Can the ideal currency of the cyberpunk world be realized in El Salvador?

This article is authorized to be reprinted from BlockBeats, original article here.

Footnote 1: On the afternoon of June 9th, the Salvadoran Parliament passed a bill to recognize Bitcoin as legal tender.

Footnote 2: Cyberpunk is the commonly used translation in Simplified Chinese, while in Traditional Chinese it is translated as "Electric Control Rebels." More details can be found in this article.

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In the ideal world of Cyberpunk, what is the best choice for legal tender? Bitcoin may be the top contender.

Recently, this Cyberpunk dream is closer to reality than ever before.

On June 6th, Salvadoran President Nayib Bukele announced at the Miami Bitcoin 2021 conference that he would submit a bill to the country's parliament next week to make Bitcoin a legal tender in the country.

Once approved, this bill would make El Salvador the first country globally to adopt Bitcoin as legal tender.

Subsequently, President Bukele also retweeted a tweet from the "King of Topics" in the crypto world, Justin Sun, CEO of TRON, about "crypto investors and entrepreneurs moving to El Salvador," analyzing the four major benefits El Salvador offers to crypto entrepreneurs:

1. Suitable climate, world-class surfing beaches, and waterfront property sales;

2. One of the few countries in the world with no property tax;

3. No taxation on Bitcoin profits as Bitcoin will become legal tender;

4. Crypto entrepreneurs will immediately obtain permanent residency.

This news has excited the crypto industry, with Changpeng Zhao, CEO of Binance, and Justin Sun responding remotely, causing El Salvador-related news to dominate the crypto circle on Twitter for a while.

However, most people's first reaction is, what does El Salvador look like?

Redefining El Salvador

El Salvador, a small coastal country in northern Central America, covers an area of over 20,000 square kilometers, roughly equivalent to 1.2 times the size of Beijing, with a population of around 6.7 million, about one-third of the permanent residents of Beijing.

As a "lower-middle-income country" with agriculture as its economic backbone, El Salvador has experienced a 12-year-long civil war, known for poverty and gang violence. It had over 3,400 murders in 7 months, earning the reputation as "one of the most dangerous countries in the world."

Economically, El Salvador does not have its own independent sovereign currency, and has been using the US dollar for settlements, with the issuance and regulation of the US dollar entirely in the hands of the United States. El Salvador has been dependent and compliant, making true independence unattainable.

Now, with the remarkable statements of the new president, this small country has made global headlines and gained close attention from the cryptocurrency industry.

Following the news broadcast, El Salvadoran netizens expressed appreciation for the new president on Reddit. A user with the ID RussianRadium posted that this progressive president has brought change to El Salvador, redefining the country's international image.

Through this user's description, we may catch a glimpse of the current situation in the country:

El Salvador's President Nayib Bukele, 39 years old this year, leads an organization mainly composed of young professionals who are tired of the corrupt system that has kept El Salvador impoverished and underdeveloped for the past 30 years. Shortly after taking office, he dismissed the Attorney General who had been protecting other corrupt politicians and five corrupt local judges. Within his first month in office, the Salvadoran Congress approved new education and infrastructure financing plans and passed a series of laws to restrain the predatory business elites who had bribed politicians in the past. Many large infrastructure projects are expected to receive congressional approval soon, including the construction of a high-speed railway and a new international airport.

Currently, one of the largest projects under construction in El Salvador is "SurfCity," primarily focused on building roads, power, and communication infrastructure along the Salvadoran coastline to assist small and medium-sized businesses. This led the International Surfing Association (ISA) to decide to host the World Surfing Games in El Salvador, where the winners will earn the opportunity to represent El Salvador at the 2021 Tokyo Olympics. Bitcoin is already widely used by small businesses in El Salvador, especially in El Zonte, a beach town in the southeast that is popular with international tourists.

I know most people think of El Salvador as a disaster zone, and we have been in the past. However, this country is undergoing tremendous change... El Salvador is no longer one of the world's top 10 most violent countries. The number of murders, which used to be 12-15 per day, has decreased to nearly 3-4 per day since Bukele took office, and our economy is expected to grow steadily.

... Using Bitcoin as legal tender is big news for El Salvador. I assure you that the Congress will pass this bill. I can't give you an exact date, but the Economic Committee may receive all the papers on Bitcoin this week for study and discussion.

The Cyberpunk Bitcoin Beach

Surprisingly, even before the president's announcement, Bitcoin had already become one of the payment methods on the El Zonte coast in El Salvador. This initiative is known as "Bitcoin Beach."

El Zonte is a rural village on the Salvadoran coast with a population of 3,000 residents, known as a paradise for surfers due to its beautiful beaches. Amid the COVID-19 pandemic, El Zonte found its unique path through the Bitcoin economy.

According to Forbes, an anonymous donor in El Zonte initially purchased Bitcoin at a price of 5-10 cents and stored it on a USB drive for several years. In early 2019, after retrieving the wallet password, the donor donated a six-figure sum in Bitcoin to El Zonte.

Subsequently, this donor collaborated with El Zonte volunteer Michael Peterson to use the donation to improve the lives of El Zonte residents, with one condition: Michael Peterson could not convert the Bitcoin into fiat currency. The residents of El Zonte had to learn to use Bitcoin itself to create a Bitcoin economy. This was the birth of the "Bitcoin Beach" project.

One common criticism of Bitcoin payments is the high fees and slow network processing speed. The "Bitcoin Beach" project faced this challenge and began looking for new solutions. "When transaction costs rise, we turn to the Lightning Network," said Michael Peterson, the founder of "Bitcoin Beach."

The Lightning Network is a second-layer payment protocol that runs on top of the Bitcoin network, enabling instant transactions. "Bitcoin Beach" chose digital wallets as payment tools, allowing local residents to use the Lightning Network to purchase anything from Mexican rolls, large items to paying water and electricity bills.

The Challenges of Bitcoin Payments

Whether the success of El Zonte can be applied to the entire El Salvador is a question the President Nayib Bukele will face in the future.

Currently, the image he portrays on Twitter is far from that of a stable head of state. After garnering global attention with his Bitcoin remarks, it's clear that this president has taken a liking to surfing online.

He changed his Twitter profile picture to the essential "laser eyes" of the crypto community, frequently retweeting responses to his positive comments, and referring to El Salvador as the "Land of Freedom." From his tweets, it seems that using Bitcoin as legal tender is a smooth path, with everything in place, just waiting for the wind to blow.

However, amidst the excitement, shadows inevitably lurk.

One of the most common issues in discussions about Bitcoin payments is the drastic price fluctuations of Bitcoin. When residents outside El Salvador convert their assets into Bitcoin and then transfer them back to their families' accounts via the Lightning Network, how will hardworking residents cope if the Bitcoin price plummets by 30% in a short period?

Furthermore, financial institutions like Wall Street often categorize Bitcoin more as a bulk "commodity" than a currency, positioning it close to "gold" and "oil" in the financial system. How will local residents in the incomplete financial system of El Salvador conduct daily transactions with "oil"?

Internally, this new president faces no shortage of criticism. Reddit user mschweini stated that Bukele's attitude leans towards populism, as he is replacing El Salvador's judiciary with his close allies. In the prevalent environment of gangs in El Salvador, Bitcoin may be more conducive to illicit activities like the black market and money laundering.

As a war-torn country with frequent internal conflicts, Bukele's political career has just begun for three years, and the legal status of Bitcoin is intricately tied to his personal political stability, bringing various uncertainties to the prospects of Bitcoin in El Salvador.

Externally, El Salvador faces significant challenges in using Bitcoin as legal tender. It's worth noting that El Salvador is not the first country to consider issuing a sovereign cryptocurrency.

In February 2018, the sovereign Pacific island nation, the Marshall Islands, announced the issuance of the world's first sovereign legal encrypted digital currency, "Sovereign (SOV)." Reportedly, this sovereign digital currency would circulate alongside the US dollar in the country, and the Marshallese National Parliament had already passed this resolution.

However, this resolution was not well received internationally.

In 2018, financial institutions like the International Monetary Fund (IMF) and the US Department of the Treasury questioned and criticized the Marshall Islands for this decision. In May 2020, the International Monetary Fund issued an official statement again, opposing the Republic of the Marshall Islands' forthcoming issuance of the national digital currency SOV.

Similar to the Marshall Islands, Venezuela, heavily reliant on foreign aid, attempted to self-rescue through the issuance of the national sovereign encrypted currency "Petro," but ultimately ended in failure. Relying solely on Petro did not truly save Venezuela's troubled economy.

The rocky roads of national encrypted currencies in the Marshall Islands and Venezuela raise the question: Can El Salvador, another small country, pave its path to independence with Bitcoin?

On June 8, the Minister of Commerce of El Salvador stated to the media that the use of cryptocurrencies would not replace the legal status of the US dollar, indicating no economic de-dollarization. Currently, the US dollar remains the legal tender in El Salvador, and parties involved can choose Bitcoin payments when willing, with the US dollar still serving as the pricing standard.

It seems that Bitcoin still has a long way to go to help El Salvador become a country with independent currency and sovereignty.