El Salvador is the unlikely leader for sovereign adoption of Bitcoin as national currency
El Salvador has been at the forefront of many of the world’s most significant social movements, and Bitcoin is no different. In late 2013, El Salvador’s Ministry of Finance announced that it would be working with two local banks to launch the first national banknotes that would comprise a digital currency. At the time of the announcement, the country had no Bitcoin ATMs, but the government has since been working on establishing such facilities.
The province of El Salvador has a long history of misunderstanding the concept of money, so to speak. We have been an important player in the global economy for decades. We operate almost 400 factories and workshops, which are producing products and equipment for the automotive, agricultural, pharmaceutical and chemical industries. With the help of these industries and the services they provide, the country is economically stable, and for the last few years we have been experiencing a positive economic growth.
Powers on … – is a monthly opinion column by Mark Powers, who, after working for the SEC, has spent most of his 40-year legal career handling complex securities cases in the United States. He is now an associate professor at Florida International University College of Law, where he teaches blockchain, cryptocurrencies and regulatory affairs.
When I attended the Bitcoin 2023 conference in Miami a few weeks ago, there were several things that seemed interesting and important to me. While many others have already covered the conference, I’m going to focus on a few observations or events that I think are important to the cryptocurrency and blockchain space.
First of all, there were a lot of church believers at the conference or people who were interested in learning about crypto currency and Bitcoin (BTC). Miami Mayor Francis Suarez opened the festivities by recalling that Miami was the first city in the US to post a 2008 bitcoin white paper on its government website. As a New Yorker now living in Miami and teaching law students blockchain law, I am proud.
When the moderator asked how many people in the audience had attended this bitcoin conference in previous years, many of the 12,000 attendees raised their hands in the air. They were owners, developers, investors and entrepreneurs with a long-term vision. And they had a strong libertarian bent, as evidenced by the warmly received opening statement of Ron Paul, former senator from Texas, who said that authoritarian politicians run our government and the Federal Reserve and take away our freedoms and rights. Wow! I didn’t realize Paul had become so radical, or had already become so.
Michael Saylor, CEO of MicroStrategy, said bitcoin is the lifeblood of the world. Draper Fisher Jurvetson founder Tim Draper said bitcoin stands for freedom and trust. I like the Winklevosses, who used the metaphor that bitcoin is software and gold is hardware, and delighted the crowd by saying that the US dollar is the biggest shitcoin of them all. Jack Dorsey, CEO of Twitter, has concluded that the Internet needs its own currency.
It should also be noted who was not present: Suits and infidels, so to speak. Marginalizing or eliminating financial intermediaries, capitalists and their minions was the real promise and main goal of blockchain implementation, according to Satoshi Nakamoto. Among those absent are traditional commercial and investment banks, venture capital and private equity firms, investment banks and traditional hedge funds, as well as companies and professionals such as law and accounting firms that have helped them catch up – or find a way to take ownership of blockchain and, by extension, consumers and the public via enabled blockchain.
This proved to be very refreshing for me. It was similar to the exciting programs I attended in 2018, when the same absent players called bitcoin a hoax or scam and cheered on the price’s collapse this year. While not all 2018 attendees understood the rules of the road to creating mass adoption or how best to do so, there was a sense of sincerity, great camaraderie and passion for the efforts and speakers – understanding that there is a large, non-banked part of the world that can benefit economically and politically from this decoupled financial system that BTC can create. They are the ones who understood that swelling inflation was devaluing the wealth of citizens in a stealthy and imperceptible way. As Charles Cascarilla, co-founder and CEO of Paxos, said at the Bitcoin 2023 conference, bitcoin is not only a good idea, but also a legitimate idea for an alternative financial system.
Crypto-currencies are legal
I also find interesting the lack of discussion about the legitimacy of cryptocurrencies as investments, both at the conference and elsewhere. I remember once being on a panel advocating for blockchain and cryptocurrencies, and one of the panelists, a former Goldman employee, was against cryptocurrencies and said he would only accept shares or promissory notes to invest in a blockchain startup.
Remember how non-believers and those who prayed for BTC’s demise pointed out that owning cryptocurrencies was a fool’s errand because the currency doesn’t entitle you to dividends as an investor, rights as a shareholder, rights to the profits of a startup or ecosystem, or management rights? Amazingly, this concern has all but disappeared from the conversation about cryptocurrency now that the market is capitalized at about $1.2 trillion and cryptocurrency futures are traded on the Chicago Mercantile Exchange and the New York Stock Exchange’s parent company, the Intercontinental Exchange. There may be some merit in the fact that DeFi lets investors earn interest by lending and deploying their coins, and some merit in the growing popularity of proof of stake rather than proof of work.
El Salvador
The highlight of the show, however, was not Tony Hawk or the woman to whom Dorsey seemed to be yelling from the front row about Twitter’s privacy policy. It is the young president of the Republic of El Salvador, Nayyib Buquete, from the most populous country in Central America. He spoke via video link at the end of the conference. Since 2001, El Salvador has abolished its own fiat currency, the colón, and adopted the US dollar as its official currency.
Bukele announced at the conference that the country would adopt bitcoin as its second national fiat currency, alongside the US dollar. A few days later, the legislature passed a new law to that effect. In Miami, he said the implementation would create jobs and contribute to the financial inclusion of thousands of people outside the formal economy. (Reportedly, about 70% of El Salvador’s adult population has no bank account or credit card).
Instead of simply allowing all merchants to accept BTC for goods and services in commercial transactions, the law only makes an exception for businesses that do not have the technology to do so. It also removes the capital gains tax on BTC exchanges for transactions to give the digital asset more stability. Finally, there will be a development bank that will hold $150 million in BTC so that operators can immediately convert BTC into US dollars. Double wow!
Related: Adopt a standard for bitcoin? Salvador’s going down in the history books.
Today, many countries and municipalities are experimenting with blockchain options beyond financial prospects, including for recording supply chains and real estate transactions. Examples are Sweden, Georgia, the United Arab Emirates and, with the help of the International Monetary Fund, Bolivia, Peru and Argentina. But no country has ever equated computer code developed assets with the US dollar!
It will be interesting to see how the rest of the sovereign states react. I am already reading studies by economists saying that El Salvador’s economy will collapse as a result of this law. And the IMF is surrendering. Let’s see which country will be next. I predict that in the years to come, many will allow this dual system to coexist in these countries. That’s what I’ve been predicting since 2018.
This article contains no investment advice or recommendations. Any investment or business transaction involves risk, and readers should do their own research before making a decision.
Mark Powers is currently an associate professor at Florida International University School of Law, where he teaches blockchain, cryptocurrencies and regulatory affairs, and financial technology law. He recently retired from Am Law 100, where he developed both a national securities litigation and enforcement practice group and a hedge fund industry practice group. Mark began his legal career in the Enforcement Division of the U.S. Securities and Exchange Commission. During his 40-year career, he has been involved in numerous lawsuits, including Bernie Madoff’s Ponzi scheme, the recent presidential pardon, and Martha Stewart’s insider trading lawsuit.
The opinions expressed are those of the author and do not necessarily reflect the views of Cointelegraph, Florida International University College of Law or its affiliates. This article is intended as general guidance and is not, and should not be construed as, legal advice.
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