The Breakdown - El Salvador Made Bitcoin Legal Tender As President Bukele Casually Chatted on Twitter Spaces

Episode Date: June 10, 2021

Last night, El Salvador voted to pass the bill making Bitcoin legal tender. As representatives debated the bill, the President of El Salvador Nayib Bukele and his brother and campaign manager Karim Bukele surprise-joined a Twitter Space hosted by Nic Carter, where the president would spend about an hour answering questions.  In today’s episode, NLW breaks down: The substance of the bill  Specific elements of the plan from the Spaces chat - including Volcano mining and the Bitcoin cost of foreign residency  The historical significance of the moment for Bitcoin, media, El Salvador and more -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

I mean, it's representative of the whole nation. The whole nation is behind this. Wait, wait, they're voting right now. Let me see. 17 against. I'll tell you the number, the specific number of the voting. Remember that we only need 43 votes, but of 84. This is the second round of voting right now and the last round.

They're applauding right now at the floor. Woo-hoo! I don't know if you can listen. Can you listen? I'm clapping to cheer. So again, congratulations to everyone. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world.

The breakdown is sponsored by nexus.io and produced and distributed by CoinDes. What's going on, guys? It is Wednesday, June 9th. And what you just heard to open the show was the sound of Kareem Buckele, the brother of the president of El Salvador, as well as his campaign. manager, narrating the passage of the bill by which El Salvador became the first nation in the world to recognize Bitcoin as legal tender. It was part of a larger hour-long discussion last night with the president himself that happened wholly spontaneously on Nick Carter's space on Twitter, set up to casually chat while he cooked himself pork chops for dinner. This conversation

happened late at night, and I only caught it by the grace of a fast-flickering power outage in our house, which caused every appliance to beep and wake me up. Me being a complete degenerate, I did a quick pass on Twitter before heading back to sleep, and the first tweet I saw was from one minute earlier from Nick saying, President of El Salvador in my Twitter spaces right now. Before we get into what he said, let's go back to what happened over the previous 24 hours. The beginning of the day was a cascade of politicians from Central and South America giving themselves laser eyes.

We covered that on yesterday's show. By the evening, though, the big news was the full text of El Salvador's Bitcoin Legal Tender Bill had dropped. And at the risk of this running a little long, I'm actually going to read the full English translation. It's actually pretty short, and I think is important to give you the full context for our discussion. Considering that in accordance with Article 102 of the Constitution of the Republic, the state is under the obligation to promote and protect private enterprise, generating the necessary conditions to increase national wealth for the benefit of the greatest number of inhabitants, That under legislative degree number 201, published an official Gazette number 241,

volume 349, dated December 22, 2000, the United States dollar was adopted as legal tender. That approximately 70% of the population does not have access to traditional financial services. That it is the obligation of the state to facilitate the financial inclusion of its citizens in order to better guarantee their rights. That in order to promote the economic growth of the nation, it is necessary to authorize the circulation of a digital currency, whose value answers exclusively to free market criteria in order to increase national wealth for the benefit of the greatest number of inhabitants, that according to the previous considerations,

it is essential to issue the basic rules that will regulate the legal course of Bitcoin. Therefore, decrees the following. Article 1. The purpose of this law is to regulate Bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private, natural, or legal persons require carrying out. What is mentioned in the previous paragraph does not hinder the application of the monetary integration law. Article 2, the exchange rate between Bitcoin and the United States dollar, subsequently USD, will be freely established by the market. Article 3, prices may be expressed in Bitcoin. Article 4. Tax contributions can be paid in Bitcoin. Article 5.

Exchanges in Bitcoin will not be subject to capital gains tax just like any legal tender. Article 6. For accounting purposes, the USD will be used as the reference currency. Article 7, and every economic agent must accept Bitcoin as payment when offered to him by whoever requires a good or service. Article 8. Without prejudice to the actions of the private sector, the state shall provide alternatives that allow the user to carry out transactions in Bitcoin and have automatic and instant convertability from Bitcoin to USD if they wish. Furthermore, the state will promote the necessary training and mechanisms so that the population can access Bitcoin transactions. Article 9. The limitations and operation of the alternatives of automatic and instantaneous

conversion from Bitcoin to USD, provided by the state, will be specified in the regulations issued for this purpose. Article 10, the executive branch will create the necessary institutional structure to apply this law. Article 11, the Central Reserve Bank and the superintendency of the financial system shall issue the corresponding regulations within the period mentioned in Article 16 of this law. Article 12, those who, by evident and notorious fact, do not have access to the technologies that allow them to carry out transactions in Bitcoin are excluded from the obligations expressed in Article 7 of this law. The state will promote the necessary training and mechanisms so that the population can access Bitcoin transactions. Article 13,

all obligations and money expressed in USD, existing before the effective date of this law, may be paid in Bitcoin. Article 14, before the entry into force of this law, the state will guarantee, through the creation of a trust at the Banco de Disarroio de El Salvador, Bandesol, the automatic and instantaneous convertibility of Bitcoin to USD necessary for the alternatives provided by the state mentioned in Article 8. Article 15, this law will have a special character in its application concerning other laws that regulate the matter, being repealed any provision that contradicts it. Article 16, this decree will take effect 90 days after its publication in the official Gazette, given at the blue hall of the Legislative Palace, San Salvador, on the 8th day

of June, 2021. So now that we've laid that all out, let's shift over to what happened in the Twitter spaces itself. It was a pretty remarkable showing. If you listen to my show the other day about El Salvador, I laid out the concerns that some have presented, particularly in the international community, about some of President Buchele's actions and tactics, particularly showing up to the assembly with guns that try to push through a security bill, and particularly ousting judges. I've also given you the counter position focused on the accused corruption of those particular judges. Anyway, regardless of one stance, one thing that cannot be denied is how different Buchele reads as a politician. He's incredibly sharp, he has a clear vision for what he wants, he's been extremely

quick on the BTC uptake, and he doesn't sound like he's bullshitting more than anything else. In fact, I could see if you were an opponent of Buckelis or nervous about Buckele that he's showing it something like last night's spaces would make you even more nervous. But let's talk now about the substance of what was discussed. First, and I should say this is not comprehensive, nor is it in any particular order. Nick asked if this was step one on a larger de-dollarization plan. The answer was a resounding, absolutely not. Buckele went back and explained the original rational rational.

now for dollarizing more than 20 years ago. It was basically that the local currency was too volatile and that dollarization would bring benefits vis-a-vis the international community. He said that not only did these things still apply, but he believes that Bitcoinization takes it to the next level, offering an even new set of global benefits. This also brought up the question about whether they had heard from U.S. institutions since their announcement. President Bucheli said they had a meeting with the IMF on Thursday to discuss. He also said that he thinks the IMF should be supportive of it, Even going so far as to articulate that more economic opportunity at home in places like El Salvador means less of an immigration problem in the U.S.

At various points, Buckelai was clear that he thought that they were going to have to sell this internationally to go run a campaign around it to use the term that he used. And in his discussions around this point around this meeting with the IMF, it seems sort of clear what El Salvador's starting argument will be. First, this doesn't compromise anything about the centrality of the dollar. They're still denominating things in dollars, for example. Two, you say you want us to develop economically. Well, this is a great way to do that. And three, economic development and a stronger El Salvador means less problem, specifically an immigration problem for you. This seems to me like not a bad starting pitch, but we'll have to see how it actually plays. Looking for the best way to unlock your crypto's liquidity, nexo.io is exactly what you need.

Borrow against your digital assets at just 6.9% APR, earn passive income with yields of up to 12%, and swan. between more than 100 market pairs with the instant nexo exchange. Try the nexo wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io. That's nexo.io to get started today. Another point that came up had to do with something that had been articulated on Twitter but not in the bill, which was around Bitcoin entrepreneurs coming to El Salvador. Balaji Shrnavasen was one of the speakers in the space and asked what the requirements for residency would actually be. President Bucheli said it was pretty simple. Invest the equivalent of three Bitcoin in El Salvador and Get Residence, which is a pretty amazing deal. He also made clear that for this particular

aspect of policy, they wanted to denominate it in Bitcoin. So yes, going back to something we discussed on the previous show about El Salvador, I do think this makes them a player in the global competition for talent. What about all those volcanoes you saw popping up on Twitter profiles? That came out of a question around Bitcoin mining. I want to actually play the clip of this one, because you can hear in it just how quickly evolving this whole discussion is, including President Buckeli's thinking about it. As you'll hear, he's literally spitballing around Bitcoin mining and volcano power in real time. Is the government going to mine Bitcoin?

We have a plan. This is not nothing to do. Well, it had nothing to do with Bitcoin. But we had a plan because we have geothermal energy here, energy that you get from volcanoes. So we actually have plants that get clean 100% renewable, but it's also 100% clean because the energy of the volcanoes turn the water into water vapor and that makes energy. So we produced that energy since 50 years ago. But right now we were looking at that we lose a lot of energy by transporting the energy of the geothermal plants to the cities. So we want to promote this on the outskirts of the plants.

We want to promote this industrial parks where you can set up your factory and you will receive cheap, 100% clean, 100% renewable, 0% zero to emissions. And we wanted to do that not because of Bitcoin, but because of people that want to invest in factories that won't have any carbon footprint. But now that you're talking about mining, probably somebody wants to set up a mining facility with zero emissions and with geothermal energy that it's not only cheap because it's right there in the front of them. So they don't pay, we don't have to transport the energy to another place is right there. And it's very, very cheap for us. So probably somebody wants to set up a mining facility. Now, one more clip I want to play has to do with where this all got started. Bitcoin got on Buceli and his government's radar via a project called Bitcoin Beach.

Here's how the project describes their history. In 2019, Bitcoin Beach decided to challenge the growing assumptions that Bitcoin would never be used for daily transactions such as buying a cup of coffee, as well as the assumption that Bitcoin would be used more by the wealthy than those looking to get to the first rung of the economic ladder. So far, Bitcoin Beach has positively impacted the lives of more than 600 users, giving them the tools to set up wallets using Bitcoin facilitated by the Lightning Network, for everything from buying a $1 bag of tortillas to paying for a $3 haircut.

Now, it was Bitcoin Beach that played host to Miles Suter from Square and Jack Mollers of Strike, who ended up helping being catalysts for all the things that have happened subsequently. So now let's listen to what President Buckele had to say about Bitcoin Beach. Mr. President, this is Mike Peterson from Bitcoin Beach, and I just want to thank you so much for everything you've done. I knew deep down you were a bitcoiner. I knew you were going to come through here. And everybody on our team.

Well, you're the pioneers, actually. Everybody on our... And you demonstrated... Sorry to interrupt, but I want to say something good about you guys. You guys demonstrated that this is not something for rich people only. I mean, this is for everybody. And you guys demonstrated that a community can actually benefit from Bitcoin. And now we're going to demonstrate it in a country, in a in a in a country wide scale.

But but of course you're the pioneers here and hats off to you guys because you have demonstrated, you were, you had the courage to be the first here in the Osabler, which is, and you have done great. And actually you have provided with us with arguments and with pictures and with stories and with everything that we need to do. have this bill pass so past. Finally, one more part of the discussion from the space that I wanted to connect with a discussion happening on Twitter. If there is any part of the bill that has aroused the ire of some bitcoins it is Article 7. Every economic agent must accept Bitcoin as payment when offered to him by whoever requires a good or service. In short, some see this as coercion. On the other side, this sort of mandate is more or less the definition of legal tender. It is

precisely what governments do. It is within the powers that government give themselves. I want to highlight it for two reasons. The first is to acknowledge that this is going to be a fundamental tension between Bitcoinization at the federal level and the idea of an open, permissionless opt-in system. When that permissionless system gets adopted by governments in this legal tender capacity, it becomes state mandated. That state mandate is going to rub some people the wrong way, but it's more or less inevitable. It's around the construction of the state itself. I believe, however, that we should live inside that tension and understand how it can be used to help design better systems of applying state mandate rather than just pretending the tension

doesn't exist. To that point, let's discuss how Buckeli at all are talking about implementing their plan. First, they did build provisions into both Article 8 and Article 12 around exactly this. Article 8 states that basically anyone who wants to be paid in USD instead can, even if they are compelled to accept Bitcoin. And Article 12 says basically that those who can't access the technology to carry out transactions in Bitcoin are excluded from Article 7. The state takes on the job of the necessary training and mechanisms so that the population can actually access Bitcoin transactions. So take these two things combined, and they're basically saying, and this was confirmed in the discussion with President Buckele last night, that they're not focused on punishing

people for not having the technology. It's their job to go out and give people the technology and training they need. But even more than that, even when they have that tech and training, the president made it clear that the intention is not to force people to take on the risk associated with Bitcoin. To that end, they're setting up a trust seated with $150 million in USD that will automatically purchase the Bitcoin used in transactions for merchants who are now compelled to accept it, but who immediately want to have dollars instead. The example he used was a woman selling fruit in the market, who, because of this law, has to accept Bitcoin, but who, through this trust in the Lightning Network, can immediately have a dollar balance

equivalent to if she had just gotten cash in the first place. In some ways, this isn't dissimilar to the way that PayPal is rolling out crypto payments for their entire network of merchants. By mandate, by Fiat, if you will, all 30 million plus merchants have to accept crypto, but PayPal does the actual conversion for them. But PayPal does the conversion back to Fiat before it even hits their accounts. Now, this is a little different because I don't think PayPal is even giving merchants the option to keep the crypto. It just automatically changes it. But the principle is the same. Listen, guys, you have to accept these new currencies now, but you can still be paid ultimately in the thing you're

used to. As I said, this tension between Bitcoin is opt-in and Bitcoin is mandated will be an interesting one to see play out in the new era it seems we're moving into. And speaking of that new era, at the risk of falling into hyperbole, it was impossible to be listening last night and not feel like we were witnessing a historic moment. It was historic for the internet. Last night was an unplanned, unpromised, unprepped, unexpected press conference between a head of state and an open group of more than 20,000 people who happened to be up and who happened to decide to listen. In that, it was also historic for the media. Everyone listening to the conversation, all 22.5,000 of us, knew exactly as much as every journalist who would write stories about it

the next morning. More even if those journalists happen to be sleeping in the middle of the night like reasonable people. Obviously, I've just dedicated a ton of time to recapping and giving you my take on it, so I don't say this to diminish the importance that professional media will play in the future. But the nature of that role is, to me, undeniably changing, from gateway of information to important contextualizer of information. This was, of course, historic for Bitcoin. El Salvador is the first nation to truly adopt it. By doing this, they will provide an incredible force for developing, in particular,

lightning and layer two solutions to make Bitcoin viable for all uses, not just stacking. What's more, with this decision, El Salvador is sowing the seeds of a new narrative about economic empowerment instead of MoneyPrinter-Go-Bur. About, as Charles Stack put it on Twitter, a better world, not just better gold. I did an entire thread last night before all of this on why I think Bitcoin has been searching for the next raise-on debt to follow last year's Money Printer Go-Burmeam. How powerful it would be if this message of economic empowerment is it. And finally, of course, this is historic for El Salvador. A tiny nation of 6.5 million formerly best known for its murder rate, has launched itself into an international conversation

about the global monetary system. Even more than that, it has opted into an incredibly important role as crucible for us to discover Bitcoin's true capacity for economic empowerment. Joe Wisenthal tweeted, I'm excited about the El Salvador news. In a year, we'll be able to see if it was an important development economically or not. Was it used or not? No more need for the theoretics. I don't know if a year is the right timeline for that, but the idea underlying it, that we won't have to debate as much as actually just understanding what happens, is 100% true. And once again, as I said on my last episode on this topic, we don't have to just watch. We can be involved. I'm excited to be here on this journey with each and every one of you.

Until tomorrow, be safe and take care of each other. Peace.