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The Almighty Buck Bitcoin

The Ups and Downs of Bitcoin's First Month in El Salvador (msn.com) 55

Posted by EditorDavid from the magic-money dept.
One month ago El Salvador made bitcoin legal tender in the country. The Motley Fool looks at how it's playing out: Even before the launch, President Bukele's push for Bitcoin was not popular at home or abroad. The IMF refused to help fund the rollout, warning of "macroeconomic, financial, and legal issues." And Salvadorians took to the streets to protest the Bitcoin project before and after the launch. One Central American University survey showed that 68% of people did not agree with the move.

The first stumbling block in El Salvador's Bitcoin experiment was that the price of Bitcoin fell 11% on the first day, and further in the days that followed. Crypto investors may be familiar with Bitcoin's volatility. But for many El Salvadorians, who'd each been given $30 worth of Bitcoin (about 0.00065 BTC) only to see its value tumble, it was another matter... In the U.S., Bitcoin is widely seen as a store of value — an investment that people hope will appreciate over time. But El Salvador is using it as a currency. And as a currency, Bitcoin's volatility is problematic, especially in a low-income country. According to Bloomberg, 1 in 4 Salvadorians make less than $5.50 per day.

Even in a higher-income country, it would be difficult for a company to accept payments in a currency that might rapidly shrink in value in a matter of weeks. Unless the business could transfer the money immediately into dollars (which is what happens with many crypto payments), it would play havoc with things like payroll, rent, and other obligations. This is exponentially harder to manage for a family with little cash to spare.
El Salvador also experienced technical glitches in both its bitcoin ATMs and the state-run wallet, according to the article. "It is a real shame that the El Salvadorian government rushed into launching Bitcoin as legal tender without first building the technical infrastructure and popular support that would have helped its ambitious scheme.

"Nonetheless, if we check in again in a year's time, there's still a chance we'll see a different story."
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The Ups and Downs of Bitcoin's First Month in El Salvador More

The Ups and Downs of Bitcoin's First Month in El Salvador

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  • "It is a real shame that the El Salvadorian government rushed into launching Bitcoin as legal tender without first building the technical infrastructure"

    Bitcoin doesn't scale at all, and there is no infrastructure that can fix that. You can tack on an intermediary system, but then you're no longer using Bitcoin.

    • Re:It was insane from the start (Score:5, Informative)

      by onefriedrice ( 1171917 ) on Sunday October 17, 2021 @12:37PM (#61900695)
      The Bitcoin rollout in El Salvador was rushed. It's actually pretty incredible that it worked as well as it did with only months of development. I'm not sure what the hurry was, but it ended up not mattering too much since consumers could just keep using USD as usual.

      Bitcoin doesn't scale at all, and there is no infrastructure that can fix that.

      This isn't correct. Bitcoin scales amazingly, both as a store of value and as a currency for daily transactions. I've found people who claim it doesn't scale are simply unaware of how Bitcoin is architected. So I'm happy to provide that knowledge.

      When someone says "Bitcoin" they might mean a number of different things, including the currency, the network, the software that runs the network or the entire ecosystem. I'm going to talk about Bitcoin the ecosystem.

      Bitcoin includes a number of components. It is the blockchain, sometimes called "layer one" or the base layer. It is also the additional layers on top that allow you to transact BTC in different ways.

      Separation of concerns is a cherished software design principle that Bitcoin follows. The base layer's concern is final settlement, security and privacy.

      Speed of transaction isn't one of the base layer's goals, although it is much faster than other settlement networks. On the base layer you can have final settlement in under an hour. People might not realize that it takes banks and payment processors days or weeks to settle transactions. They hide this by sometimes giving you access to your money before settlement under the assumption that it will settle. These settlement transactions are grouped together into large transactions between banks. Sometimes banks have to move physical reserves in order to finalize which takes a lot of time. With Bitcoin, it's always under an hour.

      Maximizing transaction throughput also isn't a base layer goal. Only ~7 transactions per second is the maximum on the base layer (it might be more with recent upgrades incl. taproot). This is a limit imposed by the way the blockchain is secured. By contrast, centralized payment networks like VISA can handle many thousands of transactions per second. And because base layer transactions are themselves a limited resource, transactions can be expensive for moving small amounts (although still cheap for large amounts; the fees are fixed per transaction not a percentage).

      If this were the end of the story, Bitcoin would still be useful for infrequent aggregated transactions between financial institutions and as a store of value, but it would be a nonstarter as a payment network. Transactions are too expensive and throughput is too small to accommodate all of the daily transactions humans like to do. But it's not the end of the story.

      As I said, Bitcoin is built in layers. Like the internet itself. With the internet, the base layer is the physical layer. It has certain requirements, responsibilities, and properties. On top of that are layers of protocols that add functionality, including IP, TCP, and specific applications. Bitcoin is like this.

      The base layer, the blockchain, has the requirements and properties previously described. But there are layers and applications built on top of the base layer. Just because you're using an application or layer built on top of the base layer doesn't mean you're "no longer using Bitcoin". Just because you're using a web browser doesn't mean you're not using the physical and routing layers of the internet.

      One of these Bitcoin layers is called the Lightning Network. This is the one that allows BTC to be transacted at scale, and it does so while also remaining distributed not centralized. In terms of speed and throughput, it will support millions of transactions per second. This is what El Salvador is using. And again, if you're using the Lightning Network (or any layer 2 or layer 3), you are using Bitcoin. You're transacting in BTC, not any other currency or token.

      There have been disagr

      • Re: (Score:1, Troll)

        by Baron_Yam ( 643147 )

        Stop drinking the koolaid, buddy, it's not good for you.

      • Re: (Score:2, Informative)

        by Powercntrl ( 458442 )

        If you're going to talk about "base layers", the actual base layer (in the USA, anyway) is USD, because that's where it all ultimately starts and ends. Nobody fucking wants Bitcoin - they want USD, either based on a speculatory future sale for a profit, or sold immediately for its current value in USD.

        From a practical standpoint, you can use any secure ledger to represent "money", so long as someone's willing to give back USD on the other end of the transaction. It doesn't matter whether that ledger is ca

        • USD is great, but if the shit ever really hits the fan you won't be able to spend it any easier than BTC. Non-perishable canned goods is where it's really at. And weapons.

    • Bitcoin doesn't scale at all, and there is no infrastructure that can fix that. You can tack on an intermediary system, but then you're no longer using Bitcoin.

      They're using something like Lightning, so yes they are using an intermediary system and it's no longer exactly Bitcoin.

      • But they are sending and receiving Bitcoin over the Lightning Network. So, the distinction is virtually meaningless.

        • No, Lightning transactions don't go onto the blockchain. It's a rather huge distinction.

          • I didn't say they did. I said they are sending Bitcoin. Which they are. Which is why the distinction is virtually meaningless.

            • It's meaningless until a flaw is found in the Lightning Network. If it's not recorded on the Blockchain, then they are not sending bitcoin. If you don't have the key, you don't own the bitcoin. It's a derivative.

              • And the difference between Dollars and worthless fiat is meaningless until a flaw is found in our monetary policy. If you aren't trading in precious metal coins, you aren't using Dollars. If you own Federal Reserve Banknotes, you don't own Dollars. It's a derivative. Even worse, you may be using "credit". It's layers upon layers out there!

                Quite tongue-in-cheek, but I think you are helping me understand the place of the Lightning Network.

  • When the value goes down, it is a problem. When the value goes up, it is a problem. Is it possible that it was a problem before we evaluated it was you'd prefer if they were using the USD?

    • Re: (Score:1)

      by Anonymous Coward

      Rapid fluctuations are bad in a currency, yes, whether up or down. Can work in a gambling token though.

      In a currency you want to feel that your negotiated salary, the coins you spend etc. have some approximate value that you can rely on and movements are reasonably gentle. You don't want to find that your life savings just halved in value overnight, no because they doubled this morning, now they're up another 30%, oops now down 70%...

  • The Motley Fool thinks only of price/investing and does not realize the bigger picture.

    1. The Salvadorans who try to use it will very quickly see that Bitcoin is too expensive to be used casually, but the law is such that they can't abandon it. They may discover decentralized exchanges and shapeshifters that can switch back and forth with other cryptos that are better suited to everyday commerce. This could be great for the crypto industry in general. Bullish.

    2. El Salvador can now turn (relatively) free an

    • Bitcoiner are myopic (Score:1)

      by Anonymous Coward
      The only thing the bitcoin bros [urbandictionary.com] are concerned with is growth for their own benefit, at the cost of anything else (climate, society, etc.). [slashdot.org]

      • The only thing the bitcoin bros are concerned with is growth for their own benefit, at the cost of anything else (climate, society, etc.).

        Strange response since the post you are responding to talked about how El Salvador gets power for free from volcanoes, thus not impacting the environment at all...

        But not so strange, when you realize Haters of anything (Apple, Bitcoin, Tesla) always work from a mental model that is horribly inaccurate and yet no matter how often they are corrected, will never deviate from

        • Re: (Score:2)

          by dryeo ( 100693 )

          What else could they be doing with that "free" electricity. Where I am, we have a surplus of "free" electricity, everyone is wired up, including things like aluminium smelters and the access we sell to our neighbours when they have a shortage.
          Is everyone on the grid in El Salvador? If not, that might be a better use of their "free" electricity. Is there industrial uses for it? Perhaps producing material goods would be a better use for it. What about their neighbours, do they all have a surplus of "free" ele

    • Breaking out of the USD empire is trickier than that, because the US tends to interfere in Central America in brutal fashion when the people there do things that the US does not like.

      • I was gonna say, but you beat me to it. The last nation that posed a valid threat to the US Dollar hegemony was Libya... see what happened to them?

      • You're not wrong, and this still might happen. The IMF certainly dropped some heavy hints on them when they announced this.

        What gets me is how many people whose personal brand is their "compassion for others" and who, in a discussion on any other subject will call the US evil for exactly what you describe, are rooting for El Salvador to fail in an experiment designed to break some of the shackles of foreign domination. And I don't mean arguing that they're doing it poorly. I mean actively rooting for the

    • Re: (Score:2)

      by cusco ( 717999 )

      Only 20% of the energy generation in El Salvador is from geothermal, the majority is still fossil fuel generated thermal, and almost 20% is imported.

    • bitcoin (and any crypto) are not viable currencies. you have no physical bills or coins, so good luck using bitcoin on rural places or if (gasp) the internet/network goes down.

      how poor citizens plan to use a currency where you have to pay fees on any transaction is beyond me.

      so as you can see i have mentioned two problems beyond the volatility. the first problem is unsolvable, unless you create a physical coin pegged 1:1 against bitcoin (which itself is a terrible idea). the second problem is the reason i w

      • 1) They have smart phones in rural places, believe it or not.
        2) They're using some kind of layer 2 to keep the transaction costs low. I'm sure a payment will be lower than the cost of sending a sms.
        I don't see any reason why it can't work and if it does El Salvador could be a first world country some day.
        • 3) The government (at least for now) is subsidizing transaction fees for users of the official wallet.

          And, despite all of the blatantly racist commentary I've seen referencing the people living in El Salvador as being too stupid, ignorant or poor to own and operate a smartphone, more people have apparently managed to enroll to use the system than have actual bank accounts. This after only one month.

          "A month after adoption of the Bitcoin Law, more El Salvadorans have Bitcoin wallets than traditional ba

        • 1) yes SOME have smartphones in rural places. but it's not as ubiquitous as you might think. even in the US, grab any big three coverage map and you will see several huge white spots without coverage.and coverage maps usually lie in the company's favor.

          2) low fees != no fees. you pay 0% using your credit card in almost all stores. you pay ~1% when using the bitcoin lightning network. the sender is always the one that pays the fee and this cannot be changed

    • The US will invade if that happens. Our banks don't take kindly to independents. Our media will start bleating, because they serve power, and anyone who dissents will be labeled as collaborating with the Russians. That's how it works now. I hope you like this brave new world.

      • Re: (Score:2)

        by Jeremi ( 14640 )

        The US will invade if that happens.

        Will we, though? I kind of feel that post-Afghanistan, the USA's enthusiasm for invading foreign nations is a bit diminished. You'll probably have to wait the traditional 18-24 years for the lessons to be un-learned, again, and then another 4-8 years after that for some bright politician realize that his ticket to (re-)election is to wrap himself in the flag and the military at some foreign nation's expense.

        • It'll happen - the military-industrial complex will not be stopped. If there are no wars, they will die on the vine. It's a fight for survival, them against us, and they will not allow themselves to lose.

  • 11% is a big drop but not utterly massive compared to say, currency rates in Lebanon or Venezuela.

    Even in the U.S. over the course of a year you are looking at a 6% by government numbers - but much higher in terms of increases for most things people would want to buy (housing, rent, food, gas).

    And at least with Bitcoin, there is an upside - yet it went 11% down at launch, but as of now Bitcoin is up a good bit so that $30 of BTC the people had before, is worth more.

    • And the longterm trend of Bitcoin has been up for quite a while, with the future looking to be more oft he same, as I expect to see hype for it continue to build for a long time into the future.

    • 11% is a big drop but not utterly massive compared to say, currency rates in Lebanon or Venezuela.

      "Volatile" doesn't mean "inflationary", which is apparently what you're implying here.

      In both Lebanon and Venezuela, you can reasonably guess what currency will be worth down the line. This is how countries with double-digit (and more!) inflation still manage to work. With BTC, it is impossible to know what the value will be a couple months down the line.

      • "Volatile" doesn't mean "inflationary"

        You don't see high inflation rates as volatile?

        If you can buy a loaf of bread tomorrow with twist as much cash as it took today, that is volatility regardless of what other labels you want to apply.

        Just ask people in Lebanon if the value of currency is volatile or not.

        In both Lebanon and Venezuela, you can reasonably guess what currency will be worth down the line.

        No.

        • You don't see high inflation rates as volatile?

          No. Please google the definition for the word. If you have an inflation rate of 4-5% per month your currency might not be worth shit, but it is hardly volatile.

          In both Lebanon and Venezuela, you can reasonably guess what currency will be worth down the line.

          No.

          You have no idea what you're talking about. I grew up in a country which experienced multiple cycles of inflation (including hyperinflation) and yes, as long as inflation is relatively steady can plan in advance for it. In fact, one of the things that feeds inflation cycles is sellers raising prices in anticipation.

    • And at least with Bitcoin, there is an upside - yet it went 11% down at launch, but as of now Bitcoin is up a good bit so that $30 of BTC the people had before, is worth more.

      That only applies to the people who didn't panic sell; they took a loss. It's easy to play the hindsight game with cryptocurrency, but saying "woulda, coulda, shoulda, won't put money back in your wallet."

    • Re: (Score:2)

      by jezwel ( 2451108 )
      If all services were available to buy in BTC then the spot conversion price is near-irrelevant. Sounds like all other currency needs to be removed for it to work.
  • Comment removed based on user account deletion

    • Because they are virtually identical in features and Bitcoin got there first and got VASTLY bigger. Now, the size of the networks themselves creates a demonstrable difference in how easy it is to transact, how secure those transactions are, and the amount of value you can transfer without creating volatility.

      A common thinking (and one I subscribe to) is that for any cryptocurrency to overtake Bitcoin, it will need some massive feature improvements over Bitcoin to overcome the network effect (probably imposs

    • Re: (Score:1)

      by ebvwfbw ( 864834 )

      Litecoin? Nah, should have been Tron.

  • Being forced to use a volatile cryptocurrency will incentivize Salvadorans to engage in pump-and-dump schemes to raise the price so they can immediately cash out, buy more, and repeat. In essence, to ensure their holdings don't shrink, they are being forced to become day traders. This will not end well.
    • How do you figure? The price has only been going up if you look at longer term trends. Sans some huge crash, you could loterally just leave the BTC sitting there and ignore short term volitility, and itâ(TM)s value would grow over time. You -could- day trade it, but you donâ(TM)t have to.

  • Unlike BITCOIN, Central banks can create DEMAND by PRINTING/CIRCULATING currency

    https://en.wikipedia.org/wiki/... [wikipedia.org]

    https://en.m.wikipedia.org/wik... [wikipedia.org]

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