Bitcoin: the country where you can buy almost anything with cryptocurrency

The price of the main cryptocurrencies continues to plummet this week, including the billionaire losses of the largest of them, bitcoin – the value of each unit went from almost R$ 290 thousand in December 2021 to R$ 109 thousand on June 16.

This collapse has affected thousands of investors around the world, such as the government of El Salvador. The small Central American country has poured millions of dollars in bitcoins, in addition to having legalized transactions nine months ago, encouraging the population to use cryptocurrency on a daily basis.

Jewelry, food, gasoline and even real estate. Yes, you can pretty much buy anything with bitcoin in El Salvador. In fact, making these transactions with street traders and major retailers in the country is a remarkable experience.

In addition to illustrating how far bitcoin has come since its mysterious emergence in 2008, Salvadoran President Nayib Bukele’s decision to legalize cryptocurrency transactions represents, in practice, that all companies must accept them in payments, as is the case. with the other currency adopted in El Salvador, the US dollar.

But the decline in the price of cryptocurrencies increased criticism and questions about the public policy of investing almost US$ 100 million (about R$ 505 million) in bitcoin – with the Salvadoran president celebrating on Twitter with each acquisition.

Currently, the 2,300 bitcoins bought by the country are worth half of what was paid for them, but the finance minister has countered the criticism by saying that there is an “extremely low fiscal risk” for the country.

Despite criticism and mounting pressure to reverse its cryptocurrency policy, the Salvadoran government appears determined to keep the measure and other ambitious plans for cryptocurrency in the country.

‘Bitcoin Beach’

The place where the bitcoin movement began in El Salvador is known as El Zonte, a small surfing and fishing town on the country’s southern coast. Here, in 2019, an anonymous donor gave a group of cryptocurrency fans the first of many large bitcoin donations.

No one knows for sure who the donor or donor is, but everyone knows that the deal was as follows: the city could keep the digital currencies on the condition that they were not converted to dollars.

The idea was to create the world’s first circular bitcoin economy, where people can be paid in bitcoin and live within it.

It’s a radical idea. In the rest of the world, bitcoins can be used for online purchases, but apart from a small number of hipster cafes or specific projects, it is not possible to use them on the streets.

El Zonte has so far received around $350,000 from the anonymous benefactor, a significant sum for this poor, touristy town, now known as Bitcoin Beach.

Katerina Contreras was one of the first beneficiaries.

Two years ago, during the pandemic, he was offered a lifeguard course, and it seemed like a good deal.

The organizers paid for transport and food for the trainees in bitcoin. In addition, “for six months we worked as a lifeguard and received our salaries in bitcoin,” she says.

Some businesses in the city say they’ve seen a 30% increase in commerce as bitcoin tourists, fueled by YouTube’s cryptocurrency channels, have been lured by the novelty of spending their digital currencies on vacation.

But the adoption of bitcoin as a currency remains erratic.

My travels have led me to conclude that the further you are from Bitcoin Beach, the less likely you are to be able to buy things in the digital currency.

In Bitcoin Beach, just over half of the businesses I encountered accepted bitcoin, but drive 80 minutes north to the capital, San Salvador, and that rate is no more than a quarter of the trade.

Chivo portfolio

The government says it has no plans to force companies to accept bitcoin, even if they are required to do so under the country’s Bitcoin Act. So far, the authorities’ measures have been restricted to offering incentives.

Money still reigns in the country, where more than half of Salvadorans do not have a bank account. But President Bukele poured $200 million in public money into a subsidized bitcoin wallet app called Chivo.

Anyone who downloads the app receives $30 in Bitcoin for signing up, which may explain why it has been downloaded 4 million times in a country of 6.5 million people.

But many people use the app for dollar transactions, not bitcoin. It is often used in this way, for example, by people who work abroad and send money to their families, as there are no commissions or transfer fees.

And there are signs that, after the initial surge in interest, people are using Chivo less.

Another incentive for its use appeared at the end of February, with the opening of the most advanced veterinary hospital in the country.

Long lines are common with people and pets taking shelter in lines under tents for care. And that’s because all animal care, even complex surgeries, costs just 25 cents — as long as they’re paid for with the Chivo app, and preferably in bitcoin.

Officials say the center is being paid out of “bitcoin profits,” but government officials did not respond to requests to explain how those profits were made.

Public money

The International Monetary Fund (IMF) has been urging El Salvador to reverse its decision to make bitcoin legal tender, arguing that the currency is too unstable for that purpose. In addition, local economists like Tatiana Marroquin are increasingly concerned.

She says the government doesn’t have enough money to help vulnerable people, so it shouldn’t take risks by pouring public funds into cryptocurrencies, which are considered quite risky resources because of the high volatility of the price.

Marroquin also points out that there is a lack of transparency in this process. “We don’t know exactly when or with what money they bought bitcoins.”

The Minister of Tourism, Morena Valdez, rebuts the criticism. She points out that Salvadorans have confidence in President Bukele despite the drop in bitcoin’s value. “We know that each of the president’s decisions is made at the right time. People have a lot of confidence in his decisions and in the course of the country’s economy.”

Other countries were considering following El Salvador’s move, before the cryptocurrency’s value began to plummet in recent months. The Central African Republic was the only nation to follow this path. President Faustin-Archange Touadéra announced the move on Twitter, describing bitcoin as “universal money”.

El Salvador now wants to go further.

The Salvadoran president announced plans for a new city, dubbed Bitcoin City, which would be built at the foot of a volcano with geothermal energy supplies to power a “giant bitcoin mine”.

He said he hoped to raise money by selling $1 billion in Volcano Bonds. But the titles would go on sale in March and to date have not been released.

Officials say they are confident they will be able to raise the funds and pay off an $800 million foreign debt.

The idea of ​​a “giant bitcoin mine” comes about because the cryptocurrency is obtained by a “mining” process that involves many calculations done on computers, to verify the transactions carried out by people who send or receive bitcoin.

This process involves solving puzzles, which, while not fully validating the coming and going of cryptocurrencies, offer more protection against fraud in the record of transactions.

As a reward, miners are often given small amounts of bitcoin, in what is often compared to a lottery.

To increase profits, people commonly connect large numbers of miners to the network —​​sometimes entire warehouses full of miners.

This, of course, uses a lot of electricity, as computers work almost constantly to solve the puzzles.

It is estimated that these processes consume about 121.36 terawatt hours (TWh) per year, equivalent to the consumption of the whole of Argentina.

This text was originally published here.