I am Lukas, NYALA’s General Counsel, and in the next couple of posts, I will be reporting from my recent travels through Latin America (ie El Salvador, Guatemala, Panama and Peru). Make sure to follow #BTCLatAm22 on Linkedin in case you are interested to hear more.
Roughly one and a half years after the people of El Salvador heard at “a conference in Miami Beach, from a white guy” (who might make further appearances here), that the cryptocurrency Bitcoin would become their legal tender, and roughly half a year after having been there myself for the first time, I was back in El Salvador to see how the situation had developed since then.
And yes, these posts will be about “Bitcoin, not Crypto”, even though we at NYALA tend to deal with all kinds of other cryptos as well. In El Salvador, it is explicitly Bitcoin that is legal tender, not other cryptocurrencies (unlike the Central African Republic as the second country to adopt Bitcoin as legal tender, which has since launched its own “Sango Coin” project). And in the other countries in Latin America that I have visited there seems to be a strong preference for Bitcoin, too (an observation we might also delve into deeper at a later stage). As a result, the events surrounding FTX were not that much of a talking point during my trip. However, they had been discussed at a conference by a “Bitcoin maximalist” some days prior (warning, potentially unexpectedly strong language).
And another point: Neither El Salvador’s president nor the Bitcoin project are uncontroversial, even amongst Bitcoiners (which should not surprise, given Bitcoin’s Cypherpunk origins, see Alex Gladstein (highly recommended as an overview!) and Anita Posch). And these are very important questions, that need to be and were also raised while the Adopting Bitcoin conference was happening (but also by panellists during the conference). At the same time, it might be too cheap to declare the project failed just now simply due to Bitcoin’s price having fallen significantly since its introduction as legal tender. These posts however will be more focused on the technical and practical aspects of Bitcoin in the countries I have visited.
On Twitter, I had already read that the number of businesses accepting Bitcoin had supposedly decreased significantly (according to a recent study, around 20% of companies accept Bitcoin). But one step back: Can Bitcoin actually be used for everyday payments? A previously acclaimed crypto expert had once stated that Bitcoin does not have a future as a payments network (but, upon criticism, later clarified that he was only referring to on-chain transactions). And indeed, the Bitcoin blockchain with its maximum block “size” of 1+ MB and average block time, ie time it takes for a new block of transactions to be confirmed/mined, leading to a transaction throughput of only about 5 transactions per second (tps, compared to Visa’s average of around 1,700 tps), is not designed to be a global payments network on the base layer. Rather, it is optimised for security (compared to many other blockchains with larger block sizes, limiting the access for potential miners through the hardware required to store and process a transaction chain of such large blocks and/or shorter block times), and therefore very well placed to act as a settlement layer. You therefore would not necessarily use this settlement layer to pay for a coffee, with a transaction that will be recorded on the blockchain forever (even though this still happens sometimes, stay tuned).
This is why the Lightning Network was proposed in 2016 as one of the scaling solutions commonly referred to as “Layer 2”. On the Lightning Network, payment channels are opened between participants using an initial on-chain transaction with Bitcoin’s (“smart contract”) scripting language. Payments can then be processed along the various payment channels without the need to create a new on-chain transaction for each payment. These payments are processed in real time and have a higher degree of anonymity, as the payments themselves are not recorded on-chain and the channels processing the payments do not know the ultimate beneficiary. The use is fairly simple: The merchant generates an “invoice” which can also include the amount due, and which can be displayed either as a QR code or a text message. This QR code is then scanned by (or the message imported into) the payor’s Lightning “wallet” or payments app to confirm payment.
Chivo, the Bitcoin payments app or “wallet” developed by the government of El Salvador for the introduction of Bitcoin as legal tender, offers both functions, on-chain as well as Lightning payments. However, for non-experienced users, the Lightning function is still not that easy to find. But many merchants use different solutions, such as IBEX Pay from Guatemala (we will get back to IBEX in a later post) or Jack Maller’s Strike from the US.
So what is the first impression in the capital San Salvador compared to half a year ago? Overall mixed: Some stores that did not accept Bitcoin back then do so now, like the supermarket chain Superselectos, using Chivo on a desktop computer (which however takes quite some time for the cashier to create an invoice, in addition to the time it takes Chivo to confirm the Lightning payment).
Other merchants that did accept Bitcoin back then refused now as they claim the app they use does no longer work. As it turns out, this is because an update had been rolled out months ago, which however not every merchant did install, causing the old version of the app to freeze. Elsewhere, merchants try to find the device used for Bitcoin payments, which seems to have collected a lot of dust in the meantime, and which needs to be re-charged first before a payment can be made (if someone still remembers the PIN to unlock it …). But where the payment via Lightning was offered, I did not experience any issues with the 60+ payments I made (even though it was recently argued again that the Lightning network is dysfunctional in general, citing a “paper” by proponents of Bitcoin “Satoshi’s Vision”, who, however, might have their own agenda).
To contrast these mixed impressions of Bitcoin adoption from the capital, I headed over to El Zonte aka “Bitcoin Beach” for the weekend, a small fishing (and surfing) town, which is “ground zero” of Bitcoin adoption in El Salvador (see Alex Gladstein’s summary), where Jorge Valenzuela, together with Roman Martinez (aka Chimbera) and Mike Peterson, had started El Salvador’s first circular economy, which supposedly also inspired the president to adopt Bitcoin as legal tender (we might talk a bit more about El Zonte in a later post). There, almost all businesses in town accept Bitcoin, so I got to pay with Bitcoin for lunch, coffee, my room and surf lessons, among other things. And a couple of Bitcoiners were also around already ahead of the Adopting Bitcoin conference the following week, so one got to see an aspect of Bitcoin subculture: “Bitcoin Standard” compliant meals being eaten (or at least an acceptable compromise, as also showcased in the McDonald’s accepting Bitcoin in Lugano, in addition to its exact opposite), as opposed to processed, supposedly unhealthy “Fiat food” (even though in this case the choice might have been more influenced by a specific diet).
Next, we will look at Bitcoin adoption in the more rural areas of El Salvador, stay tuned. #BTCLatAm22