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Myth Of Money: El Salvador Adopts Bitcoin As Money
Welcome to this week’s edition of the Myth of Money, a weekly newsletter on all things money, economics and technology read by 10,000+ investors, curated by Tatiana Koffman.
Disclaimer: The following is not intended as investment advice. Do your own research.
This was a historical week in Bitcoin’s journey as El Salvador officially passed a bill declaring Bitcoin as legal tender, alongside the U.S. dollar. Congress approved President Nayib Bukele's proposal to embrace the cryptocurrency, with 62 out of 84 possible votes on Tuesday night.
coins or banknotes that must be accepted if offered in payment of a debt.
The new law means every business must accept Bitcoin as legal tender for goods or services, unless it is unable to provide the technology needed to do the transaction.
How Did This Idea Come About?
Last July, I was contacted to interview a group of locals and expats living in the surfing town of El Zonte, El Salvador. The interview turned into a Forbes article, which is now serving as a blueprint for other communities.
Here’s an excerpt:
On the coast of El Salvador, lies a small rustic beach town of 3,000 locals, known as El Zonte. A surfer’s paradise, the village is frequented by those seeking an authentic and rustic vibe. Like so many Central-American beach towns, the families of El Zonte were hit hard by the COVID-19 pandemic. While other tourist hot-spots continue to struggle as borders remain closed, the people of El Zonte have forged their own path forward, thanks to its newly formed Bitcoin economy.
The Secret Bitcoin Donation
Sometime in early 2019, an anonymous donor with a fondness for El Zonte discovered a forgotten thumb drive loaded with Bitcoin. He had originally purchased the asset when it was priced at around 5-10 cents, and put it aside for several years. Upon realizing what his holdings were now worth, the donor spent several days attempting to unlock his wallet. After many futile attempts, the donor was finally able to remember his passphrase and retrieve the funds. A believer in using blockchain technology to boost inclusion for the unbanked, he decided to seize this stroke of luck and put the funds to good use by allocating a multi-year six figure donation to El Zonte.
After meeting with several philanthropies in the region, all of which wanted to take the funds and convert them into fiat to cover the community's immediate needs, the donor partnered with Michael Peterson, a San-Diego native that spends up to 9 months of the year volunteering in El Zonte. Michael was given the opportunity to administer the Bitcoin on one condition - he would not cash it out. Beneficiaries of the digital currency had to learn how to use the Bitcoin itself, creating a Bitcoin economy. This was the birth of the Bitcoin Beach initiative.
Bitcoin Beach set out to create a sustainable Bitcoin ecosystem, where the majority of residents are unbanked and the local businesses don't meet the requirements that would enable them to accept credit cards.
A popular criticism of Bitcoin is the high fees and slow processing speed of the network. Using Bitcoin can be impractical when purchasing a cup of coffee, for example. The Bitcoin Beach initiative addressed this challenge head on.
“Originally, it didn’t make sense for 25 cent transactions, but did for 5 dollars. But when the transaction costs ramped up again, we switched over to the Lightning Network,” says Michael Peterson, Founder of Bitcoin Beach.
The Lightning Network is a second layer payment protocol that operates on top of the Bitcoin network, and enables instantaneous and affordable transactions. The group chose the Australian-based Wallet of Satoshi as its wallet of choice, as it works for both on-chain and off-chain transactions.
Keep reading on Forbes.com.
What Does This Mean for El Salvador?
The President and his administration believe Bitcoin provides opportunity for his citizens. This is a message to the world that El Salvador wants to be an innovation hub of the future and is open to expat entrepreneurs. Bukele is aiming to rapidly advance his country.
Parallel to Bitcoin’s community praise, Bukele is receiving a criticism from global human rights activists. In particular, El Salvador has very strict bans on abortion, to a point that women who suffer miscarriages or stillbirths can be prosecuted and jailed for up to 50 years for murder. This is one example of a woman currently alleging human rights abuse after 15 years in prison following a miscarriage.
I’ve been asked my opinion on the matter, and here it is. The good will never erase the bad. And just because I, or many other members of the Bitcoin community, choose to compliment the president on his new policies, does not mean we agree with jailing women after miscarriages. I will go a step further and say that I believe the use of Bitcoin will lead to greater financial education and financial freedom for women, who with time will be more empowered to start small businesses and lobby for their rights.
In Twitter Spaces, President Bukele confirmed that the US state department and the IMF had reached out to him. IMF expressed concerns tied to its planned aid to El Salvador. U.S. expressed its own concerns of countries in South America decreasing reliance on the U.S. dollar.
Zero-carbon Bitcoin Mining in El Salvador
One of the most innovating concepts that has come out of all these discussions, is being able to use geothermal energy from volcanoes in El Salvador for zero-carbon bitcoin mining. Nearly one quarter of electricity in El Salvador is already generating from volcanic heat.
This Week By the Numbers 📈
Cryptocurrency markets continue to be volatile, with traders increasingly taking bullish positions. There is simply no more consolidation left to do in the market. Short term holders have been shaken out and the trend is reversing into a bullish direction. We are likely to reset the cash flow cycle in crypto with Bitcoin showing bullish divergence first, followed by Ethereum, followed by Alts.
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Locked In: Bitcoin’s Taproot Upgrade Gets Its 90% Mandate
Taproot, the most significant improvement to Bitcoin’s protocol in years, now has enough mining support to lock in activation. According to the parameters set forward, if at least 90% of the blocks mined in any of the designated 2-week difficulty periods “signal” their support for the upgrade, then the activation process can begin. To be more precise: 1,815 out of 2,016 blocks mined within a period have to include a little piece of encoded information that indicates that the miner who mined that block is in favor of the upgrade. Taproot will outfit Bitcoin with a new signature scheme known as Schnorr signatures. This small adjustment to the Bitcoin code opens up new possibilities for privacy, multisignature wallets and security, as well as scaling. Read Full Story.
Product of the Week: GDA Lending
This week I’m giving a shout out to my friends at GDA Lending. Having recently worked on a loan with them, I can say that they offer the best rates for collateralized crypto loans at 4.5%, with the lowest counter-party risk. If you are looking to borrow against your BTC or ETH, ping me for an intro here.
Thank you for reading this week’s edition of the Myth of Money.🚀
Until next week,
By Tatiana Koffman
Hi there and thanks for reading. If you stumble upon my newsletter, you will notice that I write about money, economics and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital and Cryptocurrencies. I believe in empowerment through closing the financial education gap and creating equality of opportunity for the next generation. Check out my articles in Forbes here.
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