12 ms·

One year on, El Salvador’s Bitcoin experiment has proven a failure

217 points by ipeev 4y ago

Cypher 4y ago
give it 4 years atleast
hammyhavoc 4y ago
I love the heelturn of sentiment on HN about crypto. Went from people being attacked for daring to question it to now crypto is mostly criticized.
can16358p 4y ago
Many people buy Bitcoin to "hodl", not to use, giving it some gold-like characteristic. If there was some crypto without any incentives of hodling long term, I'm sure the adoption would be higher. People don't spend Bitcoin the same way they don't spend gold in daily life: to own it as a long-term value reserve.
- pjc50 4y ago
  > I'm sure the adoption would be higher Adoption for what purpose though? If you're not keeping a substantial "float" in the currency, you have to buy more every time you want to use it. So you've just inserted an extra, riskier step into your ecommerce or international wire transfer. Within El Salvador, the policy behaves like dollarisation with all its advantages and disadvantages, with an extra disadvantage that the currency has fallen by a third against the dollar.
- n4r9 4y ago
  My best guess at why the average person is hesitant to use bitcoin as a primary currency is: where do I go when it goes wrong? If the system holding my money is hacked, or I get scammed in some way, where is my legal recourse? Legal recourse is typically something provided by a state. But state regulation nullifies a lot of what bitcoin advocates claim is the advantage of cryptocurrency. I'm not up to scratch on the details in El Salvador, so curious to know whether they have solved this issue.
  - eimrine 4y ago
    > If the system holding my money is hacked We the hodlers believe that Bitcoin can be hacked only by hacking cryptografic hash-functions, which will lead to collapse all the banks, all passwords on all websites, maybe some data structures like hash-maps. > or I get scammed in some way, where is my legal recourse? How will you get scammed if you have a backup which you promise to yourself to not even introduce to computer with online? Also nobody recommends you to hold all your wealth in crypto. Some metals work not bad also, my favorite example is copper. > But state regulation nullifies a lot of what bitcoin advocates claim is the advantage of cryptocurrency. Let me guess, you have not read / have to reread the bitcoin.org/bitcoin.pdf whitepaper?
    - n4r9 4y ago
      I'm not talking about the hash function being hacked, I'm talking about websites like Coinbase that provide wallet and exchange services being hacked. Banks of course are also vulnerable to social engineering etc but there is more regulation and consumer protection for when that happens. And by "scammed" I mean someone providing a fraudulent or faulty service or product. In the UK we have "Section 75" which protects consumers who pay via credit card or paypal: https://www.citizensadvice.org.uk/consumer/somethings-gone-wrong-with-a-purchase/getting-your-money-back-if-you-paid-by-card-or-paypal/ https://www.citizensadvice.org.uk/consumer/somethings-gone-w... . Is such protection possible with bitcoin?
      - eimrine 4y ago
        > I'm not talking about the hash function being hacked, I'm talking about websites like Coinbase that provide wallet and exchange services being hacked. What part of Bitcoin whitepaper tells you have to rely on third-parties? I'm not a trader, I'm a hodler, I even do not have a Coinbase account. Of course if third-parties get lost you lose everything you have believed they will guard for you. upd after reading responses Sorry guys I forgot that average person needs to be an idiot. My bad, usually I consider an opposite.
        4y ago
- espadrine 4y ago
  > If there was some crypto without any incentives of hodling long term, I'm sure the adoption would be higher Interestingly, that is also the analysis that most central banks make. Their monetary policy sets a positive target inflation rate for this exact goal. However, that monetary policy is often a large part of why people use Bitcoin.
  - sschueller 4y ago
    Should do what Switzerland has been trying to do. Negative interest rates to punish those who are hodl the Swiss Franc.
    - soco 4y ago
      Then it wouldn't be a free currency anymore, and that's a tenet of crypto (whether real or only promised, the mileage may vary).
    - taolegal 4y ago
      I have a hard time with left leaning economics if only because they revile "consumerism" but their policy prescriptions, in practice, make it impossible to do anything but consume. The demonization of "hoarding" is basically an endorsement of consumption. Of course, they then regulate your consumption. You could see how people resent the micromanaging of their lives.
- tromp 4y ago
  > If there was some crypto without any incentives of hodling long term There are some that strongly discourage speculation by having a purely linear emission, which after n years still has a yearly supply inflation of 1/n and takes a whole century to get down to 1%. Offering the same rewards to later generations helps avoid concentration of wealth that most cryptocurrencies, especially premined ones, suffer from.
- jollybean 4y ago
  "If there was some crypto without any incentives of hodling long term, " The opposite. Cryptos that are anchored to USD have no appeal. They're less useful than USD, and, there's no 'get rich quick' aspect. So what's the point. The Ponzi Mania is what drives people into BTC and to talk about it incessantly on the Internet etc.. Without the mania, it's not going to spread. An institutionalized crypto, like one by the government, and which had some kind of stability (i.e. central banked) would probably get critical mass and therefore have some utility. El Salvador leader is basically criminally derelict, he should be jailed.
  - redox99 4y ago
    There's about 150B in stablecoins[1]. You can argue that some of that is fake, not backed. But even if 75% of that were fake it's still a huge amount of money. So it's clear that cryptos that are anchored to USD do have appeal. The appeal however is not from people wanting to use them to buy their coffe. The appeal is DeFi. [1] https://coinmarketcap.com/view/stablecoin/ https://coinmarketcap.com/view/stablecoin/
    - jollybean 4y ago
      $150B is a small amount of money that is otherwise just sitting there. Nobody is using it for anything and it's not growing. It's generally a riskless thing thing to put your money in so it's not surprising that a few funds have gone big on it. They will fold the bet eventually.
  - sparkie 4y ago
    The use of "stablecoins" is for crypto arbitrage. Exchanging to USD via traditional means is just too slow to take any risks. There was an early alt-coin, http://freico.in/ http://freico.in/, which had a demurrage fee for holding, which was intended to incentivize spending over saving. A terrible idea if you ask me. Long-term saving is the biggest selling-point for Bitcoin. If the value of savings went down by design, it would have never got to where it is.
- upsidesinclude 4y ago
  If? There's Tether and USDC, plus a handful of others. The critical thing at the moment is to be "sophisticated" enough to make the right choice. In US law, an investor has to prove they have means (money to spare) to do risky things. They are "sophisticated" investors and can afford losses. (This word is used in the law) The rest don't get to play. So the rest don't know the rules and don't understand contract law. If you read a contract it defines the rules. Most people don't want to or don't know to do this and, right now, the government isn't stopping them from making these decisions about investment in crypto. Many people talk about crypto without acknowledging the fundamental nature of investments, because the don't invest (i.e. not "sophisticated"). They want something like their bank. Somebody to make sure they don't mess up and take care of them if things go sour. If that person is you, leave your opinions aside and keep your money in bonds and mutual funds
- latchkey 4y ago
  This last cycle, many people bought Bitcoin to use as collateral for loans, which was a novel and even smarter use of it. Use your money to make money.
gillesjacobs 4y ago
I principly agree on all criticisms, especially the seemingly reckless investment. However, the presupposed lack of adoption of Bitcoin as a means of payment is not supported by the source bar chart. The numbers are actually pretty impressive compared to card: ~25% of businesses accept card and 20% accept Bitcoin as payment. That is impressive adoption after 1 year by any standard in a country that primarily uses cash.
- espadrine 4y ago
  The businesses in question are not required to accept cards. However, they are legally required to accept Bitcoin. Given that, it is pretty low. From the article: > But Bukele wanted more. Making bitcoins legal tender meant a payee had to accept them. As the 2021 legislation stated, “every economic agent must accept Bitcoin as payment when offered to him by whoever acquires a good or service”.
- slowmotiony 4y ago
  20% of business accepting bitcoin is just crazy high. Living in Germany it seems that 20% of business don't even accept regular credit cards yet.
  - el-salvador 4y ago
    > 20% of business accepting bitcoin is just crazy high. Living in Germany it seems that 20% of business don't even accept regular credit cards yet. The numbers may be be higher in places that cater to bitcoin tourists, like beach hotels and restaurants, but for day to day locals the transactions is lower. During peak bitcoin usage I asked a few cashiers how many transactions have been in bitcoin, and the answer was none in normal stores, and 1-3 in the largest supermarket in the fanciest part of San Salvador. Even the largest bank in El Salvador, only processed 7500 bitcoin transactions on their payment gateway from october 2021 to december 2021. That would be like 80 por day. "más de 7,500 transacciones [..] en el 2021 [...]n pago con bitcoin." [1] [1] https://www.bancoagricola.com/salaprensa/notas-de-prensa/bancoagricola-transformacion-digital-desarrollo-economico-sostenible https://www.bancoagricola.com/salaprensa/notas-de-prensa/ban...
taffronaut 4y ago
If he had invested in a corrupt opaque investment that by design lost $50M into the pocket of a wealthy supporter, everyone would've shrugged and said "business as usual".
- Macha 4y ago
  "Only as bad as embezzlement" is not the endorsement for cryptocurrency or the response to criticism this comment portrays it as
  - taffronaut 4y ago
    How should we rank stupidity versus corruption? My point is that we are outraged at this guy's transparently stupid act, but I opine that we would be less outraged (or not even notice) if he was corrupt to the same extent that he is stupid. Neither is a virtue but as we stand in judgement then maybe our standards should be challenged.
    - pessimizer 4y ago
      He is corrupt. El Salvador is half a dictatorship, and the reason it went on this bitcoin venture is because its beardo bro dictator hangs out with bitcoin people and unilaterally decided to do it.
croon 4y ago
It's not a failure because Bitcoin tanked (relatively), it's a failure because Bitcoin tanking was and will always be a significant risk. People who got rich from Bitcoin weren't savvy, they won the lottery. It's not a sound investment decision based on outcome. Investments are sound based on probability and risk beforehand. El Salvador gambled which is stupid. Whether they won or lost at the lottery is inconsequential to its stupidity.
- afterburner 4y ago
  It's worse than a lottery for some. It rewarded incorrect thinking on how the financial industry works. Speculative spikes can happen for a lot of reasons, but that Bitcoin would replace all currencies (as early advocates would have had you believe) was not one of those reasons.
  - theplumber 4y ago
    >> but that Bitcoin would replace all currencies (as early advocates would have had you believe) was not one of those reasons. Bitcoin was not bought because people believed it will replace all currencies. They bought bitcoin to get rich fast and cash out BEFORE the expected crash.
    - afterburner 4y ago
      Yeah, that was happening too, but I was getting an earful of terrible economic viewpoints in the earlier days. I guess they could have all been lying to puff up their investments, but then I guess I'm left with thinking those particular people were stupid and liars.
      - JauntTrooper 4y ago
        I remember hearing similar economic arguments in 2006 - 2012 about gold and silver. I often wonder if those same people moved into Bitcoin.
dilap 4y ago
Bram Cohen had an interesting twitter thread on this https://twitter.com/bramcohen/status/1567173122289442824 https://twitter.com/bramcohen/status/1567173122289442824
- asah 4y ago
  tl;dr: you can have big positive impact but 'fail' financially. The inverse is also true: you can have little impact but attain big wealth/success. Moreover, due to competitive pressures this lack of correlation happens is quite common. If impact requires a mix of skill+luck+timing and success requires skill+luck+timing, then impact+success is (mathematically speaking) exponentially harder.
poulpy123 4y ago
rawoke083600 4y ago
Ja that is crazy... one wonder if they pick a different time (read long term market-regime) if the results would be any different for better or worse. The best alternative payment system I have seen myself is M-Pesa in Kenya [0] It's THE payment system in Kenya everything runs of it in terms of commence for the "ordinary man". It has a somewhat unique starting point, since Kenya (Africa) (I'm from there myself), was not "modern enough" for the everyday man to make use of traditional banking services. But even the "low tech man" had a cellphone. I hope to see more examples like this in the future, and I'm sure many a BigCorp is doing just that, I do wish the next-gen version of these services will be more community-driven and less bigcorp. Oh gosh I almost described the original vision of bitcoin :) [0]https://en.wikipedia.org/wiki/M-Pesa https://en.wikipedia.org/wiki/M-Pesa
- upsidesinclude 4y ago
  This is a great point most people from the US and Europe can't understand. Much like Africa, all of SE Asia went directly to cell service and skipped all landlines because they were so far behind. The same goes for banking in these parts of the world and India. The people there will skip over the traditional banking system which is massively undeserving the population and adopt a digitally native banking system. The masses will go with the flow and accept the CBDC, but many already understand the implications and limitations.
spreeker 4y ago
FIAT has proven time and time again to fail. Dollar world trade is unfair and benefits the USA unfairly. I would prefer a neutral crypto currency to be the new world reserve instead of a competing currency like the YUAN. Government should not have the power to print money out of thin air. The technology of blockchains is improving, for the example lightning network should make it very well possible. Just like with the invention of 'real' money there is a lot of failure in the crypto space. The subject of money and currencies is a much more complex issue. A government giving its "printing power" or in the case of Elsalvador, no longer wanting to be the victim of the printing power of the USA, is a very good thing.
- asah 4y ago
  Plus, fiat is too new to tell - it's only been 5,000 years! /s
  - spreeker 4y ago
    And has failed every single time! Always ended in hyper inflation and reinvented over and over again..
- thrwyoilarticle 4y ago
  Bitcoin is fiat.
- pessimizer 4y ago
  https://en.wikipedia.org/wiki/Bancor https://en.wikipedia.org/wiki/Bancor
simple-thoughts 4y ago
Prediction: El Salvador will look genius in the next Bitcoin cycle. Other emerging market central banks will proceed to copy their model creating the next cycle’s peak. Once they stop buying, the market will crash again creating either a global depression or a bailout of the btc economy by USG, causing a repeat of the bank bailout that spawned btc in the first place.
- bastawhiz 4y ago
  If El Salvador looks like a genius and their poorest citizens come around and get on board, the next crash will cause a humanitarian crisis: the poorest of the world will literally have given money to the rich who were able to get out of the market fast enough.
- smcl 4y ago
  I admire your optimism, but I can't get on board. It would be naive to deny the growth of cryptocurrencies over the last few years, but it seems like the people who were meant to make money have since cashed out, that everything's peaked and turned a corner and the general public have turned against it (due in no small part to a few many shitcoins, rugpulls, scams, BAYC, and a couple of defunct exchanges). I'm sure crypto will live on in some form, but it won't explode again like it did before. I don't know who is left to fuel the next bubble.
  - jimcsharp 4y ago
    People talk about crypto cycles like they talk about metal cycles and I'm not sure how to distinguish the two (and that's why I'm not invested in either).
    - strangescript 4y ago
      It's almost as if all publicly traded markets are ponzi-schemes on some level, but with better regulation.
      - 4y ago
osigurdson 4y ago
What I don't like about this article is it is almost entirely focused on price. If bitcoin would have went up, it would have been a wise move according to the premise of the article. I think a longer timescale is needed. I'd like to see an analysis of the situation, assuming that the value goes neither up or down, but simply holds a constant value in an inflation indexed manner. Would it still be a bad idea in that situation?
- onlyrealcuzzo 4y ago
  > I'd like to see an analysis of the situation, assuming that the value goes neither up or down, but simply holds a constant value in an inflation indexed manner. Would it still be a bad idea in that situation? Why? BTC has zero history of doing this.
  - osigurdson 4y ago
    Without this type of analysis, the entire discussion is based on the current price and nothing else. Therefore if the price was up significantly we would have to conclude he was a genius. For now, we can conclude that he is not. However, if we are being intellectually honest, our opinion needs to be a function of the current price.
- prottog 4y ago
  > simply holds a constant value in an inflation indexed manner Gold and currencies backed by gold come very close to this, with historical evidence to back it up. The purchasing power of gold -- that is, its convertibility to goods and services you might wish to consume -- have remained remarkably stable over time. Countries stopped issuing currencies backed by gold for a few different reasons, but its ability to hold constant value over time wasn't one of them.
  - osigurdson 4y ago
    Yes, true. Some economists suggest that the adherence to the gold standard prolonged the great depression. I suppose in some sense the entire economy is a kind of game where the goal (should be at least) to maximize the benefit to all participants. Having a stably valued token (fiat currency, crypto, gold backed, etc.) is a decision variable, not the objective function.
mihaic 4y ago
After so many cycles, Bitcoin has become one of the most respectable pyramid schemes available to the general public (only behind real estate speculation maybe). I think we'll see another even worse cycle unfortunately within the next 10 years.
- pessimizer 4y ago
  At least it may have peaked before we got to the point where we had 15 "Flip this Token" shows airing on the Bitcoin & Garden network.
- triceratops 4y ago
  Real estate has at least one thing going for it: you can live in a house.
  - prottog 4y ago
    Not only can you live in a house, literally every economic activity requires land on top of which you set up your capital and perform your labor. It's not the same thing at all as Bitcoin.
  - mihaic 4y ago
    Yes, it's not called "imaginary estate", but even practical things can be speculated. I'm sure I would pay $500 per month for internet or drinking water for instance, but in general this type of rent-seeking behavior is not good for the economy.
__MatrixMan__ 4y ago
This was implemented poorly (and bitcoin was a poor choice), but it's not crazy to want a currency that is decoupled from the US government. Especially in Central America where the US government has a pretty shady track record.
- lbriner 4y ago
  That's the thing. No-one wondered why they might want Crypto, the question was always "Why Bitcoin"? There are many deep subtle questions about Economics, even with stablecoins but the choice of Bitcoin was way off base, the only possible reason to use it was because it was the only one most people had heard of. Bitcoin is totally nonsensical for low-value high volume transactions and by the time the money gets paid to the seller for already bought goods, they could be making a loss. At least inflation in normal currency is only (usually) a few percent per year.
  - yellowapple 4y ago
    > No-one wondered why they might want Crypto, the question was always "Why Bitcoin"? That question has an obvious answer: because it's the oldest and biggest cryptocurrency. Not letting perfect be the enemy of adequate (let alone good) is a perfectly reasonable choice.
- SilverBirch 4y ago
  This isn't a problem though, countries issue their own currencies all the time. The problem is when you need to run a trade deficit, you need to buy more stuff than you sell internationally. It drives down the value of your currency. But crypto doesn't solve that. And borrowing against the national debt to buy risky crypto assets (which is what El Salvador did) makes that problem worse, not better. They will default on this debt.
bannedbybros 4y ago
moomoo11 4y ago
I want to wake up one day and cryptocurrency and anything related to it just doesn’t exist. Man that’d be a great day. Remove grifters, acquire actual progress.
- bitxbitxbitcoin 4y ago
  > I want to wake up one day and internet and anything related to it just doesn’t exist. Man that’d be a great day. Remove grifters, acquire actual progress. I wonder if there were people in the 80s that said that.
  - nxmnxm99 4y ago
    No, because the internet is actually useful.
    - ypeterholmes 4y ago
      Imagine saying something so utterly subjective in such a definitive way
  - pmarreck 4y ago
    Rationally, I understand what you're saying, speaking as someone who was intrigued by Bitcoin in 2012 and possibly made a little money off it while I was interested in it. Humanistically, I gotta say, perceptions matter. I left crypto because it just started "tasting gross", regardless of the technological interest I had. Clearly, I wasn't in a minority with that.
    - yellowapple 4y ago
      The Internet tastes pretty gross these days, too, what with the dominant business model being surveillance-driven marketing.
      - pmarreck 4y ago
        I hear you, but these excellent YouTube recommendations and Google App stories tuned so precisely to my interests wouldn't even be remotely as good unless I permitted myself to be data-surveilled. I can't tell you how much I've learned via these (whether informational or entertaining). (Note: I pay for YouTube, because it is an excellent service.) As penance for this, I will cite Martin Fowler's excellent essay on why privacy is necessary for at least some: https://martinfowler.com/articles/bothersome-privacy.html https://martinfowler.com/articles/bothersome-privacy.html
jonathan-adly 4y ago
Despite the well-known HN sentiment, it is worth repeating that no significant financial investment should be judged by 1 years worth of data.
yuan43 4y ago
The policy only ever made a little sense. What El Salvador desperately wants is a currency it can inflate to pay for the stuff it can not afford. In this regard, it is no different than any other country. What it had was a currency it does not print (US dollar) and for which there is an ongoing international shortage. What El Salvador got with Bitcoin was yet another currency it does not print and for which there is currently an international surplus. The thing the article does not mention, and the only reason the policy made any sense, is that ~50% of Salvadorans live abroad. So there is a substantial remittance market in El Salvador relative to GDP. Allowing remittances to flow through bitcoin cuts out companies like Western Union who scoop from the top. Even so, this scheme only makes a little sense. A better approach might have been for the government to have set up a USD-based remittance program of its own.
- hailwren 4y ago
  > Even so, this scheme only makes a little sense. A better approach might have been for the government to have set up a USD-based remittance program of its own. This is just not true. Crypto as foreign remittance has been proven and is working quite well in Argentina. What you really don't want as a layperson in Latin America, is for really any third party -- but especially government third parties, to have control of your money in any capacity during remittance.
  - spywaregorilla 4y ago
    you also, however, don't want your government to utterly collapse
    - simonh 4y ago
      True, but that’s a completely separate concern. Frankly that’s likely going to happen anyway. El Salvadorians suddenly trusting the government with large amounts of their cash isn’t going to make that government any more fiscally competent. Better not to go down with them.
      - 4y ago
thedebuglife 4y ago
I value the insight of many that post here, so I would like to ask: isn't there any valuable application for blockchain tech? I realize BTC is imperfect, but blockchain itself is just a technology. Being pretty young, everyone I know is involved in crypto in one way or another. I'm personally waiting on the sidelines, but there should be some beneficial middle ground between going all-in and completely discarding the tech.
- madacol 4y ago
  Well, money is the biggest use-case of it all. If you don't care about inflation (solved via decentralization), then there's the use-case of verifyably programmable money (ethereum) Another one that I find fascinating is immutability, things like https://opentimestamps.org/ https://opentimestamps.org/ (uses bitcoin's blockchain), it allows you to proof that X piece of information existed prior to time Y. I know of 2 different paths of assumptions you need to verify that proof: 1. Somewhat trusting bitcoin block's timestamps and the immutability that proof of work provides to the chain of blocks 2. Having a higher bound estimate of your attacker's ability to generate proof of work, and then sum all the available proof of work (it is sequentially chained in the blockchain from the block's proof, till the latest block produced), and compute how much time the attacker needed to spend to fake that proof of work, and that's your proof of the minimum time that must have passed since X was conceived
- spiralx 4y ago
  Estonia uses a blockchain to act as an immutable way to store timestamped hashes of government data for security and verification purposes - they started building this a year before the Bitcoin whitepaper was released in fact. That's the only valuable use for blockchains I've seen. https://e-estonia.com/wp-content/uploads/2020mar-nochanges-faq-a4-v03-blockchain-1-1.pdf https://e-estonia.com/wp-content/uploads/2020mar-nochanges-f...
karaterobot 4y ago
I asked a group of visiting college students from El Salvador about the situation with the Chivo wallet. They all uniformly believed the U.S. had put sanctions against the country's official exchange, making it hard to send money between the two countries. I could not find any evidence that such sanctions had actually occurred, but they all believed it was true. I wonder how they got this idea, how common it is, and whether it's had any effect.
mostly_harmless 4y ago
My theory behind this is there are many BTC holders with cap gains (or assets acquired through illegal methods) that can't easily cash out, and El Salvador's BTC support was a grab at capturing tourist revenue through state sponsored money laundering. Through that lens, it would be interesting to see if there was any anomaly in GDP, luxury goods sold, real estate sales, or tourism in the country.
spaghettiToy 4y ago
ww520 4y ago
Why would anyone adopt a deflationary asset that people hog as a currency? You want a currency that encourages usage in the economy, not one being buried in vaults.
guywithahat 4y ago
While I'm certainly not on the Bitcoin train but I would argue it's too early to say it's a failure from an investment standpoint, and there's too little evidence to say it's a failure from a policy standpoint. I would presume the goal was to become less dependent on foreign currency/other nations, which seems successfull
__pache__ 4y ago
Ok, let's talk in 10 years :)
yellowapple 4y ago
In what multiverse is achieving 20% adoption among customers and sellers in only a year a "failure"? Also, no shit the IMF is going to rattle off dire-sounding warnings; the IMF has a vested interest in keeping countries like El Salvador dependent on the legacy financial system. It's way too early to declare El Salvador's Bitcoin experiment a failure (or, for that matter, a success). Adopting a new currency (let alone an entire alternative financial system) doesn't happen overnight.
tb_technical 4y ago
Rather than say cryptocurrency failed, it's more accurate to say centralized banking and FUD won.

217 points by ipeev 4y ago

give it 4 years atleast

I love the heelturn of sentiment on HN about crypto. Went from people being attacked for daring to question it to now crypto is mostly criticized.

can16358p 4y ago

Many people buy Bitcoin to "hodl", not to use, giving it some gold-like characteristic. If there was some crypto without any incentives of hodling long term, I'm sure the adoption would be higher. People don't spend Bitcoin the same way they don't spend gold in daily life: to own it as a long-term value reserve.

pjc50 4y ago
> I'm sure the adoption would be higher Adoption for what purpose though? If you're not keeping a substantial "float" in the currency, you have to buy more every time you want to use it. So you've just inserted an extra, riskier step into your ecommerce or international wire transfer. Within El Salvador, the policy behaves like dollarisation with all its advantages and disadvantages, with an extra disadvantage that the currency has fallen by a third against the dollar.
n4r9 4y ago
My best guess at why the average person is hesitant to use bitcoin as a primary currency is: where do I go when it goes wrong? If the system holding my money is hacked, or I get scammed in some way, where is my legal recourse? Legal recourse is typically something provided by a state. But state regulation nullifies a lot of what bitcoin advocates claim is the advantage of cryptocurrency. I'm not up to scratch on the details in El Salvador, so curious to know whether they have solved this issue.
- eimrine 4y ago
  > If the system holding my money is hacked We the hodlers believe that Bitcoin can be hacked only by hacking cryptografic hash-functions, which will lead to collapse all the banks, all passwords on all websites, maybe some data structures like hash-maps. > or I get scammed in some way, where is my legal recourse? How will you get scammed if you have a backup which you promise to yourself to not even introduce to computer with online? Also nobody recommends you to hold all your wealth in crypto. Some metals work not bad also, my favorite example is copper. > But state regulation nullifies a lot of what bitcoin advocates claim is the advantage of cryptocurrency. Let me guess, you have not read / have to reread the bitcoin.org/bitcoin.pdf whitepaper?
  - n4r9 4y ago
    I'm not talking about the hash function being hacked, I'm talking about websites like Coinbase that provide wallet and exchange services being hacked. Banks of course are also vulnerable to social engineering etc but there is more regulation and consumer protection for when that happens. And by "scammed" I mean someone providing a fraudulent or faulty service or product. In the UK we have "Section 75" which protects consumers who pay via credit card or paypal: https://www.citizensadvice.org.uk/consumer/somethings-gone-wrong-with-a-purchase/getting-your-money-back-if-you-paid-by-card-or-paypal/ https://www.citizensadvice.org.uk/consumer/somethings-gone-w... . Is such protection possible with bitcoin?
    - eimrine 4y ago
      > I'm not talking about the hash function being hacked, I'm talking about websites like Coinbase that provide wallet and exchange services being hacked. What part of Bitcoin whitepaper tells you have to rely on third-parties? I'm not a trader, I'm a hodler, I even do not have a Coinbase account. Of course if third-parties get lost you lose everything you have believed they will guard for you. upd after reading responses Sorry guys I forgot that average person needs to be an idiot. My bad, usually I consider an opposite.
      - 4y ago
espadrine 4y ago
> If there was some crypto without any incentives of hodling long term, I'm sure the adoption would be higher Interestingly, that is also the analysis that most central banks make. Their monetary policy sets a positive target inflation rate for this exact goal. However, that monetary policy is often a large part of why people use Bitcoin.
- sschueller 4y ago
  Should do what Switzerland has been trying to do. Negative interest rates to punish those who are hodl the Swiss Franc.
  - soco 4y ago
    Then it wouldn't be a free currency anymore, and that's a tenet of crypto (whether real or only promised, the mileage may vary).
  - taolegal 4y ago
    I have a hard time with left leaning economics if only because they revile "consumerism" but their policy prescriptions, in practice, make it impossible to do anything but consume. The demonization of "hoarding" is basically an endorsement of consumption. Of course, they then regulate your consumption. You could see how people resent the micromanaging of their lives.
tromp 4y ago
> If there was some crypto without any incentives of hodling long term There are some that strongly discourage speculation by having a purely linear emission, which after n years still has a yearly supply inflation of 1/n and takes a whole century to get down to 1%. Offering the same rewards to later generations helps avoid concentration of wealth that most cryptocurrencies, especially premined ones, suffer from.
jollybean 4y ago
"If there was some crypto without any incentives of hodling long term, " The opposite. Cryptos that are anchored to USD have no appeal. They're less useful than USD, and, there's no 'get rich quick' aspect. So what's the point. The Ponzi Mania is what drives people into BTC and to talk about it incessantly on the Internet etc.. Without the mania, it's not going to spread. An institutionalized crypto, like one by the government, and which had some kind of stability (i.e. central banked) would probably get critical mass and therefore have some utility. El Salvador leader is basically criminally derelict, he should be jailed.
- redox99 4y ago
  There's about 150B in stablecoins[1]. You can argue that some of that is fake, not backed. But even if 75% of that were fake it's still a huge amount of money. So it's clear that cryptos that are anchored to USD do have appeal. The appeal however is not from people wanting to use them to buy their coffe. The appeal is DeFi. [1] https://coinmarketcap.com/view/stablecoin/ https://coinmarketcap.com/view/stablecoin/
  - jollybean 4y ago
    $150B is a small amount of money that is otherwise just sitting there. Nobody is using it for anything and it's not growing. It's generally a riskless thing thing to put your money in so it's not surprising that a few funds have gone big on it. They will fold the bet eventually.
- sparkie 4y ago
  The use of "stablecoins" is for crypto arbitrage. Exchanging to USD via traditional means is just too slow to take any risks. There was an early alt-coin, http://freico.in/ http://freico.in/, which had a demurrage fee for holding, which was intended to incentivize spending over saving. A terrible idea if you ask me. Long-term saving is the biggest selling-point for Bitcoin. If the value of savings went down by design, it would have never got to where it is.
upsidesinclude 4y ago
If? There's Tether and USDC, plus a handful of others. The critical thing at the moment is to be "sophisticated" enough to make the right choice. In US law, an investor has to prove they have means (money to spare) to do risky things. They are "sophisticated" investors and can afford losses. (This word is used in the law) The rest don't get to play. So the rest don't know the rules and don't understand contract law. If you read a contract it defines the rules. Most people don't want to or don't know to do this and, right now, the government isn't stopping them from making these decisions about investment in crypto. Many people talk about crypto without acknowledging the fundamental nature of investments, because the don't invest (i.e. not "sophisticated"). They want something like their bank. Somebody to make sure they don't mess up and take care of them if things go sour. If that person is you, leave your opinions aside and keep your money in bonds and mutual funds
latchkey 4y ago
This last cycle, many people bought Bitcoin to use as collateral for loans, which was a novel and even smarter use of it. Use your money to make money.

gillesjacobs 4y ago

I principly agree on all criticisms, especially the seemingly reckless investment. However, the presupposed lack of adoption of Bitcoin as a means of payment is not supported by the source bar chart. The numbers are actually pretty impressive compared to card: ~25% of businesses accept card and 20% accept Bitcoin as payment. That is impressive adoption after 1 year by any standard in a country that primarily uses cash.

espadrine 4y ago
The businesses in question are not required to accept cards. However, they are legally required to accept Bitcoin. Given that, it is pretty low. From the article: > But Bukele wanted more. Making bitcoins legal tender meant a payee had to accept them. As the 2021 legislation stated, “every economic agent must accept Bitcoin as payment when offered to him by whoever acquires a good or service”.
slowmotiony 4y ago
20% of business accepting bitcoin is just crazy high. Living in Germany it seems that 20% of business don't even accept regular credit cards yet.
- el-salvador 4y ago
  > 20% of business accepting bitcoin is just crazy high. Living in Germany it seems that 20% of business don't even accept regular credit cards yet. The numbers may be be higher in places that cater to bitcoin tourists, like beach hotels and restaurants, but for day to day locals the transactions is lower. During peak bitcoin usage I asked a few cashiers how many transactions have been in bitcoin, and the answer was none in normal stores, and 1-3 in the largest supermarket in the fanciest part of San Salvador. Even the largest bank in El Salvador, only processed 7500 bitcoin transactions on their payment gateway from october 2021 to december 2021. That would be like 80 por day. "más de 7,500 transacciones [..] en el 2021 [...]n pago con bitcoin." [1] [1] https://www.bancoagricola.com/salaprensa/notas-de-prensa/bancoagricola-transformacion-digital-desarrollo-economico-sostenible https://www.bancoagricola.com/salaprensa/notas-de-prensa/ban...

taffronaut 4y ago

If he had invested in a corrupt opaque investment that by design lost $50M into the pocket of a wealthy supporter, everyone would've shrugged and said "business as usual".

Macha 4y ago
"Only as bad as embezzlement" is not the endorsement for cryptocurrency or the response to criticism this comment portrays it as
- taffronaut 4y ago
  How should we rank stupidity versus corruption? My point is that we are outraged at this guy's transparently stupid act, but I opine that we would be less outraged (or not even notice) if he was corrupt to the same extent that he is stupid. Neither is a virtue but as we stand in judgement then maybe our standards should be challenged.
  - pessimizer 4y ago
    He is corrupt. El Salvador is half a dictatorship, and the reason it went on this bitcoin venture is because its beardo bro dictator hangs out with bitcoin people and unilaterally decided to do it.

croon 4y ago

It's not a failure because Bitcoin tanked (relatively), it's a failure because Bitcoin tanking was and will always be a significant risk. People who got rich from Bitcoin weren't savvy, they won the lottery. It's not a sound investment decision based on outcome. Investments are sound based on probability and risk beforehand. El Salvador gambled which is stupid. Whether they won or lost at the lottery is inconsequential to its stupidity.

afterburner 4y ago
It's worse than a lottery for some. It rewarded incorrect thinking on how the financial industry works. Speculative spikes can happen for a lot of reasons, but that Bitcoin would replace all currencies (as early advocates would have had you believe) was not one of those reasons.
- theplumber 4y ago
  >> but that Bitcoin would replace all currencies (as early advocates would have had you believe) was not one of those reasons. Bitcoin was not bought because people believed it will replace all currencies. They bought bitcoin to get rich fast and cash out BEFORE the expected crash.
  - afterburner 4y ago
    Yeah, that was happening too, but I was getting an earful of terrible economic viewpoints in the earlier days. I guess they could have all been lying to puff up their investments, but then I guess I'm left with thinking those particular people were stupid and liars.
    - JauntTrooper 4y ago
      I remember hearing similar economic arguments in 2006 - 2012 about gold and silver. I often wonder if those same people moved into Bitcoin.

dilap 4y ago

Bram Cohen had an interesting twitter thread on this https://twitter.com/bramcohen/status/1567173122289442824 https://twitter.com/bramcohen/status/1567173122289442824

asah 4y ago
tl;dr: you can have big positive impact but 'fail' financially. The inverse is also true: you can have little impact but attain big wealth/success. Moreover, due to competitive pressures this lack of correlation happens is quite common. If impact requires a mix of skill+luck+timing and success requires skill+luck+timing, then impact+success is (mathematically speaking) exponentially harder.

poulpy123 4y ago

rawoke083600 4y ago

Ja that is crazy... one wonder if they pick a different time (read long term market-regime) if the results would be any different for better or worse. The best alternative payment system I have seen myself is M-Pesa in Kenya [0] It's THE payment system in Kenya everything runs of it in terms of commence for the "ordinary man". It has a somewhat unique starting point, since Kenya (Africa) (I'm from there myself), was not "modern enough" for the everyday man to make use of traditional banking services. But even the "low tech man" had a cellphone. I hope to see more examples like this in the future, and I'm sure many a BigCorp is doing just that, I do wish the next-gen version of these services will be more community-driven and less bigcorp. Oh gosh I almost described the original vision of bitcoin :) [0]https://en.wikipedia.org/wiki/M-Pesa https://en.wikipedia.org/wiki/M-Pesa

upsidesinclude 4y ago
This is a great point most people from the US and Europe can't understand. Much like Africa, all of SE Asia went directly to cell service and skipped all landlines because they were so far behind. The same goes for banking in these parts of the world and India. The people there will skip over the traditional banking system which is massively undeserving the population and adopt a digitally native banking system. The masses will go with the flow and accept the CBDC, but many already understand the implications and limitations.

spreeker 4y ago

FIAT has proven time and time again to fail. Dollar world trade is unfair and benefits the USA unfairly. I would prefer a neutral crypto currency to be the new world reserve instead of a competing currency like the YUAN. Government should not have the power to print money out of thin air. The technology of blockchains is improving, for the example lightning network should make it very well possible. Just like with the invention of 'real' money there is a lot of failure in the crypto space. The subject of money and currencies is a much more complex issue. A government giving its "printing power" or in the case of Elsalvador, no longer wanting to be the victim of the printing power of the USA, is a very good thing.

asah 4y ago
Plus, fiat is too new to tell - it's only been 5,000 years! /s
- spreeker 4y ago
  And has failed every single time! Always ended in hyper inflation and reinvented over and over again..
thrwyoilarticle 4y ago
Bitcoin is fiat.
pessimizer 4y ago
https://en.wikipedia.org/wiki/Bancor https://en.wikipedia.org/wiki/Bancor

simple-thoughts 4y ago

Prediction: El Salvador will look genius in the next Bitcoin cycle. Other emerging market central banks will proceed to copy their model creating the next cycle’s peak. Once they stop buying, the market will crash again creating either a global depression or a bailout of the btc economy by USG, causing a repeat of the bank bailout that spawned btc in the first place.

bastawhiz 4y ago
If El Salvador looks like a genius and their poorest citizens come around and get on board, the next crash will cause a humanitarian crisis: the poorest of the world will literally have given money to the rich who were able to get out of the market fast enough.
smcl 4y ago
I admire your optimism, but I can't get on board. It would be naive to deny the growth of cryptocurrencies over the last few years, but it seems like the people who were meant to make money have since cashed out, that everything's peaked and turned a corner and the general public have turned against it (due in no small part to a few many shitcoins, rugpulls, scams, BAYC, and a couple of defunct exchanges). I'm sure crypto will live on in some form, but it won't explode again like it did before. I don't know who is left to fuel the next bubble.
- jimcsharp 4y ago
  People talk about crypto cycles like they talk about metal cycles and I'm not sure how to distinguish the two (and that's why I'm not invested in either).
  - strangescript 4y ago
    It's almost as if all publicly traded markets are ponzi-schemes on some level, but with better regulation.
    - 4y ago

osigurdson 4y ago

What I don't like about this article is it is almost entirely focused on price. If bitcoin would have went up, it would have been a wise move according to the premise of the article. I think a longer timescale is needed. I'd like to see an analysis of the situation, assuming that the value goes neither up or down, but simply holds a constant value in an inflation indexed manner. Would it still be a bad idea in that situation?

onlyrealcuzzo 4y ago
> I'd like to see an analysis of the situation, assuming that the value goes neither up or down, but simply holds a constant value in an inflation indexed manner. Would it still be a bad idea in that situation? Why? BTC has zero history of doing this.
- osigurdson 4y ago
  Without this type of analysis, the entire discussion is based on the current price and nothing else. Therefore if the price was up significantly we would have to conclude he was a genius. For now, we can conclude that he is not. However, if we are being intellectually honest, our opinion needs to be a function of the current price.
prottog 4y ago
> simply holds a constant value in an inflation indexed manner Gold and currencies backed by gold come very close to this, with historical evidence to back it up. The purchasing power of gold -- that is, its convertibility to goods and services you might wish to consume -- have remained remarkably stable over time. Countries stopped issuing currencies backed by gold for a few different reasons, but its ability to hold constant value over time wasn't one of them.
- osigurdson 4y ago
  Yes, true. Some economists suggest that the adherence to the gold standard prolonged the great depression. I suppose in some sense the entire economy is a kind of game where the goal (should be at least) to maximize the benefit to all participants. Having a stably valued token (fiat currency, crypto, gold backed, etc.) is a decision variable, not the objective function.

mihaic 4y ago

After so many cycles, Bitcoin has become one of the most respectable pyramid schemes available to the general public (only behind real estate speculation maybe). I think we'll see another even worse cycle unfortunately within the next 10 years.

pessimizer 4y ago
At least it may have peaked before we got to the point where we had 15 "Flip this Token" shows airing on the Bitcoin & Garden network.
triceratops 4y ago
Real estate has at least one thing going for it: you can live in a house.
- prottog 4y ago
  Not only can you live in a house, literally every economic activity requires land on top of which you set up your capital and perform your labor. It's not the same thing at all as Bitcoin.
- mihaic 4y ago
  Yes, it's not called "imaginary estate", but even practical things can be speculated. I'm sure I would pay $500 per month for internet or drinking water for instance, but in general this type of rent-seeking behavior is not good for the economy.

__MatrixMan__ 4y ago

This was implemented poorly (and bitcoin was a poor choice), but it's not crazy to want a currency that is decoupled from the US government. Especially in Central America where the US government has a pretty shady track record.

lbriner 4y ago
That's the thing. No-one wondered why they might want Crypto, the question was always "Why Bitcoin"? There are many deep subtle questions about Economics, even with stablecoins but the choice of Bitcoin was way off base, the only possible reason to use it was because it was the only one most people had heard of. Bitcoin is totally nonsensical for low-value high volume transactions and by the time the money gets paid to the seller for already bought goods, they could be making a loss. At least inflation in normal currency is only (usually) a few percent per year.
- yellowapple 4y ago
  > No-one wondered why they might want Crypto, the question was always "Why Bitcoin"? That question has an obvious answer: because it's the oldest and biggest cryptocurrency. Not letting perfect be the enemy of adequate (let alone good) is a perfectly reasonable choice.
SilverBirch 4y ago
This isn't a problem though, countries issue their own currencies all the time. The problem is when you need to run a trade deficit, you need to buy more stuff than you sell internationally. It drives down the value of your currency. But crypto doesn't solve that. And borrowing against the national debt to buy risky crypto assets (which is what El Salvador did) makes that problem worse, not better. They will default on this debt.

bannedbybros 4y ago

moomoo11 4y ago

I want to wake up one day and cryptocurrency and anything related to it just doesn’t exist. Man that’d be a great day. Remove grifters, acquire actual progress.

bitxbitxbitcoin 4y ago
> I want to wake up one day and internet and anything related to it just doesn’t exist. Man that’d be a great day. Remove grifters, acquire actual progress. I wonder if there were people in the 80s that said that.
- nxmnxm99 4y ago
  No, because the internet is actually useful.
  - ypeterholmes 4y ago
    Imagine saying something so utterly subjective in such a definitive way
- pmarreck 4y ago
  Rationally, I understand what you're saying, speaking as someone who was intrigued by Bitcoin in 2012 and possibly made a little money off it while I was interested in it. Humanistically, I gotta say, perceptions matter. I left crypto because it just started "tasting gross", regardless of the technological interest I had. Clearly, I wasn't in a minority with that.
  - yellowapple 4y ago
    The Internet tastes pretty gross these days, too, what with the dominant business model being surveillance-driven marketing.
    - pmarreck 4y ago
      I hear you, but these excellent YouTube recommendations and Google App stories tuned so precisely to my interests wouldn't even be remotely as good unless I permitted myself to be data-surveilled. I can't tell you how much I've learned via these (whether informational or entertaining). (Note: I pay for YouTube, because it is an excellent service.) As penance for this, I will cite Martin Fowler's excellent essay on why privacy is necessary for at least some: https://martinfowler.com/articles/bothersome-privacy.html https://martinfowler.com/articles/bothersome-privacy.html

jonathan-adly 4y ago

Despite the well-known HN sentiment, it is worth repeating that no significant financial investment should be judged by 1 years worth of data.

yuan43 4y ago

The policy only ever made a little sense. What El Salvador desperately wants is a currency it can inflate to pay for the stuff it can not afford. In this regard, it is no different than any other country. What it had was a currency it does not print (US dollar) and for which there is an ongoing international shortage. What El Salvador got with Bitcoin was yet another currency it does not print and for which there is currently an international surplus. The thing the article does not mention, and the only reason the policy made any sense, is that ~50% of Salvadorans live abroad. So there is a substantial remittance market in El Salvador relative to GDP. Allowing remittances to flow through bitcoin cuts out companies like Western Union who scoop from the top. Even so, this scheme only makes a little sense. A better approach might have been for the government to have set up a USD-based remittance program of its own.

hailwren 4y ago
> Even so, this scheme only makes a little sense. A better approach might have been for the government to have set up a USD-based remittance program of its own. This is just not true. Crypto as foreign remittance has been proven and is working quite well in Argentina. What you really don't want as a layperson in Latin America, is for really any third party -- but especially government third parties, to have control of your money in any capacity during remittance.
- spywaregorilla 4y ago
  you also, however, don't want your government to utterly collapse
  - simonh 4y ago
    True, but that’s a completely separate concern. Frankly that’s likely going to happen anyway. El Salvadorians suddenly trusting the government with large amounts of their cash isn’t going to make that government any more fiscally competent. Better not to go down with them.
    - 4y ago

thedebuglife 4y ago

I value the insight of many that post here, so I would like to ask: isn't there any valuable application for blockchain tech? I realize BTC is imperfect, but blockchain itself is just a technology. Being pretty young, everyone I know is involved in crypto in one way or another. I'm personally waiting on the sidelines, but there should be some beneficial middle ground between going all-in and completely discarding the tech.

madacol 4y ago
Well, money is the biggest use-case of it all. If you don't care about inflation (solved via decentralization), then there's the use-case of verifyably programmable money (ethereum) Another one that I find fascinating is immutability, things like https://opentimestamps.org/ https://opentimestamps.org/ (uses bitcoin's blockchain), it allows you to proof that X piece of information existed prior to time Y. I know of 2 different paths of assumptions you need to verify that proof: 1. Somewhat trusting bitcoin block's timestamps and the immutability that proof of work provides to the chain of blocks 2. Having a higher bound estimate of your attacker's ability to generate proof of work, and then sum all the available proof of work (it is sequentially chained in the blockchain from the block's proof, till the latest block produced), and compute how much time the attacker needed to spend to fake that proof of work, and that's your proof of the minimum time that must have passed since X was conceived
spiralx 4y ago
Estonia uses a blockchain to act as an immutable way to store timestamped hashes of government data for security and verification purposes - they started building this a year before the Bitcoin whitepaper was released in fact. That's the only valuable use for blockchains I've seen. https://e-estonia.com/wp-content/uploads/2020mar-nochanges-faq-a4-v03-blockchain-1-1.pdf https://e-estonia.com/wp-content/uploads/2020mar-nochanges-f...

karaterobot 4y ago

I asked a group of visiting college students from El Salvador about the situation with the Chivo wallet. They all uniformly believed the U.S. had put sanctions against the country's official exchange, making it hard to send money between the two countries. I could not find any evidence that such sanctions had actually occurred, but they all believed it was true. I wonder how they got this idea, how common it is, and whether it's had any effect.

mostly_harmless 4y ago

My theory behind this is there are many BTC holders with cap gains (or assets acquired through illegal methods) that can't easily cash out, and El Salvador's BTC support was a grab at capturing tourist revenue through state sponsored money laundering. Through that lens, it would be interesting to see if there was any anomaly in GDP, luxury goods sold, real estate sales, or tourism in the country.

spaghettiToy 4y ago

ww520 4y ago

Why would anyone adopt a deflationary asset that people hog as a currency? You want a currency that encourages usage in the economy, not one being buried in vaults.

guywithahat 4y ago

While I'm certainly not on the Bitcoin train but I would argue it's too early to say it's a failure from an investment standpoint, and there's too little evidence to say it's a failure from a policy standpoint. I would presume the goal was to become less dependent on foreign currency/other nations, which seems successfull

__pache__ 4y ago

Ok, let's talk in 10 years :)

yellowapple 4y ago

In what multiverse is achieving 20% adoption among customers and sellers in only a year a "failure"? Also, no shit the IMF is going to rattle off dire-sounding warnings; the IMF has a vested interest in keeping countries like El Salvador dependent on the legacy financial system. It's way too early to declare El Salvador's Bitcoin experiment a failure (or, for that matter, a success). Adopting a new currency (let alone an entire alternative financial system) doesn't happen overnight.

tb_technical 4y ago

Rather than say cryptocurrency failed, it's more accurate to say centralized banking and FUD won.