At the Bitcoin conference in Miami, Jack Mallers, CEO-founder of Layer 2 Lightning Network and its cross-border remittance app Strike, commented on El Salvador’s legal tender plan is the shot that’s heard around the world . But how important is El Salvador’s plan for bitcoin and cryptos? Continue reading.
Yeso Tyrone, get your fat ass off the couch and go eat! Aliyah yells at her husband with lovable familiarity as she hands him two 150-ounce sealed bottles of Tide ™. Tyrone grumbles – his way of admitting – yes dear, I love you too. He puts the detergent in a plastic bag and tucks it under his arms like the back of a barrel protecting the pigskin in the super bowl.
Tyrone turns the corner and hands the bag to Jamal, who looks for the unbroken seals before putting it in the trunk of his car. Jamal reaches into his pocket and gives Tyrone a $ 10 bill. Not a single word is exchanged – no need to – and within 10 minutes of getting off the couch, Aliyah and Tyrone are happily enjoying their Sunday dinner.
Tide is unwritten legal tender in the ghettos in neighborhoods across America. Proctor & Gamble has 15 laundry detergent brands worldwide, but Tide is their flagship brand. Most of the innovations are introduced with Tide, and it is considered one of the three most recession-proof brands in the world. Tide is instantly recognizable, difficult to counterfeit, widely accepted, immune to inflation, good store of value, physically stable, a good unit of account, and is great for removing stains from clothing.
However, it is not good money as its value is intrinsically derived, that is, it is an excellent detergent. But for the unbanked, valued at around 22% globally and in the underdeveloped countries, the inconvenience and lack of options are sadly a desperate way of life.
Salvadoran President Nayib Bukele announced that he would introduce a bill next week to officially establish Bitcoin as legal tender in El Salvador, which would effectively make El Salvador the first nation to do so. El Salvador is one of roughly half a dozen nations that use the US dollar as their de facto currency. And that doesn’t include US territories like Guam and Puerto Rico. The official currency of Cambodia is the local riel, but it is not nearly as widely used as the US dollar.
Why this? In places like Cambodia, people trust the US dollar more than their local government. Likewise, most countries hold a significant portion of their gold deposits with the New York Federal Reserve Bank. The US maintains its gold bullion warehouse in Fort Knox, TN. But for money, or even gold, its value depends on the common trust of the population.
It’s simple yet complex. In other words, the value of any money comes from trust and general acceptance within the network from which it is used. Tell Elon Musk to take gold to Mars and he will soon find that gold is practically worthless on the red planet in addition to its attractive luster and electrical conductivity.
For El Salvador, a developing bankless economy that gets about 22% of its economy from overseas remittances, cryptos will be an efficient monetary mechanism for pumping money into their economy with reduced fees and internal economic spending. Cryptos are good for developing countries because for those without a bank account, cryptos can help with:
- International transfers are cheaper than those made with traditional money.
- Reduce financial povertyto improve access to services.
- They are fast, because they can be sent in seconds and inexpensively.
- You are in full control Of your wealth.
- They are free and universal.
- You are unstoppable since nobody can block a transaction via the blockchain.
- Anyone can have a wallet for sending and receiving cryptocurrencies.
El Salvador’s plan to adopt Bitcoin as legal tender is a huge step towards crypto adoption. It is both symbolic and an acknowledgment that cryptos have arrived and are bringing benefits to the population. One of the additional benefits for El Salvador will be that it is decoupled from US monetary policy. How would it feel if your hard-earned dollars are bloated by endless printing in another country, which will only have an inflationary effect on your money and will NOT benefit you? This is what it feels like to hold US dollars as a foreigner.
A governing body derives its legitimacy from its people. The legitimacy of crypto comes straight from the people circumventing any nation-state, and so is not defined by national boundaries or subject to the whims of the ruling body. Over the weekend, the announcement didn’t seem to move Bitcoin prices much, but it remains to be seen how this will play out and which nations will soon follow. On behalf of the people of El Salvador and the rest of the world, thank you and good luck.