S1: Hey, everyone, before we get started, I just want to note that today’s episode has some language that might not be the best for kids. OK, here’s the show. Along the Pacific coast of El Salvador, there’s a road that winds toward a string of beach towns,
S2: part of the highway is kind of new, and then you go through part of the highway that’s old and in disrepair.
S1: Bloomberg reporter Ezra Fieser has driven that route from the capital, San Salvador, out to a small surf town called El Zonte.
S2: Down off the cliffs, you see some of these kind of nice posh hotels that are catering to some of the foreign surfers, these towns that obviously have had this tourist boom. And then you get into something and it seems like a real nothing town
S1: is the kind of place where you see locals selling papacies street, dogs lying in the shade and tanned expat surfers heading for the horseshoe shaped volcanic beach. But there’s one key difference between El Zonte and the other surf towns.
S2: And then all of a sudden you come across these giant garbage barrels with the Bitcoin, the spray painted on the outside of them. And then you start to see in some of the shops, some of these kind of dirt floor restaurants. You see little signs hanging over the the entrance that says Bitcoin accepted here. If you weren’t looking for it, it might take you a little while to kind of notice it. But then when you start noticing it, it seems like it’s everywhere.
S1: A Sunday is now known to both locals and expats by the nickname Bitcoin Beach. For the past two years, the town has been experimenting with cryptocurrency, hoping to create an economy that runs at least partially on Bitcoin. Now, the Salvadoran government wants to try this nationally today on the show. What happens when you take one beach towns crypto utopian fantasy and make it national policy? I’m Lizzie O’Leary and you’re listening to what next? TBD, a show about technology, power and how the future will be determined. Stick with us.
S3: All right, we ready? Fuck, yeah, let’s go, let’s go.
S1: Let’s in early June, there was this conference in Miami. You can probably tell from that clip this was not a buttoned up corporate kind of thing. It was called Bitcoin 20 21. And a guy named Jack Malaz was on stage in a hoodie and a baseball cap pacing back and forth, talking about El Salvador.
S3: They had a huge problem of financial inclusively and providing their citizens with basic human freedom.
S1: Malaz created an app to send cheap international bitcoin transfers like Venmo but for crypto. And he’s part of this group of expats working on the Bitcoin experiment in El Salvador.
S2: And he’s been living in El Zonte for about three months. He’s from Chicago. He looks very young, loves to swear whenever possible, talks a lot about the kind of inequities in the global financial system. I’ve heard him talk about how when the stimulus checks were cut in the U.S., the people in El Salvador got all of the inflationary effects of those stimulus checks, but none of the actual stimulus there. El Salvador receives around north of five billion, close to six billion dollars a year in remittances that are sent back from the roughly two million Salvadorans that are living in in the United States. And here’s an app that he’s designed, which is called Strache. What it allows people to do is send almost like a PayPal transfer across borders using Bitcoin for pennies.
S1: Malaz is just one of the expats who’s been preaching the virtues of Bitcoin in El Salvador, a country that currently uses the U.S. dollar as its currency. Another one is Michael Peterson, the man who got the whole Bitcoin beach idea off the ground. Peterson first came to El Zonte 17 years ago on a surfing trip, and over the years he began dividing his time between the town and his home in California. He and his wife started volunteering in El Zonte, funding small development groups and church projects. And then two years ago, he got a mysterious proposition.
S2: About two early twenty eighteen, he was introduced to someone who told him, Listen, we have this donor who has given us a Bitcoin to carry out community development projects worth and we really don’t know what to do with it. And he said to him, would you like to meet this donor? And Michael said, well, I’ll go and meet him and to hear him out. So has a meeting, expects to meet the donor in California, ends up sitting across the table from the adviser to donor. He still doesn’t fully know who the donor is. So during this meeting, he’s told the donor has a cash of Bitcoin. But instead of cashing out the Bitcoin, he wanted to use it to fund a project in which Bitcoin would be used to create kind of a circular economy. And he was invited to submit a proposal for the Zonte. He the way he tells it, he went back to his wife and he said, you know, this is such a preposterous idea that has to be true. It can’t be a scam. And so he said, OK, we’re we’re going to do this. We’re going to do it the whole town. And we’re going to do try to get all the businesses to accept Bitcoin. And we’re going to get develop a way for people to trade it amongst themselves and pay each other and pay bills, everything in Bitcoin.
S1: No one was that into Peterson’s idea of an economy where Bitcoin just cycled through the town like a closed loop. Not until the pandemic hit and the town’s tourist economy crashed, Peterson and his local colleagues retooled their idea and decided to just give Bitcoin away.
S2: It wasn’t much. It was thirty five to fifty dollars worth of Bitcoin a month to about 500 families. They start going to the businesses and saying, like, we have this Bitcoin here, can we spend it on staple goods? Then the businesses start to see this demand for Bitcoin and they go to the Bitcoin Beach people and they start to say, how do what do we do to start to, you know, accept Bitcoin transactions? From that point, it really just took off like he starts to see it grow out of the town. And more and more people coming now have now at this point, can something around 90 percent of of the households in the in the town interact with Bitcoin on a regular basis and about, you know, four dozen or so businesses that are accepting it in this little town? It’s it’s pretty it’s pretty remarkable how far along it’s come in such a short time.
S1: It sounds almost like you’re saying that they took this supply of Bitcoin and and created a demand.
S2: Yeah, I think that’s exactly right. Yeah. And I think that that pandemic really, you know, heightened the speed at which they could do it because there was a lack of other income coming in from the tourist economy. And so for some of these people, it was a lot of what they had coming in as far as income, and it was what they had to spend,
S1: even though no money was coming in from tourism. The Bitcoin gift meant. The people in town could buy things from one another, and once Bitcoin took off and El Zonte Peterson decided to make an app for people in town to hold and use their bitcoins more easily. He worked with a company in California to make a custom app, which they named Bitcoin Beach. One thing you mentioned in your story is that for people in the U.S. or other developed economies, that Bitcoin might seem like an ideology or a way of thinking about the international financial system. But that Bitcoin Beach, these guys are hoping to solve problems. Tell me a little bit about the problems they want to solve.
S2: I met a woman that has a small pizza shop and she told me she has six children. Four of them have migrated to the US, has four children living in the US consistently. They were sending money back to her. This was before the project. She was regularly having to go spend as much as a day taking a bus to the local town where the closest town that had an actual office or bank where she could collect the remittance, paying a huge fee for, especially if it was a small amount of money to actually pick it up and then, you know, leaving her business and leaving that income that she could have gotten behind while she went, 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 US. Wow. Rather than get money back. So that’s just an example of like one the remittance question, you know, the time that it takes to to go and pick it up, the fees that are associated with it and the the problems that these these organizers are trying to solve in using Bitcoin to make those transactions simpler.
S1: There’s also the idea that using a smartphone to save money or pay for things with Bitcoin is easier than operating in an all cash economy. By some estimates, 70 percent of people in El Salvador don’t have bank accounts, but they do have cell phones. About 80 percent of the population has some mobile phone service, even though there’s a big divide between urban and rural areas, you 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 maybe more fertile ground for crypto experiment.
S2: You look across the region, as you mentioned, and that the volatility with currencies is enough to probably more on a grassroots level to have people experiment with with crypto maybe than in other places. You know, it’s interesting about El Salvador. As you mentioned, the dollar raised 20 years ago. So it’s also an advantage in terms of crypto because nobody’s there to defend the local currency. Right.
S1: You’re right against the U.S. dollar.
S2: Is the U.S. dollar right in these other countries, even though there’s been, you know, this drastic volatility in a place like Argentina, they still have their their own local currency. So I do think that there is a possibility for more experimentation with crypto than in more developed places.
S1: When we come back, the Bitcoin Beach experiment goes national. Earlier in the show, we played you some clips of Jack Malaz talking about El Salvador at the Bitcoin conference. Mellars, of course, is running a business. He’s trying to get people to use his app. But Malaz has made a friend, fellow Bitcoin enthusiast Naib Micheli, the president of El Salvador, who used that conference to make a big announcement.
S3: Next week, I will send to Congress a bill that will make Bitcoin a legal tender and then us, whether
S1: it’s 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 150 million dollar cash fund so people can exchange their Bitcoin for dollars. Not long after you were there, Bitcoin became legal tender. Tell me a little bit about the Cayley’s embrace of Bitcoin.
S2: What we know about you, Kelly, 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 in his early as, say, 2017, when he was mayor of San Salvador, he tweeted about, you know, kind of we’re going to use Bitcoin and didn’t really say much more about it, but, you know, kind of hinted at it.
S1: He’s got a very pro Bitcoin social media presence.
S2: Yeah. And 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 and Bitcoin Beach got started, we also know that he was paying close attention to how it was going and all Zonte. And when I was there, I was told, you know, he’s very interested. He recognizes that it’s important to be first in something like this. And it was still a question, though, of when he was going to do it.
S1: El Salvador has been using the U.S. dollar since 2001 and in part to try to spur economic growth, in part also because of remittances, which you mentioned. Is it possible, do you think, to get a sense of how attractive using Bitcoin might be to people nationally?
S2: After the announcement, there was obviously huge interest in what was going on because you saw downloads of the Bitcoin Beach up of the strike up to shoot up, you know, tenfold, I think Michael Peterson told me that even though the price of Bitcoin had kind of gone down transaction’s after the announcement started to spike. So I think there’s clearly interest there.
S1: But Ezra says it’s unclear how that interest is going to translate into reality after all. Zonte is a small town with money from a mysterious donor and a special app just for its Bitcoin
S2: in some of the communities in El Salvador. It’s going to be much more difficult task to roll out something that’s as successful as as Bitcoin Beach because you don’t have some of those other elements. You know, 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 then, a Zonte to things like banks and other infrastructure. So El Zonte is what’s happened there is very unique because of all of these other elements and doing it on a nationwide basis. You’re really going to need, I think, a huge effort on the part of the both the government and people like the the guys that are working out and Bitcoin Beach to to roll it out. Several of these projects like locally around the country.
S1: You know, 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 evangelist’s say to that?
S2: Since this time that they really started in earnest until the time I was there, there were a couple of dips, momentary dips in the price, but really it was up, you know, six fold, seven fold, something like that from the year before.
S1: So everything’s going great.
S2: 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 five hundred and then a month later it’s worth 800 or something. And there’s a podcast here that was there the week I was there. And he said, you know, it’s very cool when you get thirty dollars and all of a sudden it’s up to 60 or 50. But what happens when it’s down, you know, 20 or 15? And that’s the real test. I don’t think I talk to anyone who said it’s a smart idea for you as the owner of the proposal shop or whatever to help hold everything in Bitcoin. They do recognize that the volatility is a risk. And so they do say, you know, we say take some of your take 10 percent to 15 percent, take whatever and put it in Bitcoin. You’re still going to be using dollars.
S1: But I hear you say this and I hear you talk about someone, you know, saving a little bit or holding and watching the price go up. What happens to them if Bitcoin plummets?
S2: Yeah. So last time I was there, I should say, that was the day that Elon Musk tweeted about Tesla no longer taking Bitcoin his. And that week it had been stable. And I’m like, oh, this is you know, it’s an unusually stable week for Bitcoin. And then all of a sudden saw something like, you know, an eight or nine or 10 percent drop in a couple of days. And it is going to be a question for 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, you know, extended down cycle, it’s going to be a real question about how much they can get people to adopt it and how quickly
S1: you have this line in your story that it’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. And I wonder how you think the people you met, be they the locals or the expats, square this idea of a test of a belief system, but also one that could make or break people’s lives and livelihoods.
S2: For the people that are there carrying out this project, there are already really Bitcoin believers, as you mentioned, and I think that for people that are at that point, there’s really not any going back for them or for the project. I think the people that are locally exposed to it in the last couple of 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 are no longer treated as an experiment, that they think that this is really just how things are now. You know, they’re going to ride the volatility. They’re going to be smart about how they they use Bitcoin in connection with the US dollar and that from here on out, this is how their financial system is going to work. It’s going to be part Bitcoin, part dollars.
S1: Ezra Fieser, thank you so much.
S2: Thank you. Pleasure to be here.
S1: Ezra Fieser is a Latin American markets reporter at Bloomberg. All right. That’s our show for today. TBD is produced by Ethan Brooks and this week were edited by Tony Bosch and Allison Benedict. Alicia Montgomery is the big boss and TBD is part of the larger What Next family. TBD is also part of Future Tense, a partnership of Slate, Arizona State University and New America. And I want to recommend you listen to Wednesday’s episode of What Next? It’s about whether Democrats are blowing their chances to get a voting rights bill through Congress. Mary Harris will be back in two years on Monday. I’m Lizzie O’Leary. Thanks for listening.