In September, El Salvador recognized the cryptocurrency bitcoin as legal tender. The program, spearheaded by President Nayib Bukele, means that government institutions and businesses can recognize it as a lawful payment method.
Since then, the value of bitcoin has dropped by more than half. So how is the government’s bet impacting Salvadorans today?
Jacob Silverman is a freelance journalist who’s been covering the crypto space. He traveled to El Salvador with his reporting partner, actor Ben McKenzie. Their feature story was recently published in The Intercept.
Silverman said bitcoin’s plummeting value has hurt the government’s ability to pay back its crushing debt. But generally, it hasn’t wrecked residents’ day-to-day finances because many avoid bitcoin altogether. The following is an edited transcript of Silverman’s conversation with Marketplace’s Andy Uhler.
Jacob Silverman: For the people, it’s certainly been a problem. I mean, a lot of people lost money. We talked to a number of people who had their identity stolen. But that caused simply a lot of people just [to] forsake bitcoin and not be interested in it. Some people don’t have internet access, some people don’t have consistent electricity. Some people just don’t want to be involved or they had that bad first experience. So in that way, that’s sort of how it’s been a failure, I’d say, for the average Salvadoran. The proof is really also in remittances. About a quarter of El Salvador’s economy, their GDP, is powered by remittances because they have so many people living abroad. And only 2% of remittances are being sent through bitcoin at the moment, which really shows that the established methods of remittances, which are often things like Western Union or MoneyGram, seem to be sufficient for most people.
Andy Uhler: So if I’m in El Salvador, if I’m trying to spend money in El Salvador, how am I doing it if I decided that I’m not going to interact with bitcoin?
Silverman: Actually, El Salvador’s other official currency is the U.S. dollar. So most of the economy there is done in cash, and about 70% of people also don’t have a bank account. So, really, it’s a U.S. dollar-based economy there. That’s really what’s preferred. We were even in places like the airport in [the capital city] San Salvador, a nice, technologically up-to-date airport. We asked to use bitcoin to buy some souvenirs. They said they’d rather not and asked for dollars.
Uhler: You have a great line in this piece, where you call the bitcoin project “a tangled mess of government and private interests.” Tell me about the relationship between the Bukele administration and some of the private companies who might not even be in El Salvador working to promote crypto in the country. That’s actively happening, yeah?
Silverman: Very much so. And some of this is happening in the open. I mean, for example, a lot of this is run by a company called iFinex Inc., which is the parent company of BitFinex, which is a major crypto exchange, and Tether, which is a very controversial “stablecoin,” because some people have questioned its business practices, including the U.S. government. So we know that they are being invited to draft the securities laws that are supposed to be passed by the Salvadoran government. They have been heavily involved in giving away money and giving away bitcoin to people and sort of spreading the bitcoin gospel. It’s really not just the Salvadoran government choosing to give bitcoin to its people or give access to it. There are a lot of interested players and a lot of foreign ones. And ones we don’t exactly know what everyone is up to.
Uhler: Is there anything we can learn and sort of add to the conversation when it comes to this sort of bitcoin experiment?
Silverman: I think so. I think for one thing, it doesn’t work very well as a currency because it’s not very liquid, the value is very volatile. And despite the problem of inflation, which is a legitimate problem, people need their currency to be somewhat reliable in terms of 1 bitcoin will be worth the same amount one day to the next. And I think also when you see it implemented by a government that is perhaps not very trustworthy, or perhaps any government that might be beholden to private interests, it doesn’t become the democratic, liberating economic tool that it’s panned as. There are already people being displaced from Bitcoin Beach, the area in El Salvador being highlighted for bitcoin. So what you see is when bitcoin is actually implemented in a country like El Salvador, it’s actually a tool for private interests and for elites to enrich themselves. It’s not really the economic lifeline that its main boosters would claim it is.
Related links: More insight from Andy Uhler
Silverman, a freelance journalist, is writing a book with actor Ben McKenzie on cryptocurrency and fraud. Their story for The Intercept includes more context about how this experiment fits in with Salvadoran life, the widespread gang violence there and economic pressures like mounting foreign debt.
Rest of World, which covers global tech stories, has an article that shares details about the Salvadoran bitcoin wallet app, Chivo. Turns out, the app suffered from many technical bugs and security flaws. As many as 61% of consumers abandoned the app after collecting an initial government inventive.
If you want to find out a little bit more about cryptocurrency mining in the U.S., we’ve got a couple of stories for you.
Another article, from Quartz, talks about whether crypto mining is stifling our transition to cleaner, renewable energy — a conversation that’s near and dear to my heart.