In El Salvador, rural community offers glimpse at crypto economy
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| El Zonte, El Salvador
After El Salvador鈥檚 congress made the bitcoin legal tender this week, eyes turned to this rural fishing village on the Pacific coast. Known to surfers for its pounding waves, El Zonte has had the cryptocurrency in its economy for the past year.
Some 500 fishing and farming families use bitcoin to buy groceries and pay utilities, something the government envisions for the country at large. Bitcoin already was legal to use in El Salvador but its acceptance was voluntary, so the legislation passed late Tuesday now requires all businesses聽鈥 except those without the technology 鈥撀爐o accept payment in bitcoin.
El Zonte鈥檚 mini bitcoin economy 26 miles from the capital came about through an anonymous donor who started working through a local nonprofit group in 2019. Supporters of the financial change point to it as a demonstration case for how digital currency could help in a country where 70% of the people don鈥檛 have bank accounts.
President Nayib Bukele, who pushed through the bitcoin law, touts it both as a way to help those many Salvadorans without access to traditional banking services and as a path to attract foreigners with bitcoin holdings to invest in El Salvador, which is the first nation to make the cryptocurrency legal tender.
Experts are trying to figure out why Mr. Bukele is pushing bitcoin. They say it is unclear how the highly volatile cryptocurrency will be a good option for the unbanked and only time will tell if the new system translates into real investment in El Salvador.
Bitcoin, intended as an alternative to government-backed money, is based largely on complex math, data-scrambling cryptography 鈥搕hus the term 鈥渃ryptocurrency鈥 鈥撀爈ots of processing power and a distributed global ledger called the blockchain, which records all transactions. No central bank or other institution has any say in its value, which is set entirely by people trading bitcoin and its value has moved wildly over time.
In El Zonte this week, construction worker Hilario G谩lvez walked into Tienda Mar铆a to buy a soda and snacks to share with his friends. Instead of reaching for his wallet, he paid through an app on his phone.
The store鈥檚 namesake, Mar铆a del Carmen Avil茅s, said she is now expert in bitcoin transactions.
鈥淲hen a customer comes I ask him if he鈥檚 going to pay with the application or in cash. The majority pay with the application Bitcoin Beach. I look for it on my cell to charge them.鈥
It doesn鈥檛 take more than two minutes.
鈥淚t鈥檚 easier than paying with bills,鈥 Mr. G谩lvez said. 鈥淚 can buy from my house, do the transaction with the application Bitcoin Beach, and I just come to pick up what I need.鈥
Ms. Avil茅s notes that the volatility of the bitcoin can be a problem.
鈥淧eople ask me if I recommend bitcoin, I tell them I鈥檝e won, but I鈥檝e also lost,鈥 Ms. Avil茅s said. 鈥淲hen bitcoin hit $60,000, I won and I bought this refrigerated room for the store, but then it went down and I lost.鈥
Rom谩n Mart铆nez was a pioneer in using bitcoin in El Zonte. He said the anonymous U.S. donor heard about community projects through the nonprofit Hope House where he works and began working through another American who lives in El Zonte. Hope House shares a building with Strike, a Chicago-based start-up that has been working with Mr. Bukele鈥檚 government on the nationwide bitcoin launch.
A request by The Associated Press to interview Strike CEO Jack Mallers was not granted. In an email, the company said, 鈥淪trike鈥檚 app is meant to empower people in all countries, broaden the financial system to include those who have been excluded, and increase economic opportunity around the world, and that is at the heart of this effort.鈥
El Salvador has used the U.S. dollar as its official currency since 2001, and Strike said that adopting bitcoin 鈥渁s legal tender will help reduce its dependence on the decisions of a foreign central bank.鈥
Mr. Martinez said El Zonte residents did not have bank accounts, had no access to credit and were forced to handle all transactions in cash. 鈥淣ow they are small investors whose lives have been changed by bitcoin,鈥 he said.
Some question just how much can be learned from the Bitcoin Beach experiment.
David Gerard, author of 鈥淎ttack of the 50 Foot Blockchain,鈥 said El Zonte is an artificial demonstration.
At Bitcoin Beach, he said, 鈥渢he bitcoins are traded inside Strike. They don鈥檛 actually move on the bitcoin blockchain or anything.鈥
Mr. Gerard said it appears to work because the bitcoin donor keeps pumping bitcoin into the village鈥檚 system. 鈥淭hat鈥檚 not a proof of concept that works. That shows that you can trade this stuff if you鈥檙e not trading actual bitcoins and someone massively subsidizes it.鈥
Adoption had been slow in El Zonte, but took off during the coronavirus pandemic when strict lockdown measures kept most people from leaving home.
鈥淥ur donor made three deliveries of $40, converted to bitcoin, for each of the community鈥檚 500 families, and they were trained to use the application and now it鈥檚 normal to buy with bitcoin,鈥 Mr. Mart铆nez said.
El Zonte even has a Bitcoin ATM, which gives dollars in exchange for bitcoin or takes dollars and gives credit in bitcoin.
Edgar Maga帽a was in town from San Salvador to convert $50 to bitcoin. He inserted the dollars into the machine and was surprised to see only $47 in bitcoin fractions credited to his account on his phone.
鈥淭hey took three dollars commission,鈥 Mr. Maga帽a said, adding that he had understood there was no commission. 鈥淭his is like in the banks.鈥
To spur national adoption, Mr. Bukele said the government would create a $150 million fund to allow people receiving payments in bitcoin to immediately convert them to dollars, reducing the risk of holding the fluctuating digital currency.
Jessica Velis, who runs the El Zonte business where the ATM is located, said some people here are already receiving remittances from abroad in bitcoin.
Salvadorans received some $6 billion in remittances last year from relatives living abroad, mostly in the United States. Mr. Bukele has said adopting bitcoin could save on the costs of sending that money home.
Not everyone in El Zonte is sold on the idea.
At Olas Permanentes, one of the town鈥檚 most popular restaurants, customers have been able to pay using bitcoin. But when the waitstaff was asked if they use it, they all said no. Some said they didn鈥檛 have higher-end cellphones needed to download the app, while others said they had doubts about how it worked.
鈥淭hey pay me in dollars and in cash,鈥 said one waitress, who declined to give her name.
Walking through town, a woman who only gave her name as Teresita, was asked if she used bitcoin. 鈥淣ot me, I prefer to have the bills,鈥 she said.
This story was reported by The Associated Press.聽