CoinDesk celebrates 10 years, highlighting 2021 as the year Bitcoin became legal tender in El Salvador

“We die on this hill! I will die on this [expletive] hill. ”

The most important story in the crypto world in 2021 was shared by Strike founder Jack Mallers, who made this emotional statement at Bitcoin Magazine’s Bitcoin Conference in Miami in July.

The “hill” he referred to was Bitcoin.

El Salvador’s President Nayib Bukele had just announced via video link that the country planned to make Bitcoin a legal tender, making it the first country in the world to take such a significant step. Consumers would be able to use BTC alongside the US dollar.

Since 2001, El Salvador has been a dollarized country and the government aimed to mitigate the negative effects of being tied to the US central bank. The Central American state was now opting for a digital currency that cannot be controlled by any central authority and could only be altered according to “objective and calculable criteria,” as outlined in the bill.

This article is part of our “CoinDesk Turns 10” series, which looks back at seminal stories from crypto history. El Salvador’s Bitcoin Law is our choice of the most significant story from 2021.

The news thrilled Bitcoin enthusiasts. Finally, there was a real and tangible first step towards widespread adoption of Bitcoin. An entire country was going to use Bitcoin as its currency.

Former CoinDesker Colin Harper, now of Luxor, a mining company, was covering the announcement for CoinDesk alongside CoinDesk’s Danny Nelson. They said the energy on the floor was something to behold.

“Everyone went crazy,” Harper said.

“We were scrambling behind the scenes to get an article out,” said Nelson, showing how important the news was to a publication like CoinDesk, which had been covering relatively piecemeal crypto-adoption milestones for years. He then shared screenshots of Slack messages between CoinDeskers, which featured enough typos to make any copy editor blush.

The onstage performance in Miami was a flashy, vibrant affair, befitting the city itself. But the announcement wasn’t the actual hard work in El Salvador to actually make the idea a reality. That came with the passage of the country’s Bitcoin Law in September 2021. Meanwhile, the US Bitcoin community was heading south in droves, pursuing local Bitcoin projects in places like the surf town of El Zonte on Bitcoin Beach, a circular bitcoin economy. The work continues there and elsewhere in the country.

But the rollout did not go smoothly over the next few months.

Before the Bitcoin Law

In 2020, a group of bitcoiners based in and building out Bitcoin Beach met with El Salvador’s Ministry of Tourism, which led to meetings with the Ministry of Economy in March 2021 and Bukele’s economic advisors. Less than three months later, the Salvadoran President made his first surprise announcement at the Bitcoin Conference.

In that group of pioneer-Bitcoiners was Mike Peterson, Director at Bitcoin Beach. Peterson bought a home in El Salvador 20 years earlier. He argues that Bukele’s move was the result of a grassroots movement and was not something top-down, as some US critics have alleged.

“El Salvador’s Bitcoin movement started in El Zonte,” Peterson told CoinDesk. “It just moved quickly from ideation, meeting with economic advisors, to Bukele quickly pushing it to law. During the official passage of the law in the assembly, Bukele joined a Twitter Spaces and told thousands of listeners that the government was inspired to make Bitcoin legal tender because of how Bitcoin was transforming the lives of the unbanked in El Zonte.”

In classic Bitcoin fashion, the law’s passing was first shared with the world in the most bitcoin way possible, on a Twitter Spaces hosted by CoinDesk columnist Nic Carter.

Crazy.

Even crazier, President Bukele tweeted as far back as 2017 that El Salvador would use Bitcoin someday, right after the central bank tweeted a warning about using cryptocurrency.

After the Bitcoin Law

Once the Bitcoin Law was in place, what followed can best be described as a bit chaotic. President Bukele wanted to roll out a Bitcoin wallet as soon as possible and promised it quickly. He wanted Bitcoin ATMs set up around the country and to give every Salvadoran who downloaded the government-sponsored Chivo wallet $30 in bitcoin. The wallet was built hastily by Athena Bitcoin, then eventually rebuilt by AlphaPoint.

It was messy.

Salvadorans had some misunderstandings about Bitcoin which contributed to the challenges faced by the government during its rollout. They did not know that Bitcoin was not invented by President Bukele and that users were not required to use the Chivo wallet, but could instead use any wallet they wanted. Additionally, the falling price of Bitcoin at the time did not help the situation.

When the bill was announced in July 2021, BTC was trading at around $30,000. When the bill became law in September 2021, it was trading around $45,000. By September 2022, a year after the law was enacted, it was below $20,000. Any discussion about El Salvador and adoption would be incomplete without acknowledging these price swings and the bitcoin bear market.

Nonetheless, Bitcoin enthusiasts in El Salvador remain optimistic.

Read more: 1 Year of Bitcoin in El Salvador: The Bad, the Good and the Ugly

The CEO of Blink (aka the Bitcoin Beach Wallet) Noor El Bawab told CoinDesk in an interview that “although the rollout was slow, you can still live fully on Bitcoin in El Salvador.” Noor also urged people to look at per capita numbers when discussing transaction volume in the country.

El Salvador is the smallest country in Central America, with a population of about 6 million people. Of those 6 million people, Chivo had 3.8 million clients, according to a report from the International Monetary Fund (IMF).

However, 2022 survey data from the U.S. National Bureau of Economic Research suggested that only four in ten Salvadorans who downloaded Chivo still use it. It is possible that Salvadorans moved their Bitcoin off the custodial, state-owned Chivo wallet into a non-custodial wallet or even into self-custody via a hardware wallet. But we do not know for sure.

We asked Noor this question, knowing that the Blink wallet was a custodial wallet, and she offered a sobering perspective: “It’s expensive.”

Everyone went crazy

Considering that the average income in El Salvador is around $300 a month and a hardware wallet setup at a minimum costs around $100, sacrificing one-third of a month’s income for self-custody is a tall order. It is cheaper to use a custodial solution.

Andrew Mahowald and Pretyflaco, who work at Blink’s parent company Galoy, recently wrote in support of custodial solutions which introduces the concept of “Satoshi’s hierarchy of needs.” This argues for the use of professional Bitcoin-only custodians as an intermediate solution for those not ready for self-custody. This could be a result of Noor and Pretyflaco speaking from a biased source, given Blink is custodial, but there could be some truth in it.

Read more: As Bitcoin Scales, We Need Better Custodial Solutions

What is certain is that companies and individuals are still building Bitcoin solutions in El Salvador to this day. Even though plans for El Salvador’s utopic “Bitcoin City” fell through, which was to be built at the foot of a volcano after the placement of so-called “bitcoin bonds,” companies like Galoy have emerged and are dedicated to Bitcoin in El Salvador. Others, like Strike, have either opened up offices in El Salvador or made some sort of public commitment to the country.

Some of the opposition

Then there’s President Bukele himself.

Although he is immensely popular in El Salvador, boasting a >90% approval rating according to some polls, the rest of the world has a problematic relationship with President Bukele, who has a reputation for authoritarian impulses.

Alex Gladstein, a Bitcoin advocate and Chief Strategy Officer at the Human Rights Foundation, has mixed feelings about El Salvador’s President Nayib Bukele. While opposing his administration’s authoritarian tactics, such as scrapping presidential term limits, spying on dissidents, and arresting people without due process, Gladstein considers the Bitcoin Law to be historic. He wishes the US would add Bitcoin as legal tender and believes it’s only fair for people worldwide to use an open, neutral, decentralized currency instead of a centralized, rent-seeking fiat currency.

The mainstream finance community has not been supportive of Bukele’s efforts to adopt Bitcoin as legal tender. The International Monetary Fund (IMF) has issued reports that warn about financial instability, market integrity, financial stability, and consumer protection risks. El Salvador currently owes the IMF 287.2 million Special Drawing Rights (SDRs) or roughly $382.1 million, as of May 25, 2023. While Gladstein understands the IMF’s concern about instability in El Salvador, he believes the organization opposes Bitcoin adoption because it gives people an escape from the debt colonialism it imposes on much of the world.

In 2021, El Salvador adopted Bitcoin as its legal tender, which was a monumental and important year for Bitcoin and Salvadorans. If crypto survives for many decades, this event will go down in history as a critical milestone. CoinDesk’s interviews with Salvadorans and those working on Bitcoin in El Salvador show a level of enthusiasm and excitement for Bitcoin. One individual believes that 50% of the population will use Bitcoin regularly in the next bull market.

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