With the international attention on El Salvador’s historic adoption of Bitcoin, some critical myths have emerged that are in need of busting.
El Salvador’s adoption of bitcoin as legal tender received a tremendous amount of international media attention. This attention has been a welcomed change from ten years of Bitcoin obituaries and claims of Ponzi schemes and the like. Even so, there are myths out there about El Salvador’s momentous new law that deserve busting.
Myth one: The citizens of El Salvador are not sophisticated enough to use Bitcoin.
This is complete rot. The wallet that the government commissioned to handle trading crashed in the first hours of its launch not because it was broken; but because it became too popular too fast for the app stores to keep up.
The government offered $30 in BTC just for the download and that caught on very quickly. Salvadorans are highly sophisticated at dealing with multiple currencies and exchange rates — toggling between official and gray market rates — and will adapt quickly. In this, they are far more sophisticated than the typical American who believes that the Canadian dollar is somehow mispriced.
Myth two: Bitcoin is too volatile to be a good currency.
Maybe that line worked five years ago, but anyone can look at the price charts and, therefore, the long-run trajectory. This currency has been declared dead hundreds of times and it keeps not dying. On the contrary, it is widely seen as a deflationary token, which is to say that it grows in value relative to the goods and services it purchases.
That could be the biggest experiment of all: what a deflationary currency does for a nation’s economy and culture. We’ve not really seen this since the late 19th century, when it was widely expected that a sound currency grows more valuable over time. My prediction is that it will do very well, incentivizing savings and encouraging investment.
Myth three: Bitcoin can’t compete with standard remittance technology.
This, again, is completely incorrect. Western Union is slow, expensive and embeds lots of counterparty risk. Bitcoin is relatively fast and cheap and has no counterparty risk (the transactions are not reversible without the use of an intermediary). This will become incredibly obvious very quickly as people outside of the country raid Bitcoin ATMs to convert dollars to bitcoin in order to transfer them very quickly and easily to friends and family.
Myth four: There is no way this will catch on.
My prediction is that it will catch on very quickly. Most heads of state will be thrilled with the Salvadoran president Nayib Bukele’s 80% approval rating, which is only going to rise further if this goes well. That he took the risk of doing this, defying money masters of the world, only adds to his popularity within the country. Oh and by the way, contrary to what the U.S. media is starting to say, Bukele is not a dictator because he wants another term. This has to be the most ridiculous claim to date.
Myth five: Bitcoin fell after El Salvador adopted it.
This claim was made in the U.S. media and I had to check my eyesight. It turns out that overnight, bitcoin bumped up against $53,000 and fell back to $51,000 after the price the day before of $49,000. There was some profit taking, some pulling back, but hardly a crash. You can call that “down” if you want to, but guess what: This is how bitcoin behaves, and it is hardly surprising.
People in this sector know now to regard a price dip as an opportunity. Americans think it is not possible to do rational accounting under these conditions, but just watch. This poor nation is about to teach the world how to do it.
Myth six: The president is merely playing to a geek crowd.
This too is nonsense. President Bukele had the wisdom to seek out informed opinion and followed it. In this, he defied the usual pattern, which is for heads of state to rely on the masters of international central banking, who know almost nothing about the new world of money. In fact, they are presiding over the destruction of the dollar as we speak.
The people who advised the president in this case are not powerful; they have something else: intelligence. That’s a rare thing in the world of statecraft these days.
Myth seven: El Savador will become the world center of money laundering.
Again, this is a total myth. The most laundered currency today is the U.S. dollar, not bitcoin. With four in five workers in El Salvador working in the informal sector, and with only one-third having bank accounts, the problem of money laundering will get better, not worse. Keep in mind that bitcoin is not an anonymous currency; it is pseudonymous, which is to say that you can track it easily, but not necessarily know the precise identity of the sender and receiver.
Myth eight: If this experiment flops, Bitcoin is doomed.
I happen not to believe that the experiment will flop. Indeed this is the perfect country in which to try the first full experiment in legal tendering a cryptocurrency token. I fully expect copycat countries to pop up in the region and then around the world. But even if that doesn’t happen, the advantages of this technology over national currency are so strong and so obvious that it will continue to make advances, regardless of how things go in El Salvador.
Myth nine: None of this matters.
Bunk. It matters a great deal. The world’s leading purveyors of fiat currency have been shaking in their tassel loafers for ten years over the meaning and implications of cryptocurrency. They have done their best to put it down and keep it down, but it hasn’t worked. If the dollar really does head further down the inflationary rabbit hole, there will be nothing to stop this industry from achieving ever newer heights. My prediction is that, within the next ten years, it will be conventional for private currencies to circulate alongside national currencies, and no one will think much about it.
Myth 10: It’s just money.
This is wrong, too. Cryptocurrency is a ledger technology to mark and secure ownership rights, and this has huge implications for contracts, law and every form of smart technology. It raises the possibility of financial and economics without reliance on unreliable governments and court systems. It forms the basis of a new way of doing business that reduces risk and vastly increases security of property rights. We can see this gradually unfolding in the cryptocurrency clearing system: it works far better than central banks
For years, cryptocurrency enthusiasts have said that the U.S. could adopt bitcoin as a replacement for the dollar. I doubt it. But we shall see.
The U.S. did everything possible to wreck the dollar over the last 18 months. There is a genuine precedent for dramatic monetary reform in the U.S. It could happen again, especially if there is rising anger at the Federal Reserve in the wake of galloping inflation. The reform could happen even without approval from the top.
In the meantime, all eyes are on El Salvador, especially from other countries with unbanked populations that rely heavily on remittances. Wouldn’t it be something if this poor, forgotten nation pointed the way toward a global revolution in money? We shall see.
This is a guest post by Jeffrey Tucker. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.