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Bitcoin in El Salvador

Updated: Oct 21, 2022

Okay, so in the end of 2021, Bitcoin was adopted as legal tender standard in the country of El Salvador, South Central America. And El Salvador’s been using the dollar.  They’re not getting rid of the dollar, but they just realized that the dollar is probably becoming worth less and less and they use the dollar as legal tender, but they thought, “You know what, maybe it’s time for us to adopt a new, more technologically savvy standard?”. And this President they have, he’s a young guy, his name is Bukele. He’s kind of a visionary and he’s getting a lot of flack for it, of course, because anything that’s going to be successful in the beginning, you’re going to get lots of flack for it. So, there’s people in the country that really don’t understand this technological move. But I think it’s brilliant, right? I think what happens is it first of all, it puts him on the map in the world as a country that’s forward thinking and technologically savvy. And then second of all, it allows money to be attracted to that country. So other countries that are doing the same kinds of things, tax incentives and things like that, attract a lot of money to the country.  People will want to set up businesses there, they set up offices, and those are companies.  Countries that are attracting money now that money gets to move around society and that helps us societies. That’s the idea anyway, and Bukele thought, well, you know, what if I if I adopt Bitcoin, and I give everybody some bitcoin, so what he did is he gave everybody $30 USD worth of bitcoin. And he basically put everybody on a, what’s called a Chivo Wallet. So, he had this wallet that was available from the government, it was free. And everybody downloaded this wallet. And when you downloaded it, as a citizen, you all of a sudden have $30 in there. Now, they also made all the merchants have to accept Bitcoin as legal tender. So, if you went into a merchant, you had your wallet, you held your phone up to the machine, it had to accept Bitcoin. And that was the way they got people to use it.  Not everybody wanted to use it, they might have saved it, right? Because a lot of people think bitcoin is going from, you know, 40, 50 or $60,000 upwards to a million dollars. So, some people are just using it as a medium of storage storing value. Some people are using it as a currency, some people are spending it, some people are saving it. So, it all depends on what people want to do with it. But it’s their choice, they got it really from the government for free. Now that government went out and bought Bitcoin, it can’t just manufacture Bitcoin, like the US dollar or the euro, the yen, you can just create it out of nothing. So the government actually spent their money to do it. And they looked pretty good for a little while, then it went down. That’s what’s going to happen in a volatile asset. And anything that’s new and technologically advanced, and is cutting edge is going to be volatile, because there’s going to be all kinds of people that are going to be chopping it down, people going to be building it up, and it’s going to go back and forth. Think about the internet when it was first adopted. When the internet was first adopted, people were like, “what am I going to use this for? Like, I’m going to, I want to go to the store and buy things, or why do I need to do my banking online, I could just go into the bank, there are people that are going to help me.” And 20 years later, 30 years later, we realize how much the Internet has changed things. But in the beginning, people really didn’t see the utility. Same thing is happening in Bitcoin.

In this country, it’s attracting all kinds of things. So let me fast forward through this. You know, you’re going to hear a lot of negative things about Bitcoin and you’re going to hear that it’s for money laundering, but any currency can be used for money laundering, like cash is money laundering. It’s why they don’t make a $500 bill or $1,000 bill, right, they think it’s easier to launder money with it. But that argument doesn’t really sit right with me. The other one is that Bitcoin uses too much energy and it’s creating all this crazy energy. And it requires huge amounts of energy, and it’s so good that it pollutes the world. It’s a bunch of crap because it’s a very efficient use of energy to create value, that then becomes a permanent value in a society that you use to transact transactions and to store value and do all the other things that money and currencies do. So, I can get into all that but not on this podcast.

But it does create value and it’s a very efficient use of energy. Just to give you a quick thing, and I won’t go into too much, but imagine making a ship. Imagine making a cruise ship; huge plates of steel. How much energy is required to forge those plates of steel, how much heat? You don’t think that’s putting tons of heat energy and co2 and all the byproducts of energy into the into the world? Of course, it is and it’s not even efficient use on the other side of it. You get a ship sometimes, like right now, the ships are sitting outside of ports waiting to deliver their goods. They’re just sitting there. There’s no value. There’s no utility value other than holding things up that float and they’re floating. Or if it’s a cruise ship, they’re not doing too well. Right now, these days either with these lockdowns. So, you know it at the end of the day, what’s the utility after spending all that energy? Well, Bitcoin, its immediate utility, it’s a store of value, it’s a medium of exchange. Okay, so you’re going to hear a lot of FUD fear, uncertainty and doubt regarding Bitcoin. And regarding bitcoins adoption, you’re going to hear it all the way for the next 1015 years, until it’s widely adopted.

But I think it’s going to be widely adopted. Let me tell you a couple of reasons that I think it’s going to be widely adopted. First of all, it’s an immutable source of currency right now, I don’t look at it as a currency, I still look at it as a digital gold or a store of value. But it’s an immutable, in other words, it can’t be changed, it is an immutable store of value. And, you know, a few years ago, we put all these sanctions on Iran. And we told everybody, “Hey, listen, don’t be trading with Iran.” And we tried to shut them down and force their government and squeeze their government. So, they would have a revolution. Now, you know, maybe that’s worked in the past, it doesn’t seem to be working, at least right now. In Iran, they figured out ways to go around the US dollar being the medium of exchange. And the first way they did it was they went to all the other trading partners, that weren’t the US and they said, “Hey, you want to trade with us, we don’t need to use the dollar, let’s use something else.” And they figured out a different mechanism.

The other day they announced that they are going to be using Bitcoin. And so now you’ve got this big country that has a ton of value in its oil and other value, I’m sure as well. But really, we know of Iran is an oil producer. And now people are going to go right around the dollar. And they’re going to pay directly with Bitcoin. And everybody knows that if they accept Bitcoin, the US government can’t just print more of it and make it worse, make the value less and less. So, they went right around. If that happens, again, in a couple of other countries, if another El Salvador takes place, and there’s another one taking place right now called Tonga, and then you’re going to start to see Venezuela and maybe even Argentina accept Bitcoin. And you’re going to start to see some countries in Africa, except Bitcoin. Pretty soon, a lot of these countries are going to start trading together, right? And it’s not going to be stoppable. And the US government is not going to have the world’s reserve currency anymore. Now, right now, they have it, they trade oil and Petro dollars, that happens 99% of the time. But now that Iraq is saying, “You know what, we don’t need to accept Petro dollars, US base dollars, we’ll accept it in a different way. You can pay us in Bitcoin.” That’s threatening to the world’s place, the US is placed as the world’s reserve currency.

But back to El Salvador. Really cool things that they’re doing now is they want to create a Bitcoin city. Now, everybody’s poopooing the idea, they take this beautiful area of their country, and it’s near a volcano, and they take that Earth created energy, and they create a mining area, and they use that heat to create energy, the energy that creates Bitcoin. What happens? Well think about that, if you’re a Bitcoin mining company, and there’s a lot of them, you’re going to move your company down there, because they’re going to give you incentives and the energy is cheap. And if the energy is cheap, and you bring your company down there, you’re going to employ people. So, people are going to have a job. And then there’s going to be restaurants put around those places, and people are going to go and it will create other jobs. And there’s going to be a whole economy created around Bitcoin city. It’s actually brilliant, right? Think about if every country did that. Certainly, the first ones that did it would attract a lot of interest. And that’s what El Salvador is doing. They’re attracting a huge amount of interest in Bitcoin city. They’re attracting a huge amount of interest from capital where capital wants to go where capital is welcome. So, capital wants to go to a place where people are looking at Bitcoin as the new monetary standard. And if you think about Bitcoin, as a value, compared to gold, gold didn’t go up at all in 2021. In fact, it went down about 7%, but Bitcoin rose about 130%. So, and that’s been happening over the last 10 years, gold has really not gained the value that it should have in an inflationary environment, but Bitcoin has. So, is Bitcoin being used as a supplement to gold? I think so. I think it’s taking a lot of the money that would have gone into gold and it’s going into Bitcoin.

So, the lessons that we can learn from Bukele, the lessons that we can learn from El Salvador is that when you start to embrace an immutable, fungible, transferable electronic version of gold, and maybe you have had some cryptocurrency and currency characteristics, you start to accept that the US dollar isn’t the only game in town. And that there are other ways to do it. And maybe this guy is on to something, and maybe, and it’s going to be a test for the rest of the world and everybody’s watching. And maybe he’s a pioneer. And if he’s a pioneer, you can expect a lot more to come.

Now, the last thing I’ll say about it is the world is in a bit of turmoil. Over the last several years, what we’ve done is we’ve just debased all of our currency, certainly the US has debased its currency by  30%,40%, or 50%. In fact, they say that 80% Of all the money that’s been printed, since the US Dollar was created, you know, a couple 100 years ago, has been created in the last two or three years. And if that’s the case, then the dollar is losing value, it’s lost 99% of its value over time. Anyway, if you look at the chart of what it’s worth today, I mean, think about 50 years ago, what you could have bought with $10,000, it was a car right? Today, can you buy a brand-new car, the same level for $10,000? Now, you have to spend about 30K or 40K, and that’s just 50 years ago, 100 years ago is a lot different. So, the dollar has lost about 99.5% of its value. And it’s continuing to do that as we start to as we continue to spend, and the government continues to create programs that are not productive, and then we print money.

There are economies around the world that are failing, look at the Turkish Lira has gone up about 40% this year. The inflation rate is about 40%. It’s lost tons of value. So, the Turkish Lira, Venezuela, Argentina is ready to default on its debt. You’re going to start to see other countries around the world, probably accelerated because of the lock downs in this whole thing with the pandemic start to fail. When they failed in the past, what they would have done is gone to the dollar standard. And I think they’ll still do that. But I think now they’re going to start to embrace Bitcoin as another alternative, whether they go to the dollar coin, and the Bitcoin all together is something that I don’t know what will happen, but I’m sure curious about it. I really think that Bitcoin adoption is just starting to take place. We’re at the very beginning of this revolution.

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