Bitcoin becomes Legal Tender in El Salvador

https://www.coindesk.com/its-official-el-salvadors-legislature-votes-to-adopt-bitcoin-as-legal-tender

by enigami • 5 years ago

122 135 5 years ago

coindesk.com

tmarice• 5 years ago

This is either the best or the worst thing that happened to Bitcoin.

system2• 5 years ago

Or like Cardano/Ethiopia. Just a fluff.

pinkybanana6• 5 years ago

I think neither. El Salvador is very small country, and not big economical actor.

onion2k2• 5 years ago

If the idea fails and gets rolled back it will be seen as BTC not working as currency at a national scale, even if the nation is small. Heck, if it doesn't work for a small country then it's less likely to work for a large one.

Cyclone_• 5 years ago

I know you have the option to convert to USD, but haven't seen yet if there would be any fee to doing so. Also, it might be difficult to get every merchant in the country to be able to accept bitcoin. The other thought I had was if they would start accepting other crypto as well if this works out.

enigami• 5 years ago

Agree and somehow if the Government could abstract away all the complexities involved with Storing Bitcoin, Private Keys Management, Fees and Coversion this would be a major step forward

Hamuko2• 5 years ago

Also, it might be difficult to get every merchant in the country to be able to accept bitcoin.

How's the Internet infrastructure in El Salvador?

el-salvador5• 5 years ago

* US $30 a month for 20/30Mbps in cities.

* Wireless data can be spotty in rural areas due to many hills and mountains. We would need an MVNO for rural areas coverage, as it wouldn't be cost effective for the four mobile networks to place a tower in every rural corner.

* Wireless coverage in cities was limited/overloaded for about 5 years due to lack of new frequencies. This was a regulatory issue fixed about 2 years ago and wireless service is finally improving

* Some companies stopped providing wired service in rural areas about 15 years ago due to copper theft. Not sure if this has improved

mrtksn8• 5 years ago

The strictly limited amount of BTC makes this into a land grab. First comers are entitled to the services of the real economy due to their virtue of being first(or lucky to be on the right place at the right tweet).

Musk is right on this one: https://twitter.com/elonmusk/status/1401251430015582209?s=21

Unlike fiat money, BTC is not an accounting tool for value exchange.

Unlike actual land, it doesn’t have any intrinsic value.

I’m very curious to see an elite class whose core virtue is based on being an early adopter.

timdaub8• 5 years ago

The intrinsic value argument is a funny one. What's the idea behind it? Assume you have asset X but then one key assmption fails. Now, is asset X still valuable considering the failed assumption?

For land, you can say that even in the case that society collapses it is still valuable. Or is it?

What exactly is the assumption that deems BTC's intrinsic value zero and land's value more than zero?

solotronics3• 5 years ago

Land ownership is a totally abstract idea anyways it's just been a thing for longer.

mrtksn8• 5 years ago

The idea behind it is that it is useful beyond the accounting.

Gold has a very little intrinsic value. Decorative and tool making value due to its physical properties are there but they are minor comparatively.

BTC has none. That doesn’t mean it doesn’t have a value, of course but it’s simply a value within a certain ecosystem.

lottin2• 5 years ago

The point is that the process of bitcoin adoption is in fact a massive huge wealth-redistribution mechanism between adopters. Making people extraordinarily rich just because they were the first to buy a new currency and other people extraordinarily poor just because they were the last isn't probably something most people would agree with.

vincnetas2• 5 years ago

I think about this through basic needs of human being. Food and shelter. Can i use land to get some of my basic needs if there is nothing else around? Probably yes. Can i use bitcoin for that. Not likely.

nly5• 5 years ago

What exactly is the assumption that deems BTC's intrinsic value zero and land's value more than zero?

For me the easiest way to determine if something has intrinsic value is ask yourself what would happen if you owned all of it (and couldn't be forced to give it up).

If you owned all the Bitcoin in the world, we wouldn't accept its use, and would just create another currency with identical properties.

If you owned all the land in the world, people would come to you to buy or rent it. You can't build a house or a factory unless someone is willing to sell or lease you the land. That's what makes it valuable.

In many ways, this is why we have the word "priceless". Things become priceless when, in certain contexts (for certain people at certain times), they will not be sold for any price. Land can be priceless because I can have a sentimental attachment to a particular place. Its value isn't derived from how many $'s people will pay for it.

bawolff2• 5 years ago

That's how all money-esque things work. First mover advantage is pretty extreme in anything money related.

I’m very curious to see an elite class whose core virtue is based on being an early adopter.

How do you think the elite class became elite? How do queens and kings get their power? By having some ancestor in the right place at the right time take advantage of an opportunity before other people tried.

mrtksn8• 5 years ago

How do you think the elite class became elite

They fought and murdered the competition. Their offsprings continue doing that until they no longer had the intelligence or power and got exterminated and their wealth redistributed.

This is very, very different than stumbling upon something.

nroets• 5 years ago

The problem with BTC is not the accounting aspect. Some parts of the financial system (like option traders) have learned to do accounting in highly volatile situations.

The problem is that BTC gained it's intangible value differently from a normal fiat currency and it can loose it again. See https://bitcoin.isnot.money

luc4sdreyer• 5 years ago

It bothers me to see so many spelling mistakes on an otherwise useful page with no way to notify the author.

berkes• 5 years ago

Isn't this the case for nearly all money-like assets? E.g. stock has very similar 'land grab' properties. This is almost entirely the businessmodel of VC and AI.

mrtksn8• 5 years ago

Yes, it's very problematic. The last time those screwed up, something called Bitcoin was created by someone who really hated the idea of bailing out that corrupt enterprise.

People play along when they benefit too. When they no longer benefit, they take action to take it down.

globular-toast• 5 years ago

Not really because investors are committing resources to the business which, it is hoped, will deliver value greater than the amount put in. Merely owning land doesn't help the land improve and deliver any value.

tmlag• 5 years ago

And unlike land you can start BTC2, BTC3 and so forth if people are no longer content to pay the early adopters and want their own pyramid scheme.

whiskyant4• 5 years ago

People have created btc2, btc3, times a thousand. Look at all the altcoins out there. Yet all the clones of bitcoin are worthless because it's a direct copy of the protocol or with minor alterations (it's akin to trying to convince people to use a different protocol than TCP for the internet, and to use your version of it instead).

Those clones have almost no one mining with it, thus limited hashing power, thus no ability to secure transactions on the network. The amount of hashing power + number of nodes makes the protocol decentralized and secure, and thus far only Bitcoin has that and none of the clones.

There's a bunch of people that have little to no knowledge about the space coming in and buying new coins believing it will make them rich, but they're usually clueless about the underlying technology.

Andrew_nenakhov• 5 years ago

Limited amount of BTC is easily circumvented by issuing new cryptocurrencies.

Tabular-Iceberg• 5 years ago

Isn't the whole point of Bitcoin to bypass the entire concept of "legal tender"?

pinkybanana6• 5 years ago

There is no centrally defined "point of Bitcoin".

crypto-cousin• 5 years ago

Sounds like you grasp the key concepts of decentralization :)

timdaub8• 5 years ago

no?

ben_w3• 5 years ago

I think you’re mixing up “fiat currency” with “legal tender”. The former being “money created and backed by the power of a government” and the latter being “money which a government says courts are required to recognise when offered as payment for a debt”.

If we were on the gold standard, gold would be legal tender, even though it isn’t fiat.

solotronics3• 5 years ago

Full copy of the law in English https://twitter.com/DocumentingBTC/status/140244839617106739...

raesene92• 5 years ago

It'll be interesting to see how they use BTC specifically for this use case. Looking at https://ycharts.com/indicators/bitcoin_average_transaction_f... the transaction fee for directly using BTC is $4.6 at the moment. That's obviously not workable for small transactions, so some kind of overlay where the transactions are batched before commit, would be needed.

Also the volatility piece will be hard to manage in anything other than instant transactions. If it's legal currency will people have to denominate larger assets (e.g. cars, houses) in BTC and commit to a price where there could be considerable shift before settlement? I know they mention that stability fund in the article but I could see this getting more complex than that.

What the policy will be where BTC appreciates before settlement will be interesting too, so in a bull run will a buyer have to hand over the number of coins they committed to, and will the gov. get the excess, or the merchant?

vincnetas2• 5 years ago

This batching is called Lightning network.

https://en.wikipedia.org/wiki/Lightning_Network

raesene92• 5 years ago

Sure I'd guess there are multiple options for this, my point was that one (or more) would be needed for this to be practicable for small transactions.

FreeTrade4• 5 years ago

Sigh. Bitcoin BTC, at 3 transactions per second, doesn't have the capacity to support El Salvador's economy. Even if Lightning worked (it doesn't), BTC doesn't have enough capacity to open channels for users at a reasonable cost. Salvadorians will end up forced to use proprietary payment networks denominated in BTC.

BTC is not cash anymore, it won't work as such. There are other cryptos that could work, we'll have to see how broadly 'bitcoin' is interpreted.

The CGT exemption will be of interest to crypto whales and entrepreneurs and may attract some, but organized crime is a concern given the nature of the asset.

dangero• 5 years ago

Forget Lightning— Did you know you can transfer Bitcoin from one user to another on Coinbase with zero transaction fees instantly? Any exchange can do the same. Centralized layer two scales just fine for many use cases and is working today.

pinkybanana6• 5 years ago

This. People just assume onchain txes and LN are the only way to scale. In practice centralized scaling via custodials has been there from the very early days.

gjulianm3• 5 years ago

But then why use Bitcoin if you're going to use what is essentially a bank?

onion2k2• 5 years ago

Isn't that exactly what FreeTrade meant by "Salvadorians will end up forced to use proprietary payment networks denominated in BTC."? Coinbase might do it for free, but that doesn't mean the eventual winner will be free, nor does it mean that users couldn't be banned, or tracked, or forced to use 'supported' services, etc.

BreakfastB0b2• 5 years ago

This is the dumbest thing I've ever read. So you designed a system that sacrifices everything to achieve trustlessness, and then you immediately reintroduce a centralised trusted entity. You can't make this shit up. I'm so glad I left the crypto community in 2014, it's become completely deranged.

solotronics3• 5 years ago

I think for smaller day to day transactions people are using Lightning or an app like Strike that is really using lightning underneath. For years now the problems of TX per second, fee, and speed have been worked on. https://strike.me/ is a Paypal like app that's built totally on Lightning and they just got setup in El Salvador recently. I think Jack Mallers and Strike are probably one of the main reasons were seeing this BTC law happen there now.

Semaphor• 5 years ago

Even if Lightning worked (it doesn't)

What doesn’t work? I’ve only skimmed some LN search results, and it looks like there are a bunch of services using it, including strike [0] which was mentioned in a comment of the big thread here [1]. This would have the same problem (proprietary network) you mentioned, but it seems to be working still?

[0] https://strike.me/

[1] https://news.ycombinator.com/item?id=27408978

random_kris3• 5 years ago

This is some shit poster that wouldn shill some currency like nano or Bitcoin cash I guess. Lightning works fine. I've been using it for past year with zero problems. Check blue wallet, phoenix wallet, bottle pay, strike, opennode, lnmarkets, kollider, sphinx chat

FreeTrade4• 5 years ago

Sure, give it a try. Let me know how it goes.

pointsphere2• 5 years ago

To fund a Lightning channel you have to pay fees on the Bitcoin network, which can get quite high. Up to 50 USD during times of high demand.

To send to someone who's offline the recipient either has to run their own always-on node, or use a custodial service.

Routing small payments (one of the goals of Lightning) is unreliable with a high chance of failure. See http://essay.utwente.nl/82015/1/Satcs_BA_EEMCS.pdf

justblaze232• 5 years ago

Yes. Unfortunately Bitcoin is not the ideal solution here. What would be the ideal solution is something like nano.org, fast transaction settlement, no fees and good UX through their community wallets.

Alternatives like XLM, SOL, ATOM could also be an option.

ostenning• 5 years ago

NANO

whiskyant4• 5 years ago

Too bad all those solutions aren't truly decentralized.

ndury• 5 years ago

What a bald statement, claiming lightning does not work without anything backing up your statement.

For reference I'd like to refer to https://1ml.com/ There is currently > 1450 BTC network capacity on the lightning network, if it wouldn't work why would people provide network capacity exceeding 45 million USD.

edit Typo.

JumpCrisscross2• 5 years ago

doesn't have the capacity to support El Salvador's economy

It's easier for San Salvador to disappear Bitcoin into cronies' pockets than U.S. dollars. For this purpose, Bitcoin's deeper liquidity makes it the best choice. Less cynically, Bitcoin has brand recognition. That makes it politically palatable in a unique way.

Bitcoin isn't a great currency. But it is a competitive store of value. El Salvador doesn't have a trusted domestic market of financial assets. This is an experiment in replacing a domestic market for assets with Bitcoin.

koheripbal5• 5 years ago

bingo. Crypto is a boon for crime and rogue states.

mickotron• 5 years ago

Bitcoin transactions are more transparent and publicly traceable than cash, Bitcoin sucks for illicit transactions. Monero should be the crypto of choice for criminals because it is untraceable.

NicoJuicy• 5 years ago

Bitcoin isn't replacing USD ( although many would want to believe that).

Who would want to spend Bitcoin in a stable country. 4,5€ transaction costs for daily purchases is not what it's intended for.

random_kris3• 5 years ago

sschueller• 5 years ago

If BTC is legal tender, why wouldn't BCH also be?

whiskyant4• 5 years ago

So why doesn't Lightning work exactly? Jack Mallers who convinced El Savador's president to make Bitcoin legal tender works on Lightning app.

dethos• 5 years ago

Even if Lightning worked (it doesn't)

That hasn't been my experience. I agree it is a "complex" system and has its own limitations, but when I took some time to test it, it worked well.

pointsphere2• 5 years ago

I always hoped that Bitcoin would become "the people's currency" but currently it does not work as cash anymore. Lightning might become great, but the engineering needed just to send to offline nodes makes me sceptical, not to mention that the cost of funding channels is always handwaved away.

I wonder, does HN hate the "Bitcoin Cash" fork as much as BTC? It's the closest to the technical specification that made me interested in BTC in the first place.

koheripbal5• 5 years ago

The other issues with channels is that only the entry and exit transactions are validated - every transaction in the channel is not secured by any network.

Meaning you can open a channel, but if you want to sell real-world goods in exchange for anything that happens in that channel, then you'd better trust the other parties in the channel to close it properly.

tldr; Lightning is indeed super fast, but it's not as secure.

sktrdie2• 5 years ago

The space of lightning network is quite new and I think not yet totally proven but to simply say it doesn't work is a bit misleading considering the kinds of people that are working on it and the amount of code that has been worked on https://dev.lightning.community/overview/

panarky• 5 years ago

Sigh. A reserve asset doesn't need every transaction for coffee and candy bars to reside in its ledger. It's a foundation that other layers can build upon. The layers can be tailored to different use cases, each with different tradeoffs of security, speed and decentralization.

WA• 5 years ago

Nayib Bukele's (president of El Salvador) profile on Twitter:

https://twitter.com/nayibbukele

Just have a look at it. The profile pic with laser eyes. I wonder how much of this is motivated by personal profit motives.

Edit: The biggest thing of this is that every commercial actor MUST accept Bitcoin if a customer wants to pay in Bitcoin. See Art. 7

nly5• 5 years ago

They probably should have spent that $150M reserve fund on pre-mining their own cryptocurrency (and then put it in reserve). That way at least the currency could float on its own terms with respect to the Salvadoran economy.

I think the trade-deficit between El Salvador and the rest of the world[0] will mean this is just a gimmick in the end.

[0] https://tradingeconomics.com/el-salvador/balance-of-trade

nikolay• 5 years ago

Oh, well - you guys wanna tank your economy even further?

lhl• 5 years ago

A few points of interest for those that want to dig more:

* This is an analysis of what was actually passed. It's a big deal as far as "legal tender" goes: https://twitter.com/robustus/status/1402456274340442113 For an discussion on what "legal tender" can mean, see: https://www.coindesk.com/el-salvador-bitcoin-legal-tender-ko...

* For those that don't know, the US Dollar was El Salvador's previous only legal tender. For a list of some other countries that use USD or are pegged to USD: https://en.wikipedia.org/wiki/List_of_countries_by_exchange_... - note of those, the Marshall Islands has previously announced plans for a CBDC (working w/ Algorand) and politicians in Ecuador has also brought up the possibility of introducing Bitcoin as legal tender. Many LatAm politicians (many that have been pegged to USD) have announced support for cryptocurrencies. Perhaps domino theory is back in play? https://twitter.com/balajis/status/1402279912623464458

* The plan for the merchant/end-user use case is apparently to use Strike https://strike.me/ , which is a custodial service built on the Lightning Network - see also https://www.businesswire.com/news/home/20210605005045/en/Str... (Technically it's opt-in and you can use any wallet, but I'll just leave this recent thread here as an example of why this isn't really an option: https://threadreaderapp.com/thread/1376286470256873475.html )

* Anyway, that last detail is I believe is getting sidetracked from the main point, which is that as a (to my mind) clear direct consequence/reaction to current US monetary policy, and a shot across the bow of USD's reserve currency status. One doesn't have to look further than the numbers for foreign holding of US Treasury Bills to see how the wind has been blowing: https://ycharts.com/indicators/increase_in_foreign_holdings_... but of course, you can also listen to much smart people than me opine about this: https://youtu.be/ScAeHsXIUqI?t=528

(It appears that El Salvador plans hold $150mm USD in a fund that will slowly convert into BTC, assuming price volatility risk for merchants that want USD)

microtherion• 5 years ago

The cryptocurrency equivalent to "Big in Japan".

rich_sasha• 5 years ago

Perhaps El Salvador has a different definition of legal tender, but if not, this is sucky. Legal Tender is generally a means you cannot refuse for debt repayment. For buying etc. you can accept or refuse just about anything, in most/many places, but for settling debt, legal tender cannot be refused.

So I'm just some guy. Someone owes me money and says, nah I'll repay it with Bitcoin. Not only is that mega-volatile, most people have no idea how to use it. Also it's easy to fall for a scam if you don't know how it works.

And further, you can typically accept anything as debt repayment if you so like. Cash, art, pretty shells, or indeed, Bitcoin. Making it legal tender actually funnels people into having to accept Bitcoin.

74d-fe6-2c6• 5 years ago

Is Bitcoin dead or is it just going through a transformation?

... should I stay or should I go?

Bitcoin becomes Legal Tender in El Salvador

Related Stories