--:-- Sean Rameswaram: In June of last year, El Salvador did something no other country had ever done before. The country announced it would adopt Bitcoin as a form of national currency.
--:-- Sean Rameswaram: I will send to Congress a bill that will make Bitcoin a legal tender in El Salvador. The country's president, Nayib Bukele, claimed crypto would create jobs, attract investment, and make financial services more accessible to people in a country where 70% of the population didn't have a bank account.
--:-- Sean Rameswaram: Six months into this experiment, Bitcoin Nation is not looking so hot. Having spent months investigating what this actually looks like on the ground, what we found is that the project is really a smokescreen.
--:-- Sean Rameswaram: What happens when a country adopts crypto as a national currency? I'm Sean Rameswaram. That is Ahead on Today Explained.
--:-- [Support for Today Explained comes from Adio]
--:-- Sean Rameswaram: Support for Today Explained comes from Adio. Adio is an AI-native customer relationship management platform that Adio says is built for the next era of companies.
--:-- Leo Schwartz: A powerful data structure adapts to your business model, syncs in all your contacts in minutes, and enriches your business with actionable data.
--:-- Sean Rameswaram: Adio says it also allows you to create those email sequences, those real-time reports, those powerful automations, which they claim can help you build what matters most, your company.
--:-- Sean Rameswaram: You can go to adio.com slash todayexplained to get 15% off your first year. That's A-T-T-I-O dot com slash todayexplained.
--:-- [Support for this show comes from strawberry.me]
--:-- Sean Rameswaram: Support for this show comes from strawberry.me. Be honest. Are you happy with your job? Or are you stuck in one you've outgrown? Or never wanted in the first place?
--:-- Leo Schwartz: Sure, you can probably list the reasons for staying, But are they actually just excuses for not leaving? Let a career coach from strawberry.me help you get unstuck.
--:-- Sean Rameswaram: Discover the benefits of having a dedicated career coach in your corner. Go to strawberry.me slash unstuck to claim a special offer.
--:-- Sean Rameswaram: Today, today explained. Today explained.
--:-- Leo Schwartz: At this point, it's still a little surprising any country would try to make Bitcoin a form of national currency.
--:-- Leo Schwartz: Yeah, so contrary to its name, cryptocurrency generally does not function very well as a currency.
--:-- Leo Schwartz: It's expensive to send. It's slow to send. It takes a lot of technical expertise.
--:-- Leo Schwartz: The United States doesn't necessarily function as the best case study for cryptocurrency.
--:-- Leo Schwartz: The U.S. dollar is relatively stable. There's not necessarily a reason why people would need an alternative.
--:-- Leo Schwartz: And for that reason, cryptocurrencies like Bitcoin usually function as a vehicle for speculation.
--:-- Leo Schwartz: But it turns out for a country like El Salvador, this might make sense.
--:-- Leo Schwartz: In El Salvador, the country runs on the U.S. dollar. And it also relies very heavily on remittances.
--:-- Leo Schwartz: So 20 percent of the GDP comes from remittances from abroad. Low-income groups in particular rely on family members working abroad to send money home.
--:-- Leo Schwartz: This often involves significant fees and time.
--:-- Leo Schwartz: Because of that, you start to have reasons why maybe it would make sense to adopt Bitcoin as legal tender or to try different types of experiments around cryptocurrency.
--:-- Leo Schwartz: Then, of course, you have this dynamic that El Salvador is a country that's largely determined by narratives of gang violence and of immigration out of the country.
--:-- Leo Schwartz: One of the most dangerous countries on Earth, a place where criminal gangs control entire neighborhoods.
--:-- Leo Schwartz: And these gangs from El Salvador are now operating in nearly every corner of America.
--:-- Leo Schwartz: So this is an opportunity for the country to really reframe its narrative and maybe attract investment from outside the country.
--:-- Leo Schwartz: Leo spent months following El Salvador's big Bitcoin experiment with his colleague Anna Kat Brigida.
--:-- Sean Rameswaram: We asked him to tell us where it began.
--:-- Leo Schwartz: So Bitcoin in El Salvador starts on a beach. It's known as Bitcoin Beach internationally.
--:-- Leo Schwartz: It's gotten a lot of coverage over the past few years. The place where Bitcoin has seen perhaps the widest adoption is not a big city, but actually a sleepy beach town in El Salvador.
--:-- Leo Schwartz: It's this little town on the Pacific coast called El Sonte.
--:-- Leo Schwartz: A few years ago, an evangelical surfer from the United States named Mike Peterson moved down there and partnered with a local named Jorge Valenzuela to create this circular economy around Bitcoin.
--:-- Leo Schwartz: After Peterson received a large anonymous donation in Bitcoin from someone in his church.
--:-- Leo Schwartz: I came back with this ludicrous idea that we were going to, you know, start a Bitcoin circular economy on the coast in El Salvador and that we were going to start injecting it in the community in different ways through our programs.
--:-- Leo Schwartz: And we'd bring all these businesses on board and we would, you know, kind of demonstrate how it could impact the lives of people that have been locked out of the banking system.
--:-- Leo Schwartz: What they wanted to do was see in this small town, if they started seeding Bitcoin to the community, if people could use it to buy groceries, to buy food, if it could really serve as a replacement to the dollar.
--:-- Leo Schwartz: If you look at the population of El Salvador, 70% of the population is unbanked.
--:-- Leo Schwartz: That means you're going to have fairly low trust when it comes to financial technology tools.
--:-- Leo Schwartz: What they want to do was actually build a digital wallet, which you can think of as an alternative to, say, Venmo or PayPal that would allow you to send Bitcoin back and forth to people as easily as you would be sending dollars or any other currency.
--:-- Leo Schwartz: That was the main emphasis of the project there.
--:-- Leo Schwartz: And because it's such a small population, it obviously was a little more effective and easier to pull off.
--:-- Leo Schwartz: At the same time, even in this place that has been practicing with Bitcoin for a few years, it hasn't really served as a substitution for day-to-day transactions.
--:-- Leo Schwartz: It's mainly used by tourists coming in from outside the country who want to get that photo op of buying a pupusa or a coconut using Bitcoin.
--:-- Sean Rameswaram: Welcome, everyone. We made it to El Zonte, El Salvador. Good morning and welcome to El Zonte, a.k.a. Bitcoin Beach.
--:-- Sean Rameswaram: You might be thinking, what the heck are you doing in El Salvador? and the answer is Bitcoin.
--:-- Sean Rameswaram: They're making some kind of food over here. Now it says this place takes Bitcoin, so we're going to figure out if that's actually the case.
--:-- Sean Rameswaram: Apparently they take Bitcoin. Literally just a beach stool, someone with a coconut, and they could just pay to their mobile phone with Bitcoin.
--:-- Sean Rameswaram: I'm in a proposed area. So how does this go from Bitcoin Beach to all of El Salvador
--:-- Leo Schwartz: Mike Peterson wanted to get the blessing of the president of El Salvador who Nayib Bukele
--:-- Leo Schwartz: I mean El Salvador has not been the country that recognized to be the first in innovation but why not this time
--:-- Leo Schwartz: A lot of the story of Bitcoin in El Salvador begins and ends with Bukele, who's this larger-than-life figure who a lot of people would call a wannabe dictator.
--:-- Leo Schwartz: Since assuming power a few years ago, Bukele has engaged in a lot of autocratic behavior.
--:-- Leo Schwartz: To other news now, El Salvador's new legislative assembly voted Saturday to dismiss top Supreme Court judges hostile to populist president Nayib Bukele.
--:-- Leo Schwartz: From having military displays in the legislative branch to removing top judges. U.S. officials criticized the move and warned it could harm relations with Washington.
--:-- Leo Schwartz: A lot of this is buoyed by the fact that he does have a massive approval rating. Upwards of 85 percent is often the estimate.
--:-- Leo Schwartz: From our understanding, what happened when Peterson introduced the project to Bukele is Bukele got a light bulb of an idea above his head that Bitcoin could serve as this interesting project for El Salvador to, again, really reframe this narrative around the country, which had been more determined by gang violence and by immigration.
--:-- Leo Schwartz: I think having Bitcoin as legal tender, even though nobody has done it before, it was a no-brainer.
--:-- Leo Schwartz: It's funny to hear that this sort of strongman, president, quasi-dictator would get super into Bitcoin because isn't it kind of like inherently anti-government crypto? Isn't that the idea?
--:-- Leo Schwartz: So this is the core tension, which is that cryptocurrency and Bitcoin started as this really idealized vision of a decentralized currency.
--:-- Leo Schwartz: Whether they know it or not, people who buy Bitcoin are strengthening a tool for protecting human rights.
--:-- Sean Rameswaram: So when does it become official? What does that look like? Does he just flip a switch and all of a sudden the country's on Bitcoin?
--:-- Leo Schwartz: Yeah. So in June, he announced the intention of the country to adopt Bitcoin as legal tender.
--:-- Leo Schwartz: El Salvador's president picked the perfect place to unveil his country's Crypto Plans, the Bitcoin trade show in Miami.
--:-- Leo Schwartz: President Nayib Bukela's pre-recorded video message was created especially for the trade fair and was well received.
--:-- Leo Schwartz: I will send to Congress a bill that will make Bitcoin a legal tender in El Salvador.
--:-- Leo Schwartz: So the irony of him introducing the project in Miami in English is that you already sort of see the intention that this is not really a project for El Salvador.
--:-- Leo Schwartz: It's a project for him in the outside world.
--:-- Leo Schwartz: So I'm not really sure what the reaction was from everyday Salvadorians in June when he first announced the project.
--:-- Leo Schwartz: Lawmakers in El Salvador broke into applause after voting to approve Bitcoin as legal tender on Wednesday.
--:-- Leo Schwartz: Of course, because he has a lot of support and power in the government, they're able to get the law passed pretty quickly.
--:-- Leo Schwartz: And then it rolls out in September. So just a few months later.
--:-- Leo Schwartz: In the interim, you have to implement an entire financial system, which makes it possible for Salvadorans to actually be able to send Bitcoin back and forth and use it as a daily transaction.
--:-- Leo Schwartz: Then in September, when it's actually rolled out for the first time, you see a lot of chaos.
--:-- Leo Schwartz: More than a thousand people protested against Bitcoin in El Salvador's capital on Tuesday, rallying against its adoptionist currency there amid a bumpy digital rollout.
--:-- Leo Schwartz: There starts to be protests as people are wary that the government is spending all these resources and implementing a Bitcoin ecosystem.
--:-- Leo Schwartz: They're going to spend $200 million on this? All right, so have you sorted out the rest of our problems? Have you sorted out education or health care?
--:-- Leo Schwartz: Well, there's a lot more problems to solve after that, before you come and impose a law that Salvadorans don't agree with.
--:-- Leo Schwartz: And I think there's just a lot of confusion of what it actually means for the country and how it can really be used on a day-to-day basis.
--:-- Leo Schwartz: Thank you.
--:-- Sean Rameswaram: And within seconds, you will have your email and calendars synced.
--:-- Sean Rameswaram: You'll see all your relationships in a fully-fledged platform, they say, all enriched with that actionable data.
--:-- Sean Rameswaram: And they say you can build AI-powered automations and use its research agent to tackle some of your most complex processes so that you can focus on what matters, building your company.
--:-- Sean Rameswaram: You can join industry leaders such as Flatfile, Replicate, Modal, and so much more.
--:-- Sean Rameswaram: You can go to addio.com slash today explained to get 15% off your first year.
--:-- Sean Rameswaram: That's A-T-T-I-O dot com slash today explained.
--:-- Sean Rameswaram: Support for this show comes from Macy's.
--:-- Sean Rameswaram: It's almost fall and that means it's time to cycle your wardrobe to the cold setting.
--:-- Sean Rameswaram: Because while everyone loves a breezy summer outfit, let's be real. Layering is even more fun.
--:-- Sean Rameswaram: That's why Macy's Fall Fashion Guide has everything you need to piece together the perfect look for you.
--:-- Sean Rameswaram: It's your one-stop shop for fall's latest trends and must-haves, curated by their experts.
--:-- Leo Schwartz: So obviously, implementing Bitcoin as a legal tender is a pretty broad idea.
--:-- Leo Schwartz: I think in practice, what the Bukele administration wanted that to look like was businesses would be able to accept Bitcoin just like they would accept US dollar, and also the population would be incentivized to use Bitcoin for daily transactions.
--:-- Leo Schwartz: Now, Bitcoin as a currency, as I've said before, is really difficult to use.
--:-- Leo Schwartz: So what they did was they built a digital wallet, which is called Chivo, Spanish for goat or in El Salvador slang for cool.
--:-- Leo Schwartz: That would allow people to be able to send Bitcoin back and forth to each other to be able to load their wallets with Bitcoin by using US dollar.
--:-- Leo Schwartz: They actually had physical ATMs.
--:-- Leo Schwartz: We're at the Chivo ATM and we're going to show you how a transaction, okay?
--:-- Leo Schwartz: And they could put in dollars and their balances would be loaded with Bitcoin.
--:-- Leo Schwartz: And then the idea is that go to a store and you actually want to buy something using Bitcoin, but you can just essentially scan a QR code and be able to send that money right through.
--:-- Leo Schwartz: So scan the QR code, Michael.
--:-- Leo Schwartz: Now you just need to press send.
--:-- Leo Schwartz: And now just confirm.
--:-- Leo Schwartz: Yes. It's paid, right?
--:-- Leo Schwartz: It's paid?
--:-- Leo Schwartz: I think the criticism there that you hear from a lot of people in the Bitcoin community is that if you're basically just sending Bitcoin back and forth in a digital wallet, the same way that, say, if you have Venmo, you're just sending money back and forth with each other, that's not really Bitcoin.
--:-- Leo Schwartz: That's essentially just an alternative to typical banking systems or to any financial app out there.
--:-- Leo Schwartz: So because you're not really doing on-chain transactions, it's really no different than having a Venmo wallet.
--:-- Leo Schwartz: But that was the government's solution for being able to take this very difficult technology and making it more applicable for general use.
--:-- Leo Schwartz: So other than literally calling this Chivo, which is slang for cool, how does the government try to convince people to actually adopt the system and get off that USD?
--:-- Leo Schwartz: So the main tool the government had was actually loading wallets with $30.
--:-- Leo Schwartz: So if you signed up for your Chivo wallet, you would get $30 worth of Bitcoin.
--:-- Leo Schwartz: And I mean, that's no small sum in a country where, you know, the average minimum wage is $365.
--:-- Leo Schwartz: Free money. Free money. Free money always works. Everybody loves free money.
--:-- Leo Schwartz: I think anecdotally and also from government stats are released. A huge percent of the population immediately signed up for the wallet.
--:-- Leo Schwartz: Then the question is, okay, you have this money. Are you going to actually use it for doing transactions?
--:-- Leo Schwartz: The answer for that, for everything we've seen, is no.
--:-- Leo Schwartz: So you have this money. You can take it out from the ATMs if you want. Maybe you do one or two transactions. But for the most part, the Chiba Wallet really isn't being used as an alternative for US dollar.
--:-- Leo Schwartz: Again, I think it's fair to say that we're still very early on in the project. It's only been about six months.
--:-- Leo Schwartz: As we learned from Bitcoin Beach, The main challenge isn't only giving people money and getting them onto the system.
--:-- Leo Schwartz: It's teaching them how to use it and why it actually makes sense to use.
--:-- Leo Schwartz: And I don't think the government has really done much outreach or had much progress on that front.
--:-- Leo Schwartz: So everyone's excited about their free $30, but that excitement doesn't really last.
--:-- Leo Schwartz: It lasts enough to sign up for the wallet and get the free $30.
--:-- Leo Schwartz: I don't think it lasts enough to say, oh, this is cool that it's in Bitcoin. I'm going to start using Bitcoin exclusively as an alternative to just using cash to buy my groceries or buy my food.
--:-- Leo Schwartz: One big challenge is that to be able to use Chivo, you need to have access to internet.
--:-- Leo Schwartz: In the cities, you might be able to have data to be able to send transactions back and forth, but a lot of the country is rural.
--:-- Leo Schwartz: So it's going to be difficult to actually have access to this app and access to internet to be able to use it.
--:-- Leo Schwartz: The other main dynamic here is just trust.
--:-- Leo Schwartz: If people are already using physical dollars in their day-to-day transactions, it's not necessarily easier to be using the Chivo wallet.
--:-- Leo Schwartz: So why does it actually function as a better alternative?
--:-- Leo Schwartz: And especially if businesses aren't really starting to accept it, there's no real mechanism in play where it makes more sense to use Bitcoin or use Chivo for your daily transactions in place of dollars.
--:-- Leo Schwartz: Six months in, do we have any data about how much of the country is actually using Chivo, Bitcoin?
--:-- Leo Schwartz: So recently, the Salvadorian Chamber of Commerce released a survey that found that 86% of businesses have never done a transaction in Bitcoin.
--:-- Leo Schwartz: And I think that's the most convincing stat we've seen.
--:-- Leo Schwartz: Of course, the government says that I think 4 million people have downloaded Chivo or have a Chivo account, but that doesn't really explain anything about how often they're using it.
--:-- Leo Schwartz: The fact that so many businesses aren't using it, I think, is the most demonstrative of the actual efficacy of the wallet.
--:-- Leo Schwartz: And then anecdotally, if you talk to anybody, they'll say, I'm not using Bitcoin in daily transactions.
--:-- Leo Schwartz: And I think a lot of people have been even skeptical of downloading Chilo in the first place and getting their $30 saying they don't really know what their data is going to be used for.
--:-- Leo Schwartz: They've heard a lot of conflicting things about the project. It's not worth it.
--:-- Leo Schwartz: Did you find people who were using it and were happy about it even?
--:-- Leo Schwartz: To be honest, I haven't.
--:-- Leo Schwartz: I tried to talk to a wide swath of people and it's very difficult to find someone who's saying, yes, I'm using Bitcoin every single day.
--:-- Leo Schwartz: I think in Bitcoin Beach, this is probably the best example where you'll find some merchants who are very pro-Bitcoin, partly because it's incentivized a lot of tourists to come in, which is improving their businesses.
--:-- Leo Schwartz: Also, Bitcoin can work as an investment tool for a lot of people, especially near the beginning of the project when Bitcoin was rising in price.
--:-- Leo Schwartz: If you get paid, say, a dollar in Bitcoin, maybe tomorrow that Bitcoin you're holding will be worth $2.
--:-- Leo Schwartz: So in that sense, it's better than a dollar.
--:-- Leo Schwartz: Unfortunately, since hitting a high of almost $70,000 in November, Bitcoin's price has dropped precipitously.
--:-- Leo Schwartz: One Bitcoin was worth less than It lost almost half its value in two months
--:-- Leo Schwartz: Which takes away that sole advantage where Bitcoin can function not only as a currency but also as an investment vehicle.
--:-- Leo Schwartz: If one day you're holding $10 worth of Bitcoin, the next day it's worth $7, maybe the next day it's worth $12, it's not a very stable way of conducting your daily financial life.
--:-- Leo Schwartz: How much money has the government invested in this program?
--:-- Leo Schwartz: I mean, they offered up $30 to anyone who wanted it.
--:-- Leo Schwartz: What did that end up costing?
--:-- Leo Schwartz: It's hard to get actual estimates on this.
--:-- Leo Schwartz: And the government is not transparent in sharing details on both how they're implementing the system and how much money they're spending.
--:-- Leo Schwartz: I think our best estimates would put this at hundreds of millions of dollars that they've spent both developing the wallet, seeding the accounts with $30 and also buying huge amounts of Bitcoin, which Bukele has done and bragged about on social media.
--:-- Leo Schwartz: The irony being that since he's bought the Bitcoin, it's gone down an immense amount, which is another criticism a lot of people have.
--:-- Leo Schwartz: Why are you spending money on Bitcoin when this is certainly not the best use of money a government could spend, especially if the price is going down?
--:-- Leo Schwartz: Where does he see this experiment going in the next few months and years?
--:-- Leo Schwartz: So I think for Bukele, he's really adopted this idea of Bitcoin maximalists or crypto maximalists who say, we're still very early on in this crypto revolution.
--:-- Leo Schwartz: This is the first days of what's going to happen. You can't look at it on a six month timeframe.
--:-- Leo Schwartz: You have to look at it on a 10 year timeframe.
--:-- Leo Schwartz: Obviously, it's hard to really see what's going on in his mind if he's freaking out that he's lost millions of dollars on his fairly ill-advised Bitcoin purchases.
--:-- Leo Schwartz: But he's embarking on projects that would reinforce the Bitcoin adoption in El Salvador.
--:-- Leo Schwartz: And finally, several folks in the Bitcoin community are headed to the Latin American Bitcoin and Blockchain Conference in El Salvador.
--:-- Leo Schwartz: So when I was reporting this story in El Salvador in November, there was a large Latin American Bitcoin conference that happened.
--:-- Leo Schwartz: You had people pouring in from all over the world, all here to witness this first country that adopted Bitcoin as legal tender.
--:-- Leo Schwartz: During the conference, there were rumors of when Bukele was going to show up, when he was going to talk.
--:-- Leo Schwartz: He kept delaying and he kept delaying.
--:-- Leo Schwartz: Finally, the last day of his conference, he announced that there was going to be this talk on a beach near Osonte.
--:-- Leo Schwartz: It happened at night. There were fireworks. There was ACDC music.
--:-- Leo Schwartz: It was this whole spectacle.
--:-- Leo Schwartz: So how's Bitcoin week going?
--:-- Leo Schwartz: It fine?
--:-- Leo Schwartz: Did you like our country?
--:-- Leo Schwartz: Yeah!
--:-- Leo Schwartz: But he announces at the speech that El Salvador will be building a Bitcoin city.
--:-- Leo Schwartz: Bitcoin city. Which will be this bastion to Bitcoin that will be exempt from a lot of taxes, where the goal is to just attract crypto companies from around the world.
--:-- Leo Schwartz: It will be this hub where Bitcoin can be celebrated.
--:-- Leo Schwartz: So the city is going to be totally circled, except for the place of the volcano.
--:-- Leo Schwartz: And in the middle, you would have a huge plaza, which would be from the air, you would look at as a Bitcoin sign.
--:-- Leo Schwartz: The way that it would be paid for is with a Bitcoin bond.
--:-- Leo Schwartz: So a $1 billion bond that would be raised from, I guess, investors who want to support the project.
--:-- Leo Schwartz: Half of the money would go to building infrastructure and to Bitcoin mining projects.
--:-- Leo Schwartz: The other half would go to buying even more Bitcoin with the idea that if Bitcoin skyrockets in price, then all the investors will get even more rich.
--:-- Leo Schwartz: So I think for Bukele, this is the future.
--:-- Leo Schwartz: El Salvador will be a country, at least from the outside, that will be defined by Bitcoin, by this Bitcoin city, by this Bitcoin bond.
--:-- Leo Schwartz: And by being able to raise money through bonds like this, he'll be able to circumvent a lot of the traditional international financial markets and no longer have to rely on institutions like the IMF or from international bondholders and instead can just raise money directly from the global Bitcoin community.
--:-- Leo Schwartz: Looking into the future. It's nice to be part of it, isn't it?
--:-- Leo Schwartz: So, you know, let's all be part of it. and let's all push the future even forward.
--:-- Leo Schwartz: Thank you, guys. Have fun. We love you, everybody.
--:-- Sean Rameswaram: Bitcoin City sounds sort of like a graduated version of Bitcoin Beach, where this all started, El Sonte.
--:-- Leo Schwartz: Yes, on a much wider scale.
--:-- Leo Schwartz: But didn't you say that the experiment in El Sonte didn't really work?
--:-- Leo Schwartz: People were just showing up to take a selfie of themselves buying a pupusa with Bitcoin?
--:-- Sean Rameswaram: Yeah, this is always the question when it comes to Bitcoin. You always have to separate the hype from the practicality.
--:-- Leo Schwartz: Even now, crypto is one of the biggest news stories in tech and finance and business.
--:-- Leo Schwartz: However, in a country that's adopted Bitcoin as legal tender, when it comes to everyday people, adoption rates are still incredibly low.
--:-- Leo Schwartz: Even on the smallest scale, which is Bitcoin Beach, people still struggle with using Bitcoin as day-to-day currency.
--:-- Sean Rameswaram: Leo Schwartz is a reporter at restofworld.org.
--:-- Sean Rameswaram: Our show today was produced by Will Reed, edited by Matthew Collette, fact-checked by Laura Bullard, and engineered by Paul Mounsey.
--:-- Sean Rameswaram: I'm Sean Rameswaram for him. It's Today Explained.
