After Congress in El Salvador made bitcoin legal tender this week, all eyes turned to this rural fishing village on the Pacific coast. Known to surfers for its pounding waves, El Zonte has had cryptocurrency in its economy for the past year or so.
Some 500 fishing and farming families are using bitcoin to shop for groceries and pay for utilities, something the government is considering nationwide. The use of Bitcoin was already legal in El Salvador, but its acceptance was voluntary, so legislation passed on Tuesday night now requires all businesses – except those without the technology – to accept payments in bitcoins.
The mini bitcoin economy of El Zonte 43 kilometers from the capital was born from an anonymous donor who started working through a local nonprofit group in 2019. Supporters of financial change refer to him as a demonstration case of how digital currency could help a country where 70% of the population does not have a bank account.
President Nayib Bukele, who passed the bitcoin law, presents it both as a way to help those many Salvadorans without access to traditional banking services and as a way to attract foreign bitcoin holders to invest in the country. Salvador, which is the first country to make cryptocurrency legal tender.
Experts are trying to understand why Bukele is pushing bitcoin. They say it is not clear how the highly volatile cryptocurrency will be a good option for the unbanked and only time will tell if the new system will translate into a real investment in El Salvador.
Bitcoin, conceived as an alternative to government-backed money, is based largely on complex math, data-scrambling cryptography – hence the term “cryptocurrency” – a lot of processing power and a Global distributed ledger called blockchain, which records all transactions. No central bank or other institution has a say in its value, which is fully set by people who trade bitcoin and its value has changed dramatically over time.
In El Zonte this week, construction worker Hilario Galvez walked into Tienda Maria to buy a soda and snacks to share with his friends. Instead of looking for his wallet, he paid through an app on his phone. The store’s namesake, Maria del Carmen Aviles, said she is now an expert in bitcoin transactions.
“When a customer comes I ask him if he will pay with the app or in cash. The majority pay with the Bitcoin Beach app. I look for him on my cellphone to top them up.” It doesn’t take more than two minutes.
“It’s easier than paying with bills,” Galvez said. “I can buy from home, do the transaction with the Bitcoin Beach app, and I just come and get what I need.” Aviles notes that bitcoin’s volatility can be an issue.
“People ask me if I recommend bitcoin, I tell them I won, but I also lost,” Aviles said. “When bitcoin hit $ 60,000, I won and bought this chilled coin for the store, but then it fell and I lost.”
Roman Martinez was a pioneer in the use of bitcoin in El Zonte. He said the anonymous US donor heard about community projects through the Hope House nonprofit where he worked and started working with another American living in El Zonte. Hope House shares a building with Strike, a Chicago-based startup that worked with the Bukele government on the nationwide launch of bitcoin.
An Associated Press request to interview Strike CEO Jack Mallers was not granted. In an email, the company said, “The Strike app is intended to empower people in all countries, expand the financial system to include those who have been excluded, and increase economic opportunity around the world, and that’s at the heart of this effort. ”
El Salvador has used the US dollar as its official currency since 2001, and Strike said adopting bitcoin “as legal tender will help reduce its dependence on decisions of a foreign central bank.”
Martinez said residents of El Zonte do not have bank accounts, do not have access to credit and are required to process all transactions in cash. “Now these are small investors whose lives have been changed by bitcoin,” he said. Some wonder how much one can learn from the Bitcoin Beach experience. David Gerard, author of “The 50ft Blockchain Attack,” said El Zonte is an artificial demonstration.
At Bitcoin Beach, he said, “bitcoins are traded inside Strike. They don’t actually move on the bitcoin blockchain or anything.” Gerard said it seems to be working because the bitcoin donor continues to pump bitcoin into the village system. “It’s not a proof of concept that works. It shows that you can trade this stuff if you don’t trade real bitcoin and someone heavily subsidizes it.”
Adoption had been slow in El Zonte, but took off during the coronavirus pandemic when strict lockdown measures prevented most people from leaving their homes. “Our donor made three deliveries of $ 40, converted into bitcoin, to each of the 500 families in the community, and they were trained in how to use the app and it’s now normal to buy with bitcoin,” Martinez said.
El Zonte even has a Bitcoin ATM, which gives out dollars in exchange for bitcoin or takes dollars and gives out bitcoin credits. Edgar Magana was in town from San Salvador to convert $ 50 into bitcoin. He inserted the dollars into the machine and was surprised to see only $ 47 in fractional bitcoin credited to his account on his phone.
“They took three dollars in commission,” said Magana, adding that he understood there was no commission. “It’s like in the banks.” To boost domestic adoption, Bukele said the government would create a $ 150 million fund to allow people receiving bitcoin payments to immediately convert them to dollars, reducing the risk of holding the fluctuating digital currency.
Jessica Velis, who runs the El Zonte company where the ATM is located, said some people here are already receiving bitcoin remittances from abroad. Salvadorians received some $ 6 billion in remittances last year from relatives living abroad, mostly in the United States. Bukele said adopting bitcoin could save on the costs of sending that money home.
Not everyone at El Zonte is convinced by the idea. At Olas Permanentes, one of the city’s most popular restaurants, customers were able to pay in bitcoin. But when we asked the waiters if they were using it, they all said no. Some said they didn’t need high-end cellphones to download the app, while others said they had doubts about how it would work.
“They pay me in dollars and in cash,” said one waitress, who declined to give her name. While walking through town, a woman who only called herself Teresita was asked if she uses bitcoin. “Not me, I’d rather have the bills,” she said.
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