet that holds your private key to claim your bitcoin in the blockchain when you want to sell it. You have the additional risk of relying on someone to give you a valid key and the risk of it being copied, so do not keep it online, or lost, eg in a hard disk failure, so even you cannot spend it.
For ease of use you can increase your risk by keeping your bitcoins in a wallet held by a broker. Then you add all the risks of a third party being honest with you. They took your money but did they buy a bitcoin for you, can you claim it if they go bust.
Then for small amounts you can open an account with an intermediary such as Paypal, but you will not own any identifiable bitcoin that you could take away from them.
A bitcoin is a bearer token, whoever has it can spend it, so the blockchain has to hold the data for every bitcoin in existence and when it was last traded. In theory they are divisible to ten decimal places so if everyone participated directly the blockchain would have to hold a vast amount of data. Magnitudes greater than its current size of less than half a terrabyte (thanks to Emre S for correction).
In practise very few people actually deal directly in bitcoins, A quick search suggests circa 15 k addressable nodes and another 30k that cannot be addressed. The reported number of transaction is low with a high average value – essentally the direct participation is a wholesale market.
It might be a neat idea but it is far too cumbersome.
As the article shows people in El Salvador rely on fiat money.

Last edited 1 year ago by Jon Hawksley
Emre S
Emre S
1 year ago
Reply to  Jon Hawksley

Don’t see why miners adding new transactions is a risk, that’s how it normally works, also the ledger size today is about a half terabyte, but other than that I’d mostly agree with what you say.
Given its expensive proof of work mechanism and very specialised secure nature, personally I see bitcoin more reserved for large transactions. Proof-of-stake systems have much lower transactions costs and are more suited for more widely spread activity.
Visa today processes on the order of a few 1000 transactions per second as it handles a large chunk of every day payments in the world. Current two main crypto systems can’t do that at this point, but there are several other available cryptos that can do that, and more. Furthermore Ethereum itself will likely be able to do that in the near future as well.

Last edited 1 year ago by Emre S
Jon Hawksley
Jon Hawksley
1 year ago
Reply to  Emre S

The risk is the reliance on miners being motivated to keep their computers on. At the current price the new bitcoins mined, if sold, require new buyers to invest $8 billion of new money pa to keep the price where it is. Next year the number of new bitcoins halves. Mining has changed radically moving from China to the US. It seems to have required a sizeable new investment in new chips. It is now very concentrated – two pools account for 50% and five pools for 80%. The new miners in pools with new chips have economies that have ousted the old miners – do they have high profit margins or does the competition between them push the diffficulty up and therefore the operating costs up to limit the margin. The difficulty has gone up but how much is that due to new chips? Can the need to have new chips and a large pool mean that future mining will be even more concentrated? If the price drops will the pools just scale down and lower the difficulty or will they withdraw or will it squeeze out the remaing old miners? Are the miners motivated by the mining or sustaining the value of holdings? There must be sizeable holders who have limited sales to avoid prices falling. It would not be difficult to make trades that manipulate the price – has that happened? Are there co-ordinated forces to keep the show on the road to attract the new money in that keeps the price up? Is there a scandal brewing that will scare of new investors enough to convince holders to try and get out while they can, which of course they cannot without new investors.
Thanks for pointing out error in blockchain size.

Last edited 1 year ago by Jon Hawksley
Jon Hawksley
Jon Hawksley
1 year ago
Reply to  Emre S

The risk is the reliance on miners being motivated to keep their computers on. At the current price the new bitcoins mined, if sold, require new buyers to invest $8 billion of new money pa to keep the price where it is. Next year the number of new bitcoins halves. Mining has changed radically moving from China to the US. It seems to have required a sizeable new investment in new chips. It is now very concentrated – two pools account for 50% and five pools for 80%. The new miners in pools with new chips have economies that have ousted the old miners – do they have high profit margins or does the competition between them push the diffficulty up and therefore the operating costs up to limit the margin. The difficulty has gone up but how much is that due to new chips? Can the need to have new chips and a large pool mean that future mining will be even more concentrated? If the price drops will the pools just scale down and lower the difficulty or will they withdraw or will it squeeze out the remaing old miners? Are the miners motivated by the mining or sustaining the value of holdings? There must be sizeable holders who have limited sales to avoid prices falling. It would not be difficult to make trades that manipulate the price – has that happened? Are there co-ordinated forces to keep the show on the road to attract the new money in that keeps the price up? Is there a scandal brewing that will scare of new investors enough to convince holders to try and get out while they can, which of course they cannot without new investors.
Thanks for pointing out error in blockchain size.

Last edited 1 year ago by Jon Hawksley
Emre S
Emre S
1 year ago
Reply to  Jon Hawksley

Don’t see why miners adding new transactions is a risk, that’s how it normally works, also the ledger size today is about a half terabyte, but other than that I’d mostly agree with what you say.
Given its expensive proof of work mechanism and very specialised secure nature, personally I see bitcoin more reserved for large transactions. Proof-of-stake systems have much lower transactions costs and are more suited for more widely spread activity.
Visa today processes on the order of a few 1000 transactions per second as it handles a large chunk of every day payments in the world. Current two main crypto systems can’t do that at this point, but there are several other available cryptos that can do that, and more. Furthermore Ethereum itself will likely be able to do that in the near future as well.

Last edited 1 year ago by Emre S
mike otter
mike otter
1 year ago
Reply to  Emre S

True enough – its fine if i get an offer to buy say a Porsche fender from a breaker in Bremerhaven for 0.00578579 BTC at 10:00 hrs CET. 10 mins later he’s paid and posts the goods.The vender – a tax shy Turk, used to keep the coins for a while when the market was rising – now he buys € or $ right away having been been caught with his $135 part now only worth $90 to him. That is the future of BTC. it will always appeal to the tax shy & the sex, drugs or other “cash” economies. The only reason FIATs stand up is they are backed by states who are ready to dole out violence, sometimes lethal, to anyone who opposes them or their financial system. As if the Salvadoreños needed any thing else to worry about!

Last edited 1 year ago by mike otter
Emre S
Emre S
1 year ago
Reply to  mike otter

I see a big push to tax crypto transactions today in UK at least, and why not. To be a serious technology for finance, taxation needs to happen.
The interesting thing about the first generation crpto (ie. Bitcoin) in my view is how it managed to create a form of money that’s both convenient (e.g. not gold) and not fiat (e.g. not printable out of thin air). Other things like tax etc are not impossible problems to solve.

Emre S
Emre S
1 year ago
Reply to  mike otter

I see a big push to tax crypto transactions today in UK at least, and why not. To be a serious technology for finance, taxation needs to happen.
The interesting thing about the first generation crpto (ie. Bitcoin) in my view is how it managed to create a form of money that’s both convenient (e.g. not gold) and not fiat (e.g. not printable out of thin air). Other things like tax etc are not impossible problems to solve.

Robbie K
Robbie K
1 year ago
Reply to  Emre S

It may well be an ‘international settlement system’, however that’s not why people buy and sell it, they are merely trading tokens relying on greater fool theory for profitability.

Jon Hawksley
Jon Hawksley
1 year ago
Reply to  Emre S

For trustless you must read there is no one to trust. As with most articles on crypto currencies the risks are not spelt out. Your risks depend on how you participate.
The least risk of participation is as a node with your computer using the bitcoin software to hold the entire blockchain. Your risk is that the miners are motivated to validate transactions and add them to the blockchain with the new bitcoins they mine in return for a transacion fee and the sale of the new bitcoins. Plus of course, as Robbie K points out, a ready supply of “greater fools” buying bitcoins to fund the miners and pay you out when you want real money. You also take the risk that the community of miners do not intentionally or inadvertently change the rules by changing the coding.
One removed from this is to have a private wallet that holds your private key to claim your bitcoin in the blockchain when you want to sell it. You have the additional risk of relying on someone to give you a valid key and the risk of it being copied, so do not keep it online, or lost, eg in a hard disk failure, so even you cannot spend it.
For ease of use you can increase your risk by keeping your bitcoins in a wallet held by a broker. Then you add all the risks of a third party being honest with you. They took your money but did they buy a bitcoin for you, can you claim it if they go bust.
Then for small amounts you can open an account with an intermediary such as Paypal, but you will not own any identifiable bitcoin that you could take away from them.
A bitcoin is a bearer token, whoever has it can spend it, so the blockchain has to hold the data for every bitcoin in existence and when it was last traded. In theory they are divisible to ten decimal places so if everyone participated directly the blockchain would have to hold a vast amount of data. Magnitudes greater than its current size of less than half a terrabyte (thanks to Emre S for correction).
In practise very few people actually deal directly in bitcoins, A quick search suggests circa 15 k addressable nodes and another 30k that cannot be addressed. The reported number of transaction is low with a high average value – essentally the direct participation is a wholesale market.
It might be a neat idea but it is far too cumbersome.
As the article shows people in El Salvador rely on fiat money.

Last edited 1 year ago by Jon Hawksley
mike otter
mike otter
1 year ago
Reply to  Emre S

True enough – its fine if i get an offer to buy say a Porsche fender from a breaker in Bremerhaven for 0.00578579 BTC at 10:00 hrs CET. 10 mins later he’s paid and posts the goods.The vender – a tax shy Turk, used to keep the coins for a while when the market was rising – now he buys € or $ right away having been been caught with his $135 part now only worth $90 to him. That is the future of BTC. it will always appeal to the tax shy & the sex, drugs or other “cash” economies. The only reason FIATs stand up is they are backed by states who are ready to dole out violence, sometimes lethal, to anyone who opposes them or their financial system. As if the Salvadoreños needed any thing else to worry about!

Last edited 1 year ago by mike otter
Emre S
Emre S
1 year ago

People seem to lack an understanding of what Bitcoin is. In short, it’s effectively a trustless rapid international settlement system. Of course the dominant international settlement system is in USD which suffers from – you guessed it – financial sanctions. This is the underlying subtext for many of those who support Bitcoin or not in my observation.
There’s however also Ethereum and similar systems based on smart contracts. These also work as a form of settlement system if needed, but do much more than that. In some ways they’re less secure than Bitcoin which does only one thing well. These days this is where most of the innovation is taking place such as various derivatives using stable coins, play-to-earn games and other developing applications using NFTs which have provable uniqueness as building blocks.

Last edited 1 year ago by Emre S
Anton van der Merwe
Anton van der Merwe
1 year ago

Bitcoin was developed to enable settlement of transactions without a centralised database. That is an incredibly difficult problem to solve and the solution, proof of work, means that it is hugely inefficient and slow. So slow and energy intensive it can never replace regular money as we would need all the energy we have just to process transactions. What can’t happen won’t happen.
Regular people don’t need a payment system with a decentralised database. Unless you are a criminal and/or want to evade government control. That is why authoritarian countries like China just ban bitcoin.
The only positive thing about bitcoin is that it has persuaded central banks to develop central bank digital currencies, which will make international pay settlements cheap and fast.

Anton van der Merwe
Anton van der Merwe
1 year ago

Bitcoin was developed to enable settlement of transactions without a centralised database. That is an incredibly difficult problem to solve and the solution, proof of work, means that it is hugely inefficient and slow. So slow and energy intensive it can never replace regular money as we would need all the energy we have just to process transactions. What can’t happen won’t happen.
Regular people don’t need a payment system with a decentralised database. Unless you are a criminal and/or want to evade government control. That is why authoritarian countries like China just ban bitcoin.
The only positive thing about bitcoin is that it has persuaded central banks to develop central bank digital currencies, which will make international pay settlements cheap and fast.