El Salvador is becoming a proving ground for Bitcoin’s biggest ideas.
“I really see El Salvador as being the Switzerland of Latin America, if this experiment goes successfully,” Ray Youssef, CEO of peer-to-peer crypto exchange Paxful, said over Zoom.
On Sept. 7, El Salvador will become the first country in the world to adopt bitcoin as legal tender. That could open a new age for the struggling Latin American economy, President Nayib Bukele, the prime mover behind the so-called "bitcoin law," said. It also opens a new frontier for bitcoiners looking to test their economic and social theories.
Bitcoin will not just be a companion currency to the U.S. dollar, but a cornerstone of the nation’s efforts to modernize and digitize its economy. Bukele wants El Salvador to become a bitcoin mining hub – potentially tapping into its rich geothermal resources – as well as a center for blockchain software development and a paradise for the crypto rich.
“Why create this law? Because bitcoin has a $600 billion market capitalization globally, and if we do this, investors and tourists who own bitcoin will come to the country and benefit Salvadorans and the economy,” Bukele said at a national address on Thursday.
He’s making an attractive offer for outsiders and citizens alike by eliminating a capital gains tax on the cryptocurrency and building a state-backed wallet, which will come pre-loaded with $30 worth of BTC for adult citizens. The plan is a "leap forward for humanity,” not just Bitcoin, he told Peter McCormack when the podcaster traveled to El Salvador recently.
Although the nation’s plans are still being drafted, a series of interviews with Bitcoin startups and founders suggest that bitcoiners are ready to invest their time and money to help El Salvador (population 6.5 million) establish the first bitcoin standard.
Youssef, an evangelist for bitcoin in the developing world, is one of a growing number of crypto entrepreneurs who have made their way to the country looking for opportunities to expand their businesses and assist the government in setting up a parallel monetary system.
Blockstream, a Bitcoin infrastructure company, is one of the most ambitious in this pursuit. On June 5, it pledged provisions to connect El Salvador with its Blockstream Satellite program, a way to synchronize with the Bitcoin network during times of internet outages or shutdowns, and it announced plans to open bitcoin mining facilities.
Samson Mow, chief strategy officer at Blockstream, told CoinDesk the company has shipped two satellite kits to the country and said “early-stage" but “high-level” conversations are happening around "volcano mining” (or mining powered geothermal power).
It doesn’t end there. Mow said Blockstream Financial, a new corporate division, is working to structure “a few potential bond offerings” on the Liquid network, a bitcoin scaling system backed by Blockstream.
That project is also in its infancy, and details of what may be the first state-backed, blockchain-based securities offerings are scant. One particular: The bonds might be floated to finance the state’s mining operations, which would tap into currently stranded geothermal energy, Mow said. Volcano mining is capital intensive.
“The bond offerings we’re proposing will be a critical component of the bitcoin development of El Salvador,” Mow said. “It seems like they can get this done quickly.”
This is a key theme in the story so far: El Salvador is ripe with potential. It has a motivated government (which passed the bitcoin bill with a supermajority) and the support of the global bitcoin community, though some of these ideas appear founded on shaky ground.
Volcano mining, crypto in space and the widespread use of the Bitcoin Lightning network sound like science fiction. But those efforts are real and “hyperbitcoinization” is a real goal. The El Salvador experiment, Mow said, will serve as a blueprint for the world.
“El Salvador is a key point in that battle. If they can succeed, it paves the way for much broader bitcoin adoption in the world,” he said. And for “making things like the IMF and the World Bank obsolete.”
Youssef went to El Salvador as part of an “official delegation of Bitcoin ambassadors,” organized by Brock Pierce, a former child movie star and a co-founder of Block.oone, a blockchain software company. Youssef spent only a few hours with that delegation, shaking hands and speaking with government officials, but said Bukele’s cabinet is of a “younger, progressive” breed, hyper-focused on the goal of "bitcoinization."
Youssef spent the majority of his two-day stay in El Salvador at Bitcoin Beach, a small coastal community that has experimented with bitcoin payments. (Bukele pointed to the privately funded project as a microcosm for what bitcoin adoption across the nation could look like.)
It was there that Youssef made his first Lightning transaction in the country. While bitcoin has largely functioned as a speculative store of value in wealthier nations, he thinks the path to “mass adoption” is paved through peer-to-peer payments. It’s also where his business opportunity lies, albeit indirectly.
“The first challenge is getting bitcoin into the country and that's something that we did in Africa,” he said, referring to Paxful’s footprint in countries like Nigeria and Kenya. Consumers typically pay more per satoshi using a P2P exchange, because they are often buying from a small pool of sellers, but fees are often lower and it's a quicker way to take direct possession of your coins. (On the day I spoke with Youssef, for instance, there was a $10,000 premium on BTC in El Salvador.)
Paxful already has an active market in El Salvador, but Youssef says he’s looking at the country as a potential base for further expansions in the region. His company has hired an associate of growth for South America and is searching real estate for an office. Paxful has about 450 employees globally, Youssef said.
“All I want to do is build the kind of street team that can go around beyond Bitcoin Beach to the capitol city, to the malls, to universities, and just educate people face-to-face about what Bitcoin is,” Youssef said. In particular, he is interested in teaching people about using BTC as an actual currency. “That’s the narrative we find truly drives adoption,” he said.
Swan Bitcoin, a bitcoin exchange, has a similar plan. The company is looking to rent or buy a “Swan House” in El Zonte to serve as a base for its marketing efforts in the region. CEO Cory Klippsten sees that as a place for bitcoiner friends to stay and work when traveling to El Salvador and a chance to “create great content … and educate the world about bitcoin by being on the ground.”
There isn’t a direct way to monetize the effort. Swan makes its money from selling bitcoin to “people with a lot of fiat,” Klippsten said, but it’s a price worth paying to spread the word of Bitcoin. “It looks like altruistic education, and it is, but that’s our marketing,” he said
Like Youssef, Klippsten envisions a world where bitcoin will make the transition from being primarily a store of value into a widely used, global currency. Education paves the way to that reality, which eventually means more people buying bitcoin on Paxful and Swan.
Before Bukele came on the scene, El Salvador was not the first place people would associate with Bitcoin. Remittances, which make up more than a quarter of the nation’s economy, were rarely sent in the cryptocurrency. And while Bitcoin Beach was proving to be a successful experiment, the crypto economy in the country was still small.
Matias Goldenhorn, director for Latin America at U.S.-based Athena Bitcoin, a crypto ATM company that operated some of El Salvador’s only crypto ATMs, told CoinDesk the company decided to pursue countries south of the border to take bitcoin “to the people who need it the most.”
The company recently received a $1 million investment to expand its fleet of ATMs from two to 1,500 in the country. That would make El Salvador one of the most saturated markets for crypto ATMs.
Mexico-based Bitso, one of the largest cryptocurrency exchanges in Latin America, is also apparently looking to expand its operations. The company declined an interview, but offered this statement:
“We have made a commitment to work with the people of El Salvador on supporting and building the vision of Bitcoin for the country and are looking forward to being part of this evolution. We believe Bitcoin can in El Salvador and Latin America have a positive impact on the lives of millions, and recognize that there are many more beneficial Bitcoin developments to come.”
“I don't want to pretend to be too altruistic,” Justin Newton, CEO of software security firm Netki, said. “What we do is we provide KYC and AML tools, right? We help customers with know-your-customer, anti-money laundering. If they're successful down there, it creates a great market for us.”
Newton, another one of Brock Pierce’s delegates, was in and out of the country for a single day of meetings. His firm, which was founded in 2014, provides compliance tools for companies. About 70% of its clients are in crypto, and almost of those are private companies. He didn’t go to El Salvador with a plan to court the government or any one business in particular.
“If I go down there and I can help them be successful, it creates the environment that allows my company to be successful,” he said.