The inglorious Bitcoin experiment- here’s why El Salvador’s BTC punt has been a failure

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  • President Nayib Bukele forced Bitcoin on his people, but they seem to have refused to heed his call in what is possibly the biggest BTC experiment gone wrong.
  • The idea may have been noble (it probably wasn’t), but the execution greatly failed the leader who has been described as a dictator since he took power.

In June last year, one of the biggest announcements in Bitcoin’s history was made at the Bitcoin Miami mega-conference. A tiny Central American nation’s president revealed that he was going to make BTC legal tender in his country. The announcement was met with elation from the thousands who had congregated in Florida for the event (which is just as famous for “Fuck Elon” chants as for the announcement).

Swept by the jubilation, not many questioned how the move would work. Would Salvadorians be able to contend with $3 on average for each transaction? Would the 10 minute wait time for each transaction not pose a challenge for day-to-day transactions? Would Salvadorians be able to access the infrastructure to transact Bitcoin, namely smartphones and Internet connection? What about the businesses – would they be comfortable getting paid in a currency that can lose (or gain) 10 percent of its value overnight?

President Nayib Bukele was vague about how he would roll out BTC in his country, maybe deliberately so. Weeks later, it became obvious that he intended to force it on people, at least in part. He bulldozed legislation through parliament that required all businesses to accept BTC, whether or not they wanted to. He then incentivized citizens to download the state-sanctioned Chivo wallet by giving them a $30 sign-on bonus.

The Bitcoin Law draws criticism even from BTC maxis

The success of the Bitcoin experiment can be gauged by a number of diverse measures, from whether it has seen any adoption by the people, to whether it has made life better for Salvadorians to whether it has long-term viability as a currency. But first, a brief history of the Salvadorian monetary evolution.

The Central American country’s economy was based on the colón, its local currency from 1892 up until 2001. Around this time, Salvadorian leaders made the decision to switch to the U.S dollar at a time when other neighboring countries like Ecuador had made the move.

In the two decades since, El Salvador enjoyed economic prosperity, with the average inflation being at 2 percent, and mortgage rates at 7 percent. This was, of course, not down to just using the U.S dollar.

Then came Bukele who took office in May 2019. His goal was clear – he’d introduce his people to Bitcoin. After announcing in a BTC event in the U.S that he’d make the crypto legal tender, he passed the Bitcoin Law.

This was the first problem with Bukele’s Bitcoin experiment – forcing it on people. The law was draconian – so much so that even BTC maximalists called him out.

Vitalik Buterin was among those in the wider crypto community that criticized the move.

“…making it mandatory for businesses to accept a specific cryptocurrency is contrary to the ideals of freedom that are supposed to be so important to the crypto space,” Vitalik wrote on Reddit.

The Bitcoin lie

Moving on from the Bitcoin Law, Bukele made BTC legal tender. There were some hiccups with the wallet at launch, but those were quickly resolved. The president has been on Twitter since then touting the uptake of Bitcoin by the people and calling it proof that BTC can be used as legal tender.

But a closer look reveals that it’s not as rosy as advertised. Protests have broken out in the country over the Bitcoin Law, with the protesters saying they don’t want Bitcoin shoved down their throat.

If this wasn’t definitive enough, studies conducted in the country have revealed that a majority of Salvadorians are against BTC as legal tender. One such study found that 7 in 10 people disagree or strongly disagree with the move. A worrying 9 out of 10 did not have a clear understanding of BTC and 7 in 10 said that the Bitcoin Law should be repealed.

To appreciate the significance of the study, you have to keep in mind that Bukele is extremely popular in his country. Despite dictatorial tendencies, the people love him. So for 70 percent to disagree with him, it shows just how opposed to the move they are.

UCA University, which conducted the survey, summarized it,

What we can see in this survey, in addition to this broad rejection of the implementation of bitcoin as legal tender, is that for the first time we found a significant disagreement between the population and decisions being made by the Legislative Assembly and the president.

But even if the people wanted BTC, would it be feasible as currency?

As per BitInfoCharts, BTC fees have averaged $2.5 since July last year. In the five months before that, they averaged $10, even shooting up to over $40 around April and May. For a country that’s still struggling with poverty, such charges can’t work. And then there’s also the slow transactions.

But in comes the Lightning Network, ready to solve all these challenges. And while many claim this is what El Salvador relies upon, it’s not. The country’s “Bitcoin system” isn’t even on Bitcoin in the first place. The payment infrastructure is built on Algorand, a completely different blockchain.

CryptosRUS notes:

Little do people know that when El-Salvadorians buy a cup of coffee with Bitcoin via the Chivo app, that is being done via Algorand payment rails. There are different parties involved, but Algorand underpins the app.

El Salvador can no longer secure loans from the IMF, the World Bank has refused to cooperate on the BTC initiative, around 70 percent of the people are against BTC as legal tender – all this so that Bukele could have his way. Was it worth it?

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