Is El Salvador's Embrace of Bitcoin Good, Bad, or Both?
Officially adopting the currency is great news, but mandating acceptance is a problem.
Have you heard the good news? The fiduciary light of Satoshi is coming to the nation of El Salvador in a big way.
Our Constantine in this case is the young and social media-savvy (and member of the bitcoin class of 2017) President Nayib Bukele, who recently signed into law a proposal that would make bitcoin a currency of the realm. And like that other historical reformer, this turn to embrace a burgeoning (monetary) morality may introduce some pain on those who might not right now be on board. No wonder bitcoin evangelists have opposing opinions on what should be a great institutional turn. What role should the state play in encouraging bitcoin adoption?
First, the facts. El Salvador—"the Savior"—may not have been the first place most would have suspected to be on the vanguard of monetary innovation, but the conditions were good. Many Latin American countries receive a good number of overseas remittances, and El Salvador is no different. It has a considerable population with no access to financial services at all, which makes the process of receiving remittances expensive and difficult. El Salvador is distinct in that it had no state-issued currency, but rather just used the good old U.S. dollar.
And El Salvador had already been attracting crypto-utopians (and anonymous investment) in the "Bitcoin Beach" surfer community in El Zonte that uses the cryptocurrency for daily transactions. One of these eventual bitcoin beachbums was none other than the young Lightning network entrepreneur Jack Mallers, who worked closely with Bukele in drafting the law and announced the initiative to the receptive acolytes at this year's Bitcoin Conference in Miami.
Here's what it does: Citing the need to generate "the necessary conditions to increase national wealth for the benefit of the greatest number of inhabitants" and noting that "approximately 70 percent of the population does not have access to traditional financial services," the law establishes that bitcoin will be "unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out." Prices may be expressed in BTC, taxes collected in BTC, and exchange rates set by the market. So far, so good.
It's really good, actually. To date, most countries have been lukewarm at best when it comes to bitcoin. To see a state not only not immediately try to crack down on bitcoin but instead give it a big old bearhug is remarkable. That the state that is doing this happens to rule over people that could enjoy some of the greatest benefits from sovereign finance and censorship-resistant payments makes it that much more exciting. At a time when powerful central banks seem to be readying their arrows, who could blame the faithful for their joy?
Then comes Article 7: "Every economic agent must accept bitcoin as payment when offered to him by whoever acquires a good or service." This is where some bitcoiners get off the bandwagon. It's one thing to allow people to pay taxes in bitcoin or make clear that bitcoin transactions are legal and encouraged, they say. It's another to mandate that everyone must accept bitcoin any time it is offered.
There is an ideological argument. Bitcoiners are often libertarians with the usual spectrum of attending procedural and deontological values. In one school of thought, individual actions and preferences are not only usually more efficient, they are also always more morally correct than government fiat. Even if bitcoin is a good in itself, if it is imposed by immoral means, it becomes a moral bad. Bitcoin critics, who are decidedly not libertarian, have homed in on this seeming hypocrisy as well.
This is where logistical concerns arise. Let's assume that every single El Salvadoran is happy with the new law. Requiring all merchants to have working bitcoin processes by September 7, the date by which the law takes effect, could create headaches.
Maybe merchants will scramble to comply by the date and their systems won't be as good as they should be. Maybe a wave of social engineering attacks opens El Salvador up to major theft and scams. Maybe the price of bitcoin takes a sudden dive and turns people off from the currency unnecessarily. It's easy to imagine how things could turn south, and of course bitcoin's critics would have a happy field day. Worse, it could make other countries that desperately need monetary sovereignty to turn away.
Or maybe, possibly, things will turn out all right after all. Bitcoiners are bitcoiners because they believe that this technology can financially free people from monetary mismanagement and third-party control. If we believe bitcoin is such a good thing in itself, is it so terrible that a government is putting it on legal footing with the U.S. dollar?
And maybe, possibly, the law is not even as forceful as it appears. Supporters point out that Article 12 of the law has something of an escape clause. It holds that "those who, by evident and notorious fact, do not have access to the technologies that allow them to carry out transactions in bitcoin are excluded from the obligation expressed in Art. 7." Nor does the law require that Salvadorans hold bitcoin. They may exchange it immediately for another currency like U.S. dollars. The goal is to use merchant adoption as a way to build up the technological infrastructure needed to make bitcoinization meaningful.
Great! Or, not? Critics counter that the next line effectively cancels that out since it directs the state to "promote the necessary training and mechanisms so that the population can access bitcoin transactions." Article 8 also holds that the State will "promote the necessary training and mechanisms so that the population can access bitcoin transactions."
It's already doing it: The government is releasing a "public option" wallet, called Chivo ("cool" in Salvadoran slang), and will gift $30 of bitcoin to every adult citizen. Salvadorans won't be forced to use that wallet, as per Article 8 the state cannot "prejudice [the] actions of the private sector." It's intended to be an accessible option that is custom-built for the Salvadoran people—it can immediately exchange BTC for USD, as the law provides. If Salvadorans would rather use a different wallet, they can.
The international bitcoin community, mostly in developed countries like the United States, is—in true bitcoin fashion—still engaged in this heated back and forth over whether or not "we" should support this law. It's probably baffling to outsiders. Here is a country that is adopting bitcoin as legal tender (and then some), yet many bitcoiners have been just as much, if not more, opposed to the law than bitcoin's critics. Do we really think Salvadoran troops will knock down the front door of every pupuseria to make sure they are accepting bitcoin?
It seems unlikely, and for his part President Bukele is doing the rounds in the bitcoin influencer sphere to defend the bill. He says you can't just take Article 7 out, as it will help kickstart the financial infrastructure needed to make a bitcoin standard that is more than legally theoretical. He says each element of the bill is necessary to bring bitcoin to his country where 70 percent of the people are totally unbanked—a way to "awaken dead capital." He says he believes in bitcoin and that it will help his countrymen build and save wealth. Besides, the bill was drafted and voted on by a supermajority in the democratically elected (at least in Latin terms) legislature. Has anyone checked to see what the Salvadorans think?
There is no way around the procedural dilemma in Salvadoran bitcoinization for rights-based libertarians. The promise of a politician will hardly make that better. And bitcoiners have been burned by false prophets before. But for those of a more consequentialist bent, such ritual impurity poses no problem on its own. Anyway, if bitcoin truly frees people from government repression, wouldn't bitcoinization, even if forced, hoist any possible Salvadoran tyranny by its own petard?
It's a metamethodical conversation that touches on tender fault lines that have always existed within libertarian, and now bitcoin, circles. While we chatter online, the Salvadoran experiment continues apace. Let's hope it goes well. Concerned catechumens could have turned to prayer in response to any Constantinian excesses. Unless they feel so strongly that they want to engage in some external subversion, bitcoiners and critics outside of El Salvador will mostly just have to keep arguing on the internet.
