El Salvador BTC adoption storyAuthor Jordan Atkins (Coingeek)
17 June 2021
El Salvador’s move to make BTC legal tender in the country, and will set up a $150 million national trust fund, which will supposedly be used to compensate merchants for the volatility of BTC between accepting payment and depositing it in the bank.
This news was received by the BTC community in the same way it receives more or less anything: uncritically, with effusive praise and a complete disinterest in specifics and practicalities. This is unsurprising, but alarming because these specifics and practicalities almost defy belief.
Importantly, El Salvador’s currency is the U.S. dollar. Therefore, in order to effect this change, El Salvador partnered with Strike, a mobile app which will supposedly let El Salvadorians living abroad to send money back home, cross-border, for free. Virtually any conversation about currency for El Salvadorian citizens has to start here, because almost a quarter of them live in the United States.
Guess how Strike is powered? Using a proprietary version of Blockstream’s Lightning Network.
Guess how Strike works? By taking the dollars of the El Salvadorian people wanting to send money back home, using that money to buy BTC, sending those BTC to El Salvador, converting them to Tethers, and then depositing those Tethers into the recipient’s Strike account. It is Tether that El Salvadorian recipients will receive; not any form of Bitcoin.
That’s right: while the country’s so-called Bitcoin Law is being celebrated from every corner of the BTC community, it quietly turns out that as with most things in crypto it is Tether, not BTC, that is the real story.
We already know that not a single tether has been successfully redeemed, and indeed the tether terms of service explicitly rejects any obligation to accept any such redemption from holders. So if the recipient wants to use what they’ve been sent, they must go to one of the two Bitcoin ATMs currently operating in the country, scan the ATM’s QR code into their Strike app, which will then convert the tethers into BTC and send them to the ATM. The ATM will then dispense the necessary amount in local fiat currency.
This sounds ludicrous, but this is exactly the process that Strike founder Jack Mallers described in announcing the app in January. Mallers didn’t describe the scheme as a way to take the valuable fiat of El Salvadorians in exchange for a useless, unbacked token, instead choosing to say that ‘today, the world changes; the fundamentals of value exchange between our species enters a new epoch.’
It’s certainly a new epoch for El Salvador and President Bukele, who can now effectively print money for as long as it takes for El Salvador to realize that their ‘digital dollar’ USDT has even less connection to fiat than BTC does.
Author David Gerard has written on the El Salvador Tether scam, both on his own blog and on foreignpolicy.com. As he posits:
“Bukele appears to be setting the country up to inject bitcoins into the economy, mark them as ‘dollars’ to make up his deficit, and grab the actual dollars to pay foreign debts.”
All that has been achieved in El Salvador’s announcement, then, is that some number of El Salvadorian businesses and citizens have been strapped to the Tether timebomb while being told it’s a rocketship, while those who organized it become fabulously wealthy. The saving grace is that the status quo proposed by President Bukele and the likes of Strike is so ludicrous that it’s almost certain that uptake of BTC will be minimal, although the offering of a so-called ‘alternative’ does open the door to more drastic action down the road:
“The tricky part of the bitcoin (BTC) scheme is convincing the Salvadoran public to go along with it, given they often trust U.S. dollars more than they trust the government. Many already see the Bitcoin Law as an attempt to expropriate their dollars—it would be trivial to provide more coercion by raising fees for dollar withdrawals, or restrict the amount that could be withdrawn.”
