Alongside the typical touristy surf-town sights of El Zonte, El Salvador, are garbage barrels emblazoned with the Bitcoin “B” and signs hanging over the door in dirt-floor restaurants that announce, “Bitcoin accepted here.” For the past two years, El Zonte—aka “Bitcoin Beach”— has been experimenting with the cryptocurrency, in the hopes of creating an economy that runs at least partially on Bitcoin. Now, the Salvadoran government wants to try this nationally.
El Zonte’s Bitcoin journey began in 2019, when ex-pat Michael Peterson received a proposition: A mysterious donor had a cache of Bitcoin—but instead of cashing out, he wanted to use it to create a Bitcoin circular economy. Though Peterson was thrilled by the challenging concept, it wasn’t until the pandemic hit and the town’s tourist economy crashed that others began to get on board. The project began by simply giving away $35-$50 worth of Bitcoin a month to 500 families in El Zonte. Soon enough, local businesses began to accept the cryptocurrency. Now, about 90 percent of households in the town interact with Bitcoin on a regular basis. These transactions are bolstered by an app, Strike, that makes it possible to send cheap international Bitcoin transfers—crucial for a country like El Salvador, which receives close to $6 billion a year in remittances from Salvadorans living in the U.S.
On Friday’s episode of What Next: TBD, I spoke with Bloomberg’s Ezra Fieser, who recently reported a feature on El Zonte, about what happens when you take one beach town’s crypto-utopian fantasy and make it national policy. Our conversation has been edited and condensed for clarity.
Lizzie O’Leary: One thing you mention in your story is that—for people in the U.S. or other developed countries—Bitcoin might seem like an ideology or a way of thinking about the international financial system, but at Bitcoin Beach, these guys are hoping to solve problems. Tell me a little bit about the problems they want to solve.
Ezra Fieser: I’d met a woman that has a small pizza shop and she told me she has six children. Four of them have migrated to the U.S. Consistently, they were sending money back to her—this was before the project. She was regularly having to spend as much as a day taking a bus to the closest town that had an actual office or bank where she could collect the remittance, paying a huge fee to actually pick it up, and then leaving her business and leaving that income behind while she took the bus into town to get the remittance. She started using Bitcoin and she’s been able to save so much that she actually started using it to send money to her child in the U.S.—
… rather than get money back. So that’s just an example of the remittance question, the time that it takes to go and pick it up, the fees that are associated with it, and the problems that these organizers are trying to solve in using Bitcoin to make those transactions simpler.
You cover Latin American economies, and obviously there have been so many financial crises in Latin America with currencies up and down, inflation, devaluation, interventions by various central banks, et cetera. I wonder if there is something about the Latin American financial experience that makes it more fertile ground for a crypto experiment?
You look across the region, as you mentioned, and the volatility with the currencies is enough to have people experiment with crypto. What’s interesting about El Salvador is it dollarized 20 years ago. So it’s also an advantage in terms of crypto because nobody’s there to defend the local currency, right?
Right. Who cares? It’s the U.S. dollar.
Right. In these other countries, even though there’s been this drastic volatility in a place like Argentina, they still have their own local currency. So, I do think that there is possibility for more experimentation with crypto than in more developed places.
In June, President Nayib Bukele sent a bill to Congress to make Bitcoin legal tender in El Salvador. With 62 out of 84 lawmakers voting in favor of the bill, El Salvador became the first country in the world to make Bitcoin legal tender. That means taxes can be paid in Bitcoin and companies are required to accept it—if they have the technology to do so—but there are no plans to replace the dollar, and the government says it will set up a $150 million cash fund so people can exchange their Bitcoin for dollars. Tell me a little bit about Bukele’s embrace of Bitcoin.
What we know about Nayib Bukele: He’s a younger president. He’s 39 years old now. He had, during his political career, really kind of disrupted the political system in El Salvador. He used to be mayor of San Salvador. He got kicked out of his political party and then started his own. We know that back as early as, say, 2017 when he was mayor of San Salvador, he tweeted, “We’re going to use Bitcoin,” and didn’t really say much more about it, but kind of hinted at it.
He’s got a very pro-Bitcoin social media presence.
Yeah. I know from talking to people in the government while I was there that him and many people in the party have held Bitcoin for a while. So, at some point after the project in Bitcoin Beach got started, we also know that he was paying close attention to how it was going in El Zonte. When I was there, I was told he’s very interested. He recognizes that it’s important to be first in something like this. It was still a question, though, of when he was going to do it.
Is it possible, do you think, to get a sense of how attractive using Bitcoin might be to people nationally?
After the announcement, there was obvious huge interest in what was going on because you saw downloads of the Bitcoin Beach app, of the Strike app, just shoot up tenfold. I think Michael Peterson told me that even though the price of Bitcoin had kind of gone down, transactions after the announcement started to spike. So I think there’s clearly interest there.
But you’ve said it’s unclear how that interest is going to translate into reality. After all, El Zonte is a small town with money from a mysterious donor and a special app just for its Bitcoin.
In some of the communities in El Salvador, it’s going to be a much more difficult task to roll out something that’s as successful as Bitcoin Beach because you don’t have some of those other elements. If you go into some of these small towns in El Salvador, you don’t have as much of a tourist presence. You might be more isolated even than El Zonte to things like banks and other infrastructure. So, El Zonte, what’s happened there is very unique because of all these other elements. Doing it on a nationwide basis, you’re really going to need, I think, a huge effort on the part of both the government and people like the guys that are working out in Bitcoin Beach to roll out several of these projects locally around the country.
One of the things about Bitcoin though is that it can fluctuate as much as 50 percent in a couple of months. The idea of not using the world’s most stable reserve currency—the dollar—and using Bitcoin instead, seems risky. What did the Bitcoin evangelists say to that?
Since the time that they really started in earnest until the time I was there, there were a couple dips, momentary dips in the price, but really it was up six-fold, seven-fold, something like that from the year before.
So everything’s going great?
Everything’s going great. It’s really easy to kind of convince people to use Bitcoin and to get more Bitcoin when one day, it’s worth $500 and then a month later, it’s worth $800 or something. There’s a podcaster that was there the week I was there and he said, “It’s very cool when you get $30 and all of a sudden it’s up to $60 or $50, but what happens when it’s down $20 or $15?” That’s the real test. I don’t think I talked to anyone who said it’s a smart idea for you, as the owner of the pupusa shop or whatever, to hold everything in Bitcoin. They do recognize that volatility is a risk and so they do say, “We say take 10 percent, take 15 percent, take whatever and put it in Bitcoin. You’re still going to be using dollars.”
But I hear you say this and I hear you talk about someone saving a little bit or holding and watching the price go up. What happens to them if Bitcoin plummets?
The last day I was there, that was the day that Elon Musk tweeted about Tesla no longer taking Bitcoin. That week, it had been stable and I’m like, “Oh, this is an unusually stable week for Bitcoin,” and then all of a sudden saw something like 8 or 9 or 10 percent drop in a couple days. It is going to be a question not just for El Zonte in terms of how successful they’ve been, but if El Salvador is trying to roll this out in this period of higher volatility or even extended down cycle, it’s going to be a real question about how much they can get people to adopt it and how quickly.
You have this line in your story: “[I]t’s the contentious crypto debate common among those fortunate enough to be from a prosperous economy where Bitcoin is as much about a belief system as it is about a financial one.” I wonder how you think the people you met, be they the locals or the ex-pats, square this idea of a test of a belief system but also one that could make or break people’s lives and livelihoods.
The people that are there carrying out this project, they’re already Bitcoin believers, and I think for people that are at that point, there’s really not any going back for them or for the project. The people that are locally exposed to it in the last couple years, I think that a lot of them have gone through a similar process in which they are kind of in it for the long haul, that they no longer treat it as an experiment, that they think that this is really just how things are now, that they’re going to ride the volatility, they’re going to be smart about how they use Bitcoin in connection with the U.S. dollar and that from here on out, this is how their financial system’s going to work. It’s going to be part Bitcoin, part dollars.