Unchained - Bitcoin in El Salvador: Why Would Cypherpunks Support Government-Mandated Bitcoin Adoption? - Ep. 375

Starting point is 00:00:00 Hi, everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. This is the July 19th, 2020 episode of Unchained. Every other Tuesday, Unchained hosts The Chopping Block, where Crypto Insiders has seen Koreshi, Tom Schmidt, Robert Leshner, and Tarun Chitra, chat it up about the latest news in the digital asset industry. You can catch the latest episode on YouTube and on all podcast platforms.

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Starting point is 00:01:24 Laura, link in the description. Today's topic is El Salvador's use of Bitcoin. Here to discuss is Nelson Rauda, journalist Edda Alfaro and El Salvador. Welcome, Nelson. Hi, Lara. Thank you so much for having me. In the last year, El Salvador made some historic news by becoming the first country to adopt Bitcoin as legal tender. We're going to dive into everything that's happened since then, but first, let's set some context.

Starting point is 00:01:53 Listeners of this show may not be familiar with you or your work. So before Bitcoin became part of your coverage, what kind of journalists were you? Well, I've been a journalist since 2013. I've been doing this for nine years. And I started out my career covering judiciary. There's always a lot of judiciary things going on in El Salvador. So I started with the murder beat, covering gang violence, covering police, covering the Attorney General's Office, Supreme Court, that kind of stuff. And then I transferred to El Fado seven years ago, which is an independent newspaper, smaller newspaper. So you kind of have to do a jack-of-old-traced kind of thing there. So I started out doing more political things and more things related to immigration and basically focusing on human rights violations.

Starting point is 00:02:45 And I was doing a lot of coverage of civil war trials in El Salvador. So the first time I've heard the word Bitcoin, the word crypto was from Mr. Jack Mullers in a Miami conference in 2021. And I try to brush it off because I'm used to now by, I'm really used to Mr. Naibu Kelle's antiques by now. It's been three years. But five days later, I was at the Legislative Assembly watching a midnight session as the Bitcoin law was rushed in a So it was a really past learning curve, and I've been covering the implementation of the Bitcoin law for a year now. And so you said that the first time you heard it was Jack Mallor's seeing the word at the conference. So you were just tuning in because President Naip Buckele was there?

Starting point is 00:03:41 I didn't tune in. I saw it afterwards in social media. And it was a surreal experience to hear from a foreigner from this, you know, this white, this gringo young kid telling us that we, six millions of us, would have basically another, their whole monetary system of our country was going to change overnight, essentially. So that was a pretty, I would not recommend that kind of shock doctrine or shock therapy. And you talked about President Bucheli's antics, as you called them. So before Bitcoin became part of his identity, what kind of

Starting point is 00:04:20 politician and president was Naïbo Kelly? It was kind of Bolsonaro meets Trump, but really into technology kind of guy. That's the best description I would give. He's really like a populist, like a traditional Latin American caudio populist. It's really popular in El Salvador.

Starting point is 00:04:42 And he had the presidency by a landslide in 2019, and he won't because he capitalized the sentiment against what, you know, people might call like the drain the swamp kind of narrative. We're going to clean the politics. I come from these same parties, but I'm not one of them. I'm of the people, although I am a millionaire, that kind of populist kind of thing. So since the beginning of his presidency, we became aware, and we saw more and more of his authoritarian tendencies. I think people really saw him in this series of photos when he invaded the legislative assembly with the army and tried to try and pressure the congressmen and women to approve a loan for security, for his security program.

Starting point is 00:05:34 So we started seeing more and more of this. But Bitcoin Law was approved in June 2021. It was announced in June 2021, approved a couple days later its announcement and it came into effect in September. Before that, there was an essential element that it's that he won the supermajority in the legislative assembly. His party controlled the legislative assembly, which allowed him to effectively control two of the three branches of the state. And then with that power, he illegally acquired the control of the Supreme Court in El Salvador. He demoted the constitutional court. He demoted the attorney general.

Starting point is 00:06:13 So essentially, there was no democracies. counterbalances, you know, checks and balances system. That's what allowed for decisions as the Bitcoin law to pass as swiftly. And maybe people don't realize that. And I've actually talked about this with several foreigners because now there's a lot of interest from the crypto war in El Salvador. And they said, well, you need a strong man to do that. And I said, yeah, but that's not democratic.

Starting point is 00:06:42 And that was not allowed by Salvatore law itself. So let's also just flesh out what the picture of life in El Salvador was pre-Bitcoin from a financial situation. What would you say was the financial reality for everyday Salvadorans pre-Biccoin? Maybe I'm going ahead of myself here, but I don't think it's changed that much. on fourth of the population is basically leaps is poor it lives under

Starting point is 00:07:16 with less than $10 a day which I think the measure that most multilateral organizations used to measure poverty. There's a lot of talking about banking the unbanked and there's a lot of that talking on from the narrative of the government of the president

Starting point is 00:07:35 saying oh yes only 30% of Salvadorans have bank accounts and so 70% of the population doesn't have, which is true. It's been measured like that. But I would say that there's a reason behind that. It's not just the lack of access to banking institutions. The reason is the economy itself. People usually earn what they use day to day. They don't have savings accounts because they are essentially used.

Starting point is 00:08:06 most of the time and most of the people don't have anything to save. So if you gave every Salvador in a savings account, you would give them a tool, of course, but most of them use what they earn, what they need every day and don't have the resources to have, you know, like investments or stashing away money to use some other thing. It's not really like that. The majority of the population and the transaction,

Starting point is 00:08:36 is happening cash because it's essentially a subsistency economy. Well, okay. So you alluded to kind of just how quickly everything happened in terms of El Salvador first proposing and then adopting this Bitcoin law. So describe a little bit what that experience was like. You talked about how it was a steep learning curve for you. Just give us more detail on what that time in your life looked like. I think for all of us, this was a Saturday.

Starting point is 00:09:06 And all of a sudden we're on Saturday scrolling through Twitter or social media and we see this dude Jack Muller's who was very strenic in that appearance. He put on the jersey of the Salvadoran national soccer team and he cried on state and he said he almost pissed his fans because of the invitation of President Buckele. And then President Buckele himself appears on the big screen and says we are adopting Bitcoin as legal tender. Nobody knows what Bitcoin is. I mean, I hadn't heard of it ever. This was among the Bitcoin fever of 2020, 2020, 2021, right? But here in El Salvador, it was just a marginal thing. Maybe a couple of people knew about it.

Starting point is 00:09:52 And all of a sudden, we saw that. And as I told you, I thought this was going to be one of those things that Buckel does and he's Estronic and he looks for the rewards. social media in terms of likes and visibility. And I didn't think I had to put much attention to it. I just went on with my Saturday, whatever. But then three days later, we were at the Legislative Assembly. I remember distinctly because I was watching a soccer game of the Salvadoran national team.

Starting point is 00:10:21 And then they say, well, we're going to pass Bitcoin law tonight. So my editor calls me and says, hey, can you get down there? And I'm, okay, stop watching the game. And it was funny. Why I mentioned the game? Because this is where I wrote. The soccer matches have a 90-minute duration with a 15-minute pause in between. The law, the Bitcoin law, spent less time in the financial committee of the Legislative Assembly

Starting point is 00:10:54 than the soccer match lasted. When they introduced the bill, the soccer match was... starting and when they passed a bill and they finished all discussions, the match was still going. So that's how I describe it. How can you change the monetary policy

Starting point is 00:11:15 for six billion people with so little discussion? And what happens is that they control the super majority, so they control how much they want to discuss something or not want to discuss something. And the law was presented at like 7 p.m.

Starting point is 00:11:31 and by a couple minutes past midnight was already approved and was going into full effect three months from them. So really you saw this confusion thing because the other thing that happened is that while the Congress was approving it, there was a Twitter space going on. And the Twitter space was hosted by Mr. Nick Carter, who is, I think he's under, has got under some heat recently because he, I don't know, he's not.

Starting point is 00:12:01 a Bitcoin Maxi anymore or something like that. But he was hosting this Twitter space, and he was allowing people to ask questions to President Bukele and to one of his brothers. So we didn't have, Salvatumans didn't have access, and this was a Twitter space in English for American investors or venture capitalists or whatever.

Starting point is 00:12:23 And they were giving out more information in that space, and we were getting at the assembly. So actually, I was at the, assembly. I was watching the discussion as they passed the Bitcoin law. And I tuned out of it and I put my headphones and started listening to space because it was more valuable in terms of the explanations of what the law would imply. The example that I always go to is that a congressman in the floor was saying, this will not be mandatory while President Bucheli was saying in the Twitter space, no, it will be mandatory. McDonald's will have to take your Bitcoin.

Starting point is 00:12:57 So what's your take on why that was? Why was he explaining this in this Twitter space to primarily non-Salvadoran audience, but not necessarily doing too much to explain it to everyday Salvadorans? Because a lot of the Bitcoin law is not meant for Salvadorans. And a lot of the Bitcoin allure and the Bitcoin PR stunt is not for Salvadorans. It's for foreigners. It's for attracting foreign investment. It's for attracting tourism.

Starting point is 00:13:27 It's for different reasons. But because essentially President Buchele, he's not dumb at all. He knows about this. He knows that people don't stash away money to invest. That every day Salvadoran doesn't wake up every day and has $5,000 fund and says, hmm, what am I going to invest today? This is not the reality of our country. So a huge part of it, it's not meant for Salvadorans.

Starting point is 00:13:55 It's a law meant for other people. but it's paid for by Salvador and taxpayers. And it seems like he doesn't necessarily need to convince Salvadorans because he can just get this made as law. As you mentioned, the majority. He controls the power, so he doesn't really need to do any convincing. They can do whatever they want. I mean, imagine if the U.S. was going to get rid of the Supreme Court justices.

Starting point is 00:14:26 which I figure a lot of people want to do now, on the left especially. But could you do that in an hour? No, because it's not a democracy. There are procedures. We did that here in an hour. The first day that they took control of the supermajority, they got rid of the Supreme Court justices, they got rid of the attorney general,

Starting point is 00:14:46 and they replaced them all by loyalists in one night. So they have been using this kind of power like that. The same thing with Bitcoin. and they change the monetary policy of the country in one night. And it doesn't affect his polling. But what interesting about Bitcoin is that even though Buckele still holds like 85, 87% of approval in the majority of poll or in all polls, Bitcoin hasn't drawn from that popularity. So on the contrary, Bitcoin is really not popular. The recent polls saying that 71% of Salvadorans don't see any benefit from the Bitcoin.

Starting point is 00:15:25 not to their own economies. Only two out of 10 support the decision to adopt Bitcoin. And it's the same people that says that they approve President Dukle. So they like him. They like what he's doing. They just didn't buy into his crypto fever. And what was the initial reaction at the time when they announced that they were going to adopt Bitcoin as legal tender?

Starting point is 00:15:46 Was their excitement about it or interest? Or like you're saying now that people just feel like it hasn't really done much. But at that time, was that different? It was very negative because it pulled or it drew from a collective trauma that we all have, which is dollarization. The dollarization was also an imposed measure. We are on the dollar since 2001, and it had been an old idea from the elite, the right-wing party that ruled El Salvador during 20 years. But they didn't have the votes. Nobody controlled this supermajority.

Starting point is 00:16:21 Nobody in El Salvador has had this supermajority in assemblies since El-Eld. I think 1984. So they didn't have the votes. And what happened was, and this is a funny anecdote, I hope we don't get a little too much off topic. But what happened is the congressman was caught during a, he had a DUI and he actually shot a policewoman while under the influence of alcohol.

Starting point is 00:16:49 But he had a special protection. He couldn't be arrested as a normal citizen. So they took the case to a political impeachment case to remove his protection. And then the right wing party negotiated with his party. He said, okay, we're not going to remove his protection for this case, but you're going to give us the vote for the dollarization. So that's how it happened in dollarization. I think it was approved in November 2000 and came into effect into January 2001.

Starting point is 00:17:17 So it was a really swift move. So people were really, there's this. between dollar and Bitcoin, of course. People were used to dollars. There's three million Salvadorans in the U.S. We are used to taking remittances, people, go back and forth all the time. But there was a collective trauma because our national currency changed basically overnight. And so people said this will be like dollarization. They will take away our dollars and we will only have this Bitcoin. And this Bitcoin, it's not even a coin. You don't have bills of Bitcoin. That, I think, was what triggered the initial reaction.

Starting point is 00:17:56 And then the other thing, it was volatility. People might not have understood Bitcoin. People might not understand what Bitcoin is now. But they immediately knew this is a currency or this is an asset that can really change lanes, can change its price, can drop its price or increase its price in the matter of hours. So I might have the equivalent of $3 to have lunch by 8 in the morning, but by the time it's lunch, maybe I won't be able to buy my lunch. So people were really not attracted to that part. And then there was a lot of rejection.

Starting point is 00:18:32 Actually, Bitcoin was a huge part of the largest protests that Buckela has had against him, which occurred on September 15, 2021 on the Independence Day, the largest protests so far in his government. And it was spurred by the Bitcoin adoption and other factors, but the rejection of Bitcoin played a role in that. Oh, wow. That's interesting. I'm going to ask you a little bit more about that in a moment, but I did want to ask you. So, you know, as you said, you had never heard of Bitcoin until a few days before this was adopted. So initially, you know, kind of let's separate it from your perceptions of what President Buchanley was doing. and whether that was going to be positive or negative for El Salvador.

Starting point is 00:19:18 But did you have any opinion or perception of Bitcoin itself? I was really coming out of ignorance. I mean, I didn't understand. I remember a particular colleague, Roman Grisier, who is a French-American colleague. And he understood some of Bitcoin because, I don't know, he's an narrative or something. And he started to explain me and my editor, what this was, what this coin. was. So we really struggled to understand. There was not an education effort. And our public officials didn't really understand what was going on. They passed the law, but I don't think the majority of them

Starting point is 00:19:58 or a lot of them knew what they were talking about. I mean, there were people talking, congressmen, talking about how Bitcoin is good for the environment when a lot of critics, it's not because of the energy use in mining or, you know, really. rhetorical, really saying nothing of the sort. So I didn't really have an opinion. I just didn't really understand what it was. And because of that, I didn't understand why the president was intending to use it. And the first people we started to hear from didn't really do much to heal or to alleviate

Starting point is 00:20:37 our concerns. I mean, the first people that we have here leading a Bitcoin delegation was Brock Pierce. who is eccentric, who is a former child star, and he led a Bitcoin delegation. And we were like, hmm, this does not seem like, like we did not see, you know, suits, technicians, economists, people, it's a really eclectic crowd. So it, we went from ignorance to a skepticism, to outrage,

Starting point is 00:21:07 to, okay, let's really sit down and talk to people who cannot explain to us what this is and what other people in other parts of the word used it for, but that certainly took a while. And you talked about how you feel that part of the motivation on Bukeli's side was that he wanted to attract investment in tourism. Would you say that this Bitcoin law has succeeded in those goals? No, no, absolutely. There are no hard data that we can rely on to say, hey, this is what has happened. the government talks about an increase in tourism in a 30% increase in tourism, but there's no way to connect, they're directly connected to the Bitcoin law because

Starting point is 00:21:54 other things happen in the world that affect tourism. Like, you know, the COVID-19 pandemic, they're lifting the travel restrictions, the economic recovery from the effects of the pandemic. So there's no way to really correlate it just to the Bitcoin. factor itself. It has drawn a lot of attention, but there's no hard data to draw from. And then from the economic perspective, the government talks about, I remember clearly because there were a series of Bitcoin conferences in November last year in San Salvador. So one of the presentations was from Athena Bitcoin. This is a company of ATMs that helped in the implementation in El Salvador.

Starting point is 00:22:37 So they argued that El Salvador had recovered 10% on its economy thanks to the Bitcoin law, which is essentially not true. It has recovered. In 2021, there was a 10% increase because in 2020, because of the pandemic, was a decrease of 9 points. So in reality, you're talking about a two point growth in the economy, which is pretty normal for Salvadoran standards. And it, again, cannot be directly correlated to Bitcoin. I was at an event commemorating the first year of the law last month with a series of crypto companies, you know, the crypto companies that have installed in Zolvore. And they talked about having generated 113 jobs in Oswald, which is not this, you know, it's okay.

Starting point is 00:23:27 But is it worth the cost of a public policy that has costed its alborance at least $200 million? dollars. So do the math how much each job of those has costed us. So in those two terms, I don't think the returns of investments are clear to this day. Yeah. And I wanted you to elaborate on another point that you raised in a New York Times op-ed that you published recently, where you also mentioned that the timing of some of these announcements occurred around the same time as some other scandals involving his administration were occurring. So talk a little bit about what happened there. Day before the Bitcoin law was announced, it was announced on a Saturday. The Friday before President Bukele had dropped out of an agreement with the OAS, the Organization

Starting point is 00:24:19 of American States. He had set up an anti-corruption committee similar to what had happened in Guatemala with the SISIC for those familiar with it. So this committee had started. doing revelations and uncovering corruption scandals, mostly related to pandemic bias, which were scandalous here. There was a lot of corruption. At one point, the Attorney General's office, the former Attorney General's office,

Starting point is 00:24:45 said that two-thirds of all of the pandemic contracts were under investigation. So this was on Friday. He drops out of the committee, and he says, okay, we are doing. going to, to, we are going to, um, drop, simply drop out of it, which was, had been a campaign promise from, from Buckel. So the next day he announced Bitcoin and all of the attention,

Starting point is 00:25:16 all of the attention that have been talking about, uh, he's dismissal of the court, he's dismissal of the attorney general. He's dropping out of an anti-corruption movement. It's gone. It's, you're talking about Bitcoin. You're talking about how innovated this country is and how bold this experiment is and how audacious Bukele is as a leader. And this has continued to happen. We published a couple months ago, we published an investigation with audios of a Buckele cabinet official describing his dealings with the gang members and in conversations with gang members, with MS-13 gang members, and describing how he had essentially took out a leader

Starting point is 00:25:55 that's asked in extradition by the U.S. and took him to Guatemala. So Bukele didn't, and it still hasn't, it still hasn't commented on that investigation. It still hasn't said anything. Nobody from his administration did. And he took two tweeting about Bitcoin because there was a committee of central bankers and economists

Starting point is 00:26:17 in El Salvador at that time. So Bitcoin has been used as a PR stunt. Bitcoin has been used as a distracting movement from Buckele from other corruption scandals. And he talked. And he talks about Bitcoin when he don't send one to talk about other things. And that's what I say. And I know for a crypto audience, and I know from the crypto point of view, this is such a historic moment in the game theory.

Starting point is 00:26:45 If Bitcoin is going to be the currency of the future, we were at the first. And yeah, but you cannot, if you only go to that part of a story and ignore what is happening, not in the future, but in the present in El Salvador. then you're doing a disservice to the Salvadoran population, and you're basically spreading propaganda from a government, which is another, and one of my main points when I wrote that New York Times article, aren't Bitcoin are supposed to distrust the government? Are Bitcoiners supposed to want to separate money from the state? So why is it that they are so enthusiastic about a government,

Starting point is 00:27:25 an authoritarian government, in a third world country that adopts it. I mean, it should be the other way around, or at least it should be taken with a pinch of salt, you know? Yeah, I actually wanted to also call out another contradiction, which actually a number of people in the Bitcoin community also mentioned such as Alex Gladstein of the Human Rights Foundation or Jerry Brito of Corn Center.

Starting point is 00:27:53 There's a bit of a contradiction to Buchanley championing the adoption of Bitcoin by El Salvador, given that, you know, as you mentioned, he has these authoritarian tendencies, and yet Bitcoin is a type of money that's not controlled by the state. And so in that regard, you could almost say that it would weaken his power for El Salvador to adopt it. So I wondered if you, you know, had a theory about that or another contradiction, which I've also seen called out, which is that, like, Bitcoin is often seen as this money, you as a path for freedom, you know, out of control of the state. And yet in this particular law, as you mentioned, it is mandatory that businesses accept it.

Starting point is 00:28:36 There's no choice. So what do you think explains these contradictions? I think if you have a normal process of approving a law, you would have been able to see these contradictions, you know, to hear about economists, to hear about Bitcoin experts. there's a lot of talk about who ghost wrote the law and Jack Mueller said he had a role and other people said they also had a role but we would have,

Starting point is 00:29:06 these are discussions that should have happened before the law approved. And that's the thing. And I didn't understand what was all the rush about except that you needed to create news and headlines quickly because you wanted to change the conversation and want to take control of a conversation. But those are all contradictions.

Starting point is 00:29:26 I think I've heard Gladstein, and I respect tremendously his job. And I have heard and I've read about the Bitcoin being some sort of a Trojan horse apparatus to authoritarian states. And that might be the case. But what confuses me is that Bucheli is like feeding the Trojan horse to himself. Like, you know what I mean? He's sending it to himself. So that's the part that I'm a little bit like, wait. Yeah, because I think the element that's missing in the Trojan Horse theory is that Bitcoin is a grassroots movement.

Starting point is 00:29:59 It's never imposed from the top down. It grows as a grassroots as a horizontal movement. So that's what I don't see. I don't see it working. And I think that in order for it to work as a Trojan Horse to avoid the regulation, there's a tremendous need of education, a tremendous need of understanding that, for instance, if you use the government-controlled wallet, the Chivo wallet, for me, it's essentially a surveillance apparatus because you're actually giving access to the government to all of the transactions,

Starting point is 00:30:31 which is antithetical to Bitcoin in so many different ways. So you need education to understand what a self-custody is, you know, a self-custodial wallet, not your keys, not your coin, that kind of thing. And that's a level of understanding that most al-Badrants don't yet have, because there has not been an education effort from the state. It has just been thrown onto them like a sort of app, like Chivo was essentially replacing bank apps for the majority of Sanfordance. But it presents those contradictions.

Starting point is 00:31:07 I believe that it's not the case. And, you know, I get a lot of heat because I'm a crypto-sceptical. I own Bitcoin. I have used it. I have reported it and I have paid for beers. things in Bitcoin, but I don't see it as a solution to Salvatore immediate needs. I'm not talking about it. And I don't want to go in, I don't know enough about the realities of other people of, you know,

Starting point is 00:31:31 like what they do with it in Nigeria or Lebanon or, you know, Belarus. I had an interesting conversation about this in the Oslo Freedom Forum a couple months ago in Norway. So the thing is, I'm talking about El Salvadoran. And the matter of the fact is that in here, It has not solved any problems, and it has not done anything more than create headlines, positive headlines for the president in international media. All right. So in a moment, we're going to talk a little bit more about the impact of the law in the last year.

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Starting point is 00:33:38 Put your Bitcoin to work in the robust DeFi ecosystem by bridging BTC to Avalanche today. With Core, you can also easily swap assets, display your NFTs in style, store your assets in a ledger-enabled wallet, and put real dollars into your crypto wallet in just a few clicks. Core is everything you need for a simple, secure, and convenient Web3 experience. Download the free Core browser extension from Google Chrome's App Store today. Back to my conversation with Nelson. So you did mention that shortly after the adoption of Bitcoin is... tender that the largest protests that Buckelly experienced were about the adoption of Bitcoin. So why do you think that that was the thing that motivated the largest protests so far?

Starting point is 00:34:26 I think in that moment it was the drop that overflowed the cup. You know, it was the culmination of things. It was the Bitcoin law resumed so many of the things that the Salvadoran opposition doesn't like about Buceli. his authoritarian tendencies, his unconsulted public policies, the way that he deals with the government's finance, the complicated economical situation, the disregard for Salvadorans,

Starting point is 00:34:58 and his love for show boldness and grandeur and platform. So there were a lot of things in the mix, but this was, disliking Bitcoin was something that people could rally behind. that everybody had different stances. But in this Bitcoin thing, the thing was we don't really like it. We don't want it and we think it's going to be something that's going to grab our money. So I think it was in that moment a bonding factor for the opposition because opposition is really,

Starting point is 00:35:34 they don't really know what to do. And it's really hard to know what to do. And, you know, you have people in the right in the opposition. you have people in the left, you have people kind of scattered all over the place. So Bitcoin proved a union point, like the dislikes of Bitcoin prove a union point. I don't think it's so much like that anymore. But in that moment, it was something that reunited all the characteristic that the opposition didn't like. So as we mentioned, there hasn't been a lot of uptake, but there was a survey in February

Starting point is 00:36:07 by the National Bureau of Economic Research that said about, 10% of Chivo users did continue making Bitcoin transactions after spending the initial $30 stipend. You have any sense of what people are using it for or who's using it? It's very hard to say, Laurie, because there's not widespread use. So my people do a transaction here and there and whether those transactions continue to happen until this year. I don't know. I think the same service said that the Chivo wallet that essentially hadn't had any downloads this year.

Starting point is 00:36:47 So it's really hard to say. And the uses that the government promoted it for also haven't happened. I mean, by every measure the government said this would be a hit. It hasn't. They said that it would make remittances cheaper. remittances are like 20% of Salvador and GDP because of our large diaspora hugely pays in the United States. So the way people collect their remittances is true banks or through services like Western Union and this sort of thing. So with Bitcoin, with Chivo, if you have a Chivo wallet in the United States and a cheap wallet here, you don't pay fees or the same goes for other apps like strike or or kind of thing.

Starting point is 00:37:33 But what the central bank is telling us, the statistics, is that less than 2% of remittances are going through crypto wallet. So despite the promise and the, you know, the guarantee of savings, people are not really using it. And I think a lot of it has to do with how the Chivo was rolled out. There were a lot of people who lost money because of transactions that weren't recorded, issues with the functionality between Bitcoin wallet transactions from Chivo to other ecosystem or to other systems. And people, imagine if people initially rejected this out of ignorance because they didn't know how they worked. And the first experience that they have is as disastrous as the first weeks of Chivoware. are you really going to rely on such a system or such a device to use or to, yeah, to use your money or to withdraw your money from?

Starting point is 00:38:35 If you lose $50, it might not be a lot for, you know, a venture capitalist or an investor, but for people who take the remittances and are such an important part of their life and their sustenance, yeah, you're not going to risk it. Yeah, I did also see that the central bank of El Salvador said, that only 1.5% of remittances went through digital wallets, which was obviously a really low figure. And it's surprising, though, because I do know that places like Western Union and stuff, they take quite a large percentage. So I personally would have thought that there might be higher uptake. Did you have a sense of whether even just that initial $30 distribution was something that had any kind of impact on, either the perception of Bitcoin or just positive

Starting point is 00:39:24 toward the new law? No. I think people essentially saw them as a subsidy as another government handle. The government gave $300 checks during the pandemic, and then they also have gift baskets. It's not their appropriate word, but they were handed on groceries to people in need and they were actually delivering the door to door. So people essentially took the $30 subsidy, not as a way as the government intended to incentivize the use of Bitcoin, but as a subsidy.

Starting point is 00:40:02 And so people would take the $30 and go to a grocery store or, you know, buy a meal, a good meal of fried chicken for the whole family. There were even people who were saying outside of the Chivo ATMs, they were saying, like, I can give you the cash if you transfer me your balance. I will only charge you for an amount. So a relatively small secondary economy there, but people weren't interesting in hoddling, or in keeping their Bitcoin or even transacting in it. They were just interested in cashing out. And what about this Bitcoin city,

Starting point is 00:40:44 which is supposed to become some city for crypto enthusiasts, that would be powered by geothermal plants at a nearby volcano? Has any construction begin there or begun there? Or has any of that come to pass? Or do you have a sense of how serious that effort is? It's as serious as the Bitcoin City in Senegal that they can call Acorn City. You know, and we should ask the people about in Senegal how that is going. Now, I think that part, especially the Bitcoin City part,

Starting point is 00:41:20 It's the most spectacular of the PR stunt that the Buckele government has done with Bitcoin. I mean, the idea, El Salvador, first of all, El Salvador is not a self-sustainable country in terms of energy. We are connected to the Central American grid. We import energy. The El Salvador country doesn't produce enough energy for itself, let alone powering whole Wakanda in the eastern part of El Salvador. Second of all, energy is not cheap in Osalbor. It's not cheap.

Starting point is 00:41:57 And what Bitcoin miners look for is essentially cheap energy. And they might have that in places like Texas or Arkansas or places which have a good electric grid and not a lot of demand because unpopulated parts of the country, et cetera. We don't have cheap electricity because a part of the electricity price is pegged to product that's derivative of oil. So it's essentially the prices of oil that drive up the prices of energy in Salvador because a part

Starting point is 00:42:27 of the production relies on it. So we don't have cheap energy. So in the case that we would have volcano that was enough to produce energy, I think the first priority should be to make the country still sustainable, but this doesn't happen overnight. This is why I tell you

Starting point is 00:42:45 that is of Pearson because President Bukele was in that Twitter space saying that that explained the Bitcoin law when it was being approved. And the next day, he said, we just discovered these new wells of geothermal energy. And we're just starting to design a whole mining hub around it. It's not true. It's it. We haven't seen plans for it. We haven't seen technology for it. Studies, technical, nothing. Not a geothermal energy saying, yes, this is what we're doing. And most of all, this cannot happen overnight. who knows anything about geothermal energy will tell you that a plan will not be constructed

Starting point is 00:43:23 like that and will be operating by the end of the month. It just doesn't happen like that. So that's why you should take it with a pinch of salt. And you should take President Buchal before what he's a politician and a savvy marketer. He will sell you the moon. I think he would be, he would be able to sell, you know, ice to people in the Antarctica. But what part of that is true and becoming true. So Bitcoin City, on top of everything I just said, is relying on the budget for it will come from this Bitcoin bonds that will be sold and for several months now have been in over demand according to their promoters, to people like, no, Samson Mao or Max Kaiser, they say there's a huge demand. So why doesn't the government put them to sell? Now they say that

Starting point is 00:44:18 the market conditions are not ripe. I suppose they are right about that. We'll talk about the Bitcoin bond in a little moment, but I actually also just wanted to ask one additional thing. Bitcoin Beach is an area that has put a lot of energy into adopting Bitcoin. What's your sense of how much Bitcoin is a part of everyday transactions there? And in general, what do you feel the significance of Bitcoin Beach has been? It's a really good PR stunt and it's a really good PR effort.

Starting point is 00:44:52 But I would invite anyone who comes to Bitcoin Beach and is astonished by the fact that you can pay for a coconut in Bitcoin. Cross the street. Just go across the street. Don't go to a far out part of the country. No, just cross the street from the hotel that you're saying on Bitcoin Beach and try to pay there in Bitcoin. And then then let's see how this is a fact. widespread adoption. Yeah, I mean, there are a lot of places that will take your Bitcoin there, but don't lose the fact that this is a tourist place. The crypto tourism is for this whole idea

Starting point is 00:45:29 that was floating around a lot of years in the crypto scene that is, hey, what will happen when we are able to buy goods and services with Bitcoin? Well, you can do that now in El Salvador in certain parts. But it's part of the gimmick, I would say. They like to talk about a circular economy, but what happened in Al Sonte was an anonymous donation that started going around and people understood as subsidies. And yeah, maybe you have some crypto enthusiasts there and you have an education effort there. But essentially, in Bitcoin Beach, you're more catering to the tourism than banking the unbanked. It's, it's, it's, in order to do that,

Starting point is 00:46:13 you would need to go to other parts of the country. And I think there are other more interesting efforts in that sense in the Salvador. I'm thinking about financial cooperative in a town called San Saccate, who actually take services to people in far out places in the country. But in terms of Bitcoin Beach, I think they have been a really good part,

Starting point is 00:46:33 a really huge part of the communications effort for the government. And I think they are really rather comfortable well in that position. And I mean good for them. I don't say it as a bad thing, but in terms of exploring widespread adoption or making education to other Salvadorans, so this grows and grows, I don't see it happening not right now. So now let's talk more about kind of the country's financial situation. There has been the situation with the IMF, where the IMF has urged the Salvadoran government to backtrack on the adoption of Bitcoin.

Starting point is 00:47:11 saying that it posed a risk to financial stability. We've had ratings agencies that have cut their ratings on El Salvador due to its precarious finances. And as you mentioned, Bucheli had this plan to issue the world's first government bond backed by Bitcoin. It was supposed to be a $1 billion bond. So describe like a little bit about what that meant and then why, you know, you think it's been postponed. I think the Bitcoin bond was the Buckele government's. strategy to monetize its popularity among the Bitcoin community. They tried to appeal that.

Starting point is 00:47:47 They did this huge over-the-top beach party back in November with Buckele appearing in a kind of metaverse character with an avatar coming down of a UFO with ACDC playing hard on the back. So that's his, you know, his gimmick. He tries to sell himself as this rock star, rock star, superstars, who happens to be ahead of state. But the reality of the country is that the financial needs are bigger than Bitcoin, are precede Bitcoin. I don't agree with people that say that Bitcoin has caused the country to go and to bring off the fault. That's just not true.

Starting point is 00:48:31 I just think Bitcoin hasn't helped as much as they said it would. So the Bitcoin Bon experiment was supposed to go online. It was announced in November. It was supposed to go online on February. I talked to Paolo Ardoino, who is the chief technology officer of Thetter. And, you know, Tether is such a huge part of the crypto industry. But it's also part of a web of companies that include BitFinnis. So they were pretty much ready to go.

Starting point is 00:49:00 They set up an office here in San Salvador. and just things have been stalling and stalling. And what I'm hearing about crypto actors and other actors in the economical scene is that the interest has cooled down. That there's just not so much interest. It was really, from the financial point of view, really weird product. If you bought traditional bonds in El Salvador at the price of the wear now, you would get a lot of more interest or a lot of more benefits than buying. that. And also, it was appealing to Bitcoiners and why would you buy a bond, just from the financial point of view, if you can just buy Bitcoin, if the bet is that the price is going to the moon,

Starting point is 00:49:44 $100,000 to a million, why don't just buy Bitcoin instead of a bond, except that you want to be, you know, charitable and help a government and be a part of it and have like a souvenir. But just from the strict numbers point of view, it doesn't make sense. But the reality of the country is that it has very precarious financial situations. And I thought, because IMF is not just cold-shouldering the Bitcoin initiative. IMF also likes other things. They want transparency mechanisms and they want to put pressure on the democratic side of the present. And everybody knows that IMF has a lot to do with the U.S. departments of Treasury. So there's a political interest in there. And I think Buckelis saw that Bitcoin bonds as a possibility, and they said it pretty clearly

Starting point is 00:50:38 as a possibility to finance the country without the IMF. I mean, when we argue about these things, people say, oh, why do you defend the IMF? Why do you love the IMF? We don't love the IMF. We know who they are. We've read the history and we know what kind of things they do to countries. I just don't know if the alternative of changing from the IMF to private loaners with, with, I don't know what conditions and would let much less clarity. We know what to expect from the IMF. It's not good, but we know what to expect. We don't know what to expect if for loaners would be, you know,

Starting point is 00:51:14 private investors who have bought these bonds. But I also think that the people who are potentially being the targets of this product saw it for what it was, and that's why the interest pulled off. And I, you know, in order for you to go to the market and sell bonds, you need to be oversubscribed. You need to, if you're going to issue a billion, you have to have at least $1.5 billion in offers. I don't know if that, the calculation of the government that they wouldn't have that, or if they would have put a billion for sale and they would have only say like 40% of it,

Starting point is 00:51:50 that would have been perceived as the markets as more, more damaging. then beneficial. So I think this all kind of plays out on why it has been installed. But the reality is that it hasn't happened and there's nothing being constructed in the place where Bitcoin City is going to be. As far as I understand, I think El Salvador also now has an $800 million bond due in January. So given that the Bitcoin bond hasn't happened, what do you think will happen at that point? I think the government will find a way to deal with the January bond. But the thing is, a lot of finalists in the market says that when a country comes to say, well, we're going to be able to make it to January, it's not a thing of if it will default,

Starting point is 00:52:39 but when it will. I mean, you can pass the hurdle in January, but when will that hurdle become again? And El Salvador, it's not just about January. Come September, it starts. an 18-month period where there are several loans that they're being mature and bonds that need to be paid in a situation that is not ideal for El Salvador and that has been accumulated by years old debt, yes, but also poured by the impotrownable spend of the Bukkali administration. So they need to find a way to deal with it. Yeah, the government says there's zero possibility that the country will default. other people, Bloomberg says that after Sri Lanka, El Salvador is the number one candidate to default next.

Starting point is 00:53:24 And this is a trend that we're seeing worldwide. So nobody knows what will happen in the future. I don't think the country, it will probably not default in January because of some signals that we're seeing. But the financial situation does not, I mean, life goes on after that maturity, that the bond matures in January. and the whole situation, the financial situation, is not going to be sustainable. It doesn't look that is sustainable at the long term and at the rate that the Buckele government spends.

Starting point is 00:53:55 So I think that's basically that's his Achilles' heel of his administration. His politically and vulnerable doesn't seem to lose any steam on the polls. His popularity doesn't decrease. But the economic situation is going to be where things crunch, for him and the population, I think. So another issue was that El Salvador reportedly spent about $100 million on Bitcoin to buy a total of it's slightly less than $2,400 Bitcoin's. Now the value of those bitcoins is about $47 million, so it's a loss of more than $50 million.

Starting point is 00:54:33 And as we've been talking about, you know, El Salvador is deep in debt. Its own dollar bonds are treating at $0.35 on the dollar. So what impact do you think that the loss and the value of the Bitcoins will have on this whole financial situation? The first thing I would say with that, Laura, is that we aren't really sure if we have spent the $100 million in Bitcoin. I mean, what we have from President Buchlear tweets that says we bought Bitcoin, but we never have seen a receipt. We don't have the address of the wallet. We don't know if he has sold Bitcoin. And you remember he saw, he actually built a pet hospital.

Starting point is 00:55:14 And he said that he had done it with the earnings of Bitcoin. And maybe I'm just naive and I don't know how well this works, but how can you make profits of Bitcoin if you're not selling the coins? So I don't know. He's explained that it was some sort of accounting trick. But then the finance ministry said, no, for building the hospital, we did sell some coins. So you have bought this amount of points. close to 2,400,

Starting point is 00:55:40 how many of those did you sell to build the hospital? Have you sold anymore? I mean, this is sold a huge nebulous thing, which, again, is anti the principles of Bitcoin of transparency and open sourcing. And I mean, we should be able to know what the government is spending on. We should be able to see what the government is spending our money on because people like to say Buckele has bought now.

Starting point is 00:56:04 Bokele has not bought. It's not the money. It's all our money. tax pays or loans that we will eventually have to pay as a country. So that's the first thing I would argue. But in the event, I think in the unlikely event, Buckel has bought all the Bitcoin that he has announced to have bought. The other thing is a matter of priorities.

Starting point is 00:56:26 It's a country where a fourth of the population is poor. Is it morally correct to buy Bitcoin, which is going to be an investment in the future, but it's taking away with resources from projects that are needed now, not in the future. I don't know, maybe this is why I always agree. Maybe Finland should buy Bitcoin and experiment with that. Maybe, you know, Sweden or Switzerland, they should experiment with that. But a country like El Salvador were a couple of weeks ago, we had floods in the emergency area of the largest public hospital in the country, or where, I know, hundreds of people immigrated to the United States.

Starting point is 00:57:05 States every day because they don't have economical opportunities here or there are hundreds of students thousands of students don't get admitted because there are not enough positions in the university in the national university every year or teachers

Starting point is 00:57:21 are in these in these conditions. Is a country with those conditions supposed to be spending on an speculative asset that might or might not come reap benefits in the future? I think that's a question worth asking. So in addition to the values of the bitcoins that El Salvador owns losing their value, obviously

Starting point is 00:57:43 now that Bitcoin is legal tender in El Salvador, the loss in the value might even affect how Salvadorans perceive Bitcoin, or maybe it's just something that really isn't on their radar even though it has technically been adopted as legal tender. So do you feel that seeing the loss in the value of Bitcoin has had any material effect on how Salvadorans perceived Bitcoin? I was in a small town, maybe 20, 30 kilometers away from San Salvador a couple of weeks ago. And I was talking to a farmer who was, he has a couple of, a piece of land where he cultivates like bell peppers and tomatoes and things like that. So I asked him, he was an immigrant. and he spent from 1999 to 95 in L.A.

Starting point is 00:58:33 His kids are now in California. And I said, hey, what do you think about Bitcoin? And he said, I don't really like it. I'd rather have dollars. And I think I made a good decision now that Bitcoin is really low. And I was really surprised. He's a 76-year-old man who said, kind of saying I dodged a bullet there because I didn't get into it. It's there.

Starting point is 00:58:55 But when I usually go. around the country because I'm so deep into this crypto coverage, I ask around, kind of tongue in cheek saying, hey, do you take Bitcoin, waiting out what people are going to say and some of their eyes and say, hey,

Starting point is 00:59:13 no, thank you. Or in some of their tries, oh, yeah, we haven't gotten around to accept me yet, but people really, it's legal tender and it's mandatory according to a law, but it was never enforced like that. And that's an important person.

Starting point is 00:59:29 I think an important part of why it's not enforced like that because the government should be able to, could do it. And they have proven they have this authoritarian pain that could make us all accepted. But they saw that this is unpopular. And Buckele is really concerned about his polls. And he said, if I try to impose, do you imagine that dystopia of policemen enforcing people to accept Bitcoin because this will liberate you? this didn't really happen. Bokele himself found a lot of opposition from the crypto community on the part of their being mandatory and imposed currency.

Starting point is 01:00:06 So they didn't really enforce it. And people nowadays kind of just brush it off. I mean, yeah, it's legal, tender, it's mandatory, but almost nobody does transactions in it. So yeah, whatever. That's kind of the basic attitude. So in general, what would you like, the Bitcoin community to know about the difference between the perception of Bitcoin's impact

Starting point is 01:00:30 in El Salvador and the reality? If it does something for the Bitcoin community, is that it enforces the fact that this should come from the people. Isn't this a movement that comes from activists and people concerned about a dossier state and privacy and people who are being prosecuted by the states and trying to separate and gaining more freedom from the government? So what happens when a government is the enthusiast? Well, El Salvador is the only example.

Starting point is 01:01:01 I think I don't know how things are going in Central Africa. I mean, imagine that that's a whole different reality. But in here, it doesn't really work when it is imposed. Maybe try and do efforts of people adopting it voluntarily, willingly, and not because we have to. And the other thing is that there's a whole construct of Bitcoin being this tool for financial freedom in the world. It might be the case in other places. But what I always say is financial freedom does nothing for Salvadorans. If we don't have political freedom, freedom of expression, we are now the country with the most, with the highest per capita incarceration rate.

Starting point is 01:01:40 Because the government has arrested like 50,000, close to 50,000 people in the last three months. Is the freedom the Bitcoin promises only financial, only monetary? Are we going to be put against a corner with all of our other liberties taken away, but we will have Bitcoin. So that's good and we should be tangled for it. That's the thing. Bitcoin cannot fix us up over because the problems are bigger than this. And I really would encourage the Bitcoiner and the crypto community to be more skeptic about the government. And as you like to say, don't trust what the government is saying, but verify.

Starting point is 01:02:18 And so as we said at the beginning, when you started covering all this, you didn't really know anything on Bitcoin and you've had to go through this big learning curve. So I know obviously so much of your coverage has been about El Salvador and its relationship to Bitcoin. But I'm sure along the way you've just learned about Bitcoin itself. And I was wondering if we can just separate out everything that we've been talking about El Salvador and what's been happening with Bitcoin. If you were to just like a Bitcoin, if you were to just like a Bitcoin, What is your opinion of it now? I think it's an interesting technology. I think especially if you were to do it with transparency and you have a clear goal and you have a controlled environment. I mean like a controlled way of doing it, not rushing into it or not spending like a madman who caught the crypto fever. I think it has interesting possibilities. Is the possibility of sending remittances with lower fees than the traditional service interesting and important for Salvadorans? Yes, it is.

Starting point is 01:03:26 Should we invest or explore the blockchain technology for storing digital information and for digitizing the public records? I think, yes, we could. It's interesting. I'm not saying it's going to. Again, I don't want to deny how people in other latitudes use it. But the whole experience of how it has happened in El Salvador, it's a hard trauma to recover from. And not only just for me, but for all subordinates. I've talked to people who are enthusiastic, like good people who are really into and enthusiastic about Bitcoin.

Starting point is 01:04:01 And they go out into the country science and try to educate people to use Bitcoin. And they say that before the Bitcoin law, the main problem was that people heard Bitcoin and thought about a scam. nowadays they say that after the bitcoin law the problem that they encounter is that they talk about bitcoin they think bitcoin is chivo they think bitcoin is going to drain their money because of what their prior experience with chivo has been so i think there's also a really interesting lesson of how governments can help bitcoin maybe stay out of the way if you don't know how to do it properly i think it's early stages maybe i don't know i have a couple of Bitcoin wallets and I still have like the equivalent of $10.

Starting point is 01:04:49 If someday in the future I'm able to buy a Tesla with it, I'm going to be very grateful of Bitcoin, but we'll have to wait and see. All right. Well, this has been an extremely illuminating conversation. I really appreciate you coming in the show. Where can people learn more about you and your work? I'm on Twitter. My handle name is like my last name, Raudas.

Starting point is 01:05:13 and I'm verified, so you shouldn't be able to use me, and I spend too much time in Twitter, so I would love to connect with your audience and your followers. Please, if you are interested in about Oswald, we have a newsletter in English that's called El Faro English, and you can learn more about all of the complexities of this tiny, but interesting nation in Central America, and we also cover other countries of Central America,

Starting point is 01:05:41 and yeah, I'd be more than willing to continue this conversation. And thank you so much for having me on your show, Laura. Great. Well, it's been a pleasure having you on Unchained. Thanks so much for joining us today. To learn more about how Bitcoin is impacting El Salvador, check out the show notes for this episode. Don't miss our daily roundup of the biggest news in crypto on the Unchained newsletter.

Starting point is 01:06:02 Visit Unchainedpodcast.com to subscribe. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Matt Pilchard, Juan Aranovich, Pam Majumjar, Shishonk and CLK transcription. Thanks for listening.

Unchained - Bitcoin in El Salvador: Why Would Cypherpunks Support Government-Mandated Bitcoin Adoption? - Ep. 375

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