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Fintech events are rarely famous for their theater, but last week’s Miami Bitcoin conference was an exception. It was a bitcoin-only conference. Delegates were unable to pay the entrance fee of $ 1,499 (£ 1,050) using bitcoin, however. Their famous bitcoin pizzas were cash only.
Still, most speakers, from skateboarder Tony Hawk to boxer Floyd Mayweather, repeated the mantra that “bitcoin fixes everything.” That is, as long as you don’t want to spend it.
El Salvador’s President Nayib Bukele was also present to proclaim bitcoin as the Central American country’s new official currency. Unlike most bitcoin hodlers, Bukele expects his 6.5 million subjects to spend their bitcoin every day. All Salvadoran traders are now legally required to accept Bitcoin.
Bitcoiners normally express their displeasure with an authoritarian government or any other type of government. But the president’s news was a treat, causing the crypto markets to surge.
Bukele is an autocrat from the TikTok generation. When invited to speak at the United Nations General Assembly in 2019, he addressed world leaders while tweeting a selfie on the podium and announcing that future sessions should be limited to an appeal. Skype.
Despite the dismissal of the country’s entire Constitutional Court and Attorney General shortly after taking office, and the use of the military to tip the votes in his favor, Bukele still enjoyed a approval rate greater than 90%.
While some governments are cracking down on bitcoin harshly, Bukele isn’t the only populist leader to turn the tide and add bitcoin laser eyes to his Twitter profile. President Rodrigo Duterte of the Philippines has approved plans for a “Crypto Valley of Asia,†with its own airport and power plants for mining crypto.
Like Bukele, the Philippine president regularly draws criticism for authoritarian leadership, including extrajudicial killings and systemic human rights violations. For the two leaders, the repression of civil liberties was pushed in the name of public order.
Faced with a huge public debt crisis, the Caribbean island of Puerto Rico has also emerged as a hub for crypto developers, drawn by short-sighted tax incentives and light regulation. Like Puerto Rico, El Salvador is struggling with its finances.
Bukele is seeking a $ 1 billion loan from the IMF to help his country overcome the pandemic and finance its anti-crime campaign. But for the IMF, Bukele is not a safe pair of hands. They will be concerned that the country’s “Bitcoin Law” was developed by 27-year-old crypto-investor Jack Mallers of Chicago. By giving bitcoin a par with the US dollar, El Salvador’s loans could be put on hold by the US which is already facing a border crisis from Salvadorans fleeing poverty.
The dollars sent home by the 2 million Salvadorans who already live in the United States represent more than 20 percent of El Salvador’s GDP. Bukele hopes a switch to bitcoin will help his country recoup the big chunk swallowed up by foreign money issuers.
Bukele says this change will allow the unbanked majority in the country to access credit, savings, investments and secure transactions. He also promised “immediate permanent residence for crypto entrepreneurs” without paying property or capital gains tax. But recent research from the University of Northumbria suggests a downside to this plan.
Providing these kinds of tax breaks means countries like El Salvador will continue to struggle to raise funds for basic services like healthcare and education. Crypto-rich individuals will grab the most desirable properties, while touting the benefits of tax evasion through cryptocurrency as a way to help locals. The underlying poverty issues in many cases could be addressed with tax systems that target the entering crypto-rich.
There is little that Bitcoin can do to address the structural issues that prevent Salvadorans from accessing financial services. Up to 49% of adults without a bank account simply don’t have the documents to open them. Others may not have a stable income to justify it. Bitcoin alone cannot solve any of these problems.
Bitcoin is a woefully inefficient payment system with sky-high fees. But the Salvadoran project aims to use Maller’s payment platform, Strike, which he described as a “bitcoin neo-bank” and which has not been tested on a large scale. Bitcoiners generally hate centralized banks. After all, bitcoin was designed like electronic money, with no need for banks or middlemen. But Bitcoin can only handle 7 transactions per second. VISA, in comparison, processes around 1,700 payments per second.
For everyday use, bitcoin cannot function without some sort of bank. But the question remains whether the savings of millions of the world’s poor are best managed by the Bank of Jack, or a real bank.
Latin America is no stranger to hyperinflation. But the price of bitcoin can drop by half in a day or two. This has been done twice in the past 18 months. Plans have been put in place for a $ 150 million trust in a state bank, but this is unlikely to provide the cushion needed if another derogatory tweet from Elon Musk drags crypto prices down.
In addition to living by the sea, Bukele also offers the country’s volcanoes to incoming bitcoiners. El Salvador’s national geothermal power company is dedicating a 95-megawatt facility to “green†bitcoin mining. But bitcoin mining has antisocial side effects, including energy shortages and price increases for everyone.
El Salvador does not produce enough energy to meet its current needs, importing 25% of its electricity from elsewhere in the region. According to the World Bank, the high cost of electricity in El Salvador is a major obstacle to growth and a factor of poverty. Bitcoiners will only make matters worse.
To fill the holes in El Salvador’s finances, Bukele has no options beyond US demands to restore an “independent judiciary, a commitment to the separation of powers and a strong civil society.” [that] are essential components of any democracy â€.
El Salvador is ravaged by poverty and gang violence with one of the highest murder rates in the world. Betting on bitcoin – a payment method favored by criminals – as the country’s official currency, is unlikely to solve this problem.
Pete Howson is Senior Lecturer in International Development at the University of Northumbria
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