Powers On… El Salvador is the unlikely leader for sovereign adoption of Bitcoin as national currency
The question is not whether Bitcoin will be the future of money; the question is how, where and when it will be the future of money.
Powers On… is a monthly opinion column from Marc Powers, who spent much of his 40-year legal career working with complex securities-related cases in the United States after a stint with the SEC. He is now an adjunct professor at Florida International University College of Law, where he teaches a course on “Blockchain, Crypto and Regulatory Considerations.”
While attending the Bitcoin 2021 conference in Miami two weeks ago, several things struck me as interesting and significant. While many others have already reported on the conference, my focus will be on a handful of comments or events that I believe are important for the cryptocurrency and blockchain space.
First, the conference was full of churchlike believers, or those curious about crypto and Bitcoin (BTC). Miami Mayor Francis Suarez kicked off the festivities in grand fashion, noting that Miami was the first United States city to place the 2008 Bitcoin white paper on its government’s website. As a transplanted New Yorker who now calls Miami home and teaches blockchain law to law students there, this made me proud.
When the emcee asked how many in the audience had been to this particular Bitcoin conference in prior years, many hands of the 12,000-strong crowd went up. These attendees were long-term holders, developers, investors and entrepreneurs. And they had a strong Libertarian slant, as evidenced in the warmly received keynote speech by Ron Paul, a former senator from Texas, who said that “authoritarians” were running our government and the Federal Reserve and taking our liberties and rights away. Wow! I did not realize Paul had become so radicalized, or had already been so.
MicroStrategy CEO Michael Saylor said that Bitcoin is the life force of the world. Draper Fisher Jurvetson founder Tim Draper commented that Bitcoin represented “freedom and trust.” I love the Winklevosses, who used the metaphor that “Bitcoin is software to gold’s hardware,” and delighted the crowd by proclaiming that the U.S. dollar is the “biggest shitcoin of them all.” Twitter CEO Jack Dorsey rationalized that the “internet needs a native currency.”
Noteworthy, too, is who was not in attendance: the “suits” and “nonbelievers,” so to speak. The financial intermediaries, capitalists and their minions who will be marginalized or eliminated were the true promise and primary purpose of blockchain realized, according to Satoshi Nakamoto. Those absent included the traditional commercial and merchant banks, the venture capital and private equity firms, the traditional investment banks and hedge funds, and the companies and professionals such as law firms and accounting firms helping them play catch up — or helping them figure out a way to “own” the blockchain and thus the consumers and public, through permissioned blockchains.
For me, I found this quite refreshing. It felt like the exciting programs I attended in 2018, during a time when these same absent players were calling Bitcoin a hoax or fraud, and were gleeful at its price collapse that year. While not all those from 2018 understood what the rules of the road might be to create mass adoption, or the best path, there was sincerity, grand camaraderie and a passion for the efforts and speakers — understanding that there is a large unbanked part of the world that could benefit economically and politically from this untethered financial system BTC can create. They were those who realized rampant inflation was insidiously and stealthily devaluing the assets of citizens. As the co-founder and CEO of Paxos, Charles Cascarilla, said at Bitcoin 2021, Bitcoin is not just a good idea but a legitimate idea for an alternative financial system.
Crypto is legitimate
Also interesting to me is the lack of discussion today about the legitimacy of cryptocurrencies as an investment both at the conference and elsewhere. Back in the day, I remember sitting on a panel advocating for blockchain and crypto, with a fellow panelist, an ex-Goldman dude, dismissing crypto by saying he would only accept equity or notes for any investment in a blockchain startup.
Remember when the nonbelievers and others praying for BTC’s demise noted that owning a cryptocurrency was fools’ play, as the coin did not provide you as an investor with shareholder-like dividend rights, rights to any profits of the startup or ecosystem, or governance rights? It is astounding how that concern has almost evaporated from conversations about crypto, now that there is a market capitalization of around $1.2 trillion and the trading of cryptocurrency futures on the Chicago Mercantile Exchange and the New York Stock Exchange parent company Intercontinental Exchange. Maybe DeFi gets some of the credit for that, as it allows investors to earn “interest” by loaning and staking their coins, and some credit also goes to the growing popularity of proof-of-stake, rather than proof-of-work.
However, the showstopper was not Tony Hawk, nor the woman who appeared to be screaming at Dorsey from the first row about Twitter’s privacy policies. It was the young president of the Republic of El Salvador, Nayib Bukele, who hails from the most densely populated country in Central America. He appeared via a video broadcast toward the end of the conference. Since 2001, El Salvador has abandoned its own fiat currency, the colón, and adopted the U.S. dollar as its official currency.
At the conference, Bukele announced that the country would adopt Bitcoin as a second native fiat currency, on par with the U.S. dollar. A few days later, the legislature there passed a new law doing just that. In Miami, he explained that this adoption “will generate jobs and will help provide financial inclusion to thousands outside the formal economy.” (It is reported that about 70% of the adult population in El Salvador does not have a bank account or credit card.)
The law reportedly requires, not just allows, all merchants to accept BTC for goods and services in commercial transactions, with an exception only for those businesses that lack the technology to do so. It also eliminates any capital gains tax on the exchange of BTC for transactions, to provide more stability to the digital asset. Finally, a development bank will be created to hold $150 million in BTC in order to allow merchants the ability to instantly convert BTC to U.S. dollars. Double wow!
Related: Adopting the Bitcoin standard? El Salvador writes itself into history books
Today, we have many countries and municipalities experimenting with use cases for blockchain outside of the financial promise, including for supply chain providence and recording of real estate transactions. Examples include Sweden, the country of Georgia, the United Arab Emirates — and with the help of the International Monetary Fund, others include Bolivia, Peru and Argentina. But no country has ever put assets developed by computer code on par with the U.S. dollar!
It will be interesting to see how the rest of the sovereign states react to this. I am already reading about studies from economists claiming that El Salvador’s economy will collapse from this legislation. And the IMF is posturing. Let’s see which country will be next to do the same. I predict there will be many in the next few years, allowing for this dual system to coexist in these countries. It is something I have been predicting would occur since 2018.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The opinions expressed are the author’s alone and do not necessarily reflect the views of Cointelegraph nor Florida International University College of Law or its affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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