El Salvador: Bitcoin Testing Ground in the Eyes of Crypto Market Practitioners

Original title: How Bitcoiners are Working With El Salvador's Leaders

Report author: David Hollerith

Compiled by: Chen Zou

Earlier this month, El Salvador became the first country to declare Bitcoin as legal tender. To help advance this controversial plan, many Bitcoin industry pioneers have visited the country to speak with the country’s politicians and help Salvadorans realize their plans.

British Bitcoin podcaster Peter McCormack traveled to El Salvador to document the new Bitcoin laws. He was asked by Zap developer Jack Mallers to make a film about Bitcoin laws in El Salvador, while Mallers’ company Strike is piloting Bitcoin payment technology to reduce the cost for Salvadoran migrants to send money home.

For nearly a month, Peter McCormack and a film crew followed the Mallers to document this social experiment.

Migrant remittances make up 20% of the Latin American country’s GDP, and Mallers believes that, through Bitcoin, Strike can reduce transaction fees to near zero. If it succeeds, Strike could bring the technology to other countries. If it fails, El Salvador could fall back into debt.

McCormack has spent nearly $30,000 of his own money to document the story in El Salvador, a move he says he did to maintain his editorial independence. Yesterday, he tweeted that he was waging a “Bitcoin narrative war,” and in an interview with Decrypt, he said, “This is not a PR campaign. This is who I am. This has to be the story I tell.”

Regarding El Salvador’s currency revolution, McCormack expressed support for the bill. “I think it’s a smart move. I think I understand what they’re doing, and I’m not here to debate whether they should force people [to use Bitcoin], that’s their decision. I’m just more supportive of the idea that more Bitcoin will end up in the pockets of the people of El Salvador.”

Additionally, McCormack is on a media mission of his own, securing the first interview with El Salvador’s President Nayib Bukele since the law was announced at a Bitcoin conference in Miami on June 5.

McCormack said he used a break from a conference to warn Bukele about cryptocurrency scammers. "The eyes of the world are on you. Especially the eyes of the cryptocurrency community. They're going to want to come in and do business. That's going to include scammers. They may come in under the guise of Bitcoin, but the ultimate purpose is to promote shitcoins."

Justin Newton, founder of blockchain identity verification company, flew to El Salvador the same week. Brock Pierce, former co-founder of Block.one, arranged an “official delegation of Bitcoin ambassadors” to meet with Salvadoran officials, and Newton was one of the business owners who joined to discuss the country’s new law.

Newton’s company, Netki, has developed software to help cryptocurrency companies comply with anti-money laundering laws since 2014. Newton realized that El Salvador was already battling money laundering head-on because bitcoin, a technology that has long been favored by money launderers, was already struggling.

"I want to go there and see where Netki and I can help the people and the country of El Salvador."

According to El Salvadoran law, all businesses must accept Bitcoin by September, but oddly the law does not mention any penalties for businesses that miss the deadline. El Salvador’s development bank will maintain a $150 million fund to hedge the country against the volatility of Bitcoin (obviously a drop in the bucket).

Officials are interested in understanding how to stop Bitcoin from becoming a tool for scammers in the country, Newton said. However, the Bitcoin Ambassador wants to make sure the government doesn’t simply increase surveillance; if they do, “there’s no point in using Bitcoin.”

Finding a balance will be tricky for El Salvador, given the share of dirty money flowing through its economy, said Julia Yansura, a Salvadoran expert at Global Financial Integrity, a Washington-based think tank. "[El Salvador] hasn't figured out how to filter drug money out of their banking system and out of their ports. I don't think they have a clue how to keep it out of the bitcoin financial system at all."

Newton believes the law will create opportunities for businesses like Netki, but he said advocates should first help the law succeed before thinking about themselves. "If it succeeds, others will copy it. If it fails, it will give ammunition to those who resist Bitcoin to slow or prevent its future advancement."

Another “official” delegate, Ray Youssef, CEO of P2P exchange Paxful, visited El Zonte, aka Bitcoin Beach, a seaside town in El Salvador where Bitcoin is widely used, during the conference.

Bitcoin Beach was founded in 2019 by 47-year-old American Michael Peterson, who was commissioned by an anonymous donor to test the value of Bitcoin as a means of payment, of course, on the premise that locals cannot withdraw cash.

"What's happening with Bitcoin Beach is exactly how Bitcoin is spreading in Africa, and we at Paxful want to give them more momentum," Youssef said. Paxful's trading volume has doubled since the beginning of last year as crypto markets in Argentina, India and Kenya have expanded rapidly, according to Coin Dance.

Youssef is now promoting El Salvador as a role model for African countries to build their own Bitcoin systems. “We are committed to making the El Salvador experiment a huge success because it is the gateway for African nation states to enter the world of Bitcoin.”