Two weeks ago, the government of El Salvador shocked the world with the sudden announcement that the Central American nation would make bitcoin legal tender.
CoinDesk columnist Nic Carter is partner at Castle Island Ventures, a public blockchain-focused venture fund based in Cambridge, Mass.
The actual implementation of this provision, which is due to take effect in 80 days, is still uncertain; it seems far-fetched in the extreme to imagine that the Salvadoran government will enforce a bitcoin merchant mandate by force everywhere in the country.
Already, the primary reaction I have seen from everyday Salvadorans has been confusion and dismay at the prospect of having this new obligation imposed on them.
Very real impediments exist to implementing a digitized transactional network in El Salvador: Not everyone has access to a smartphone, power or the internet, and learning how to use bitcoin – whether on-chain, via Lightning or through a custodial app – takes time and effort.
Article 12 exempts those who “do not have access to the technologies that allow them to carry out transactions in bitcoin.” Article 8 specifies that the state will provide “alternatives that allow the user to carry out transactions in bitcoin and have automatic and instant convertibility from bitcoin to USD if they wish.” The specific mechanic here would be a trust created under the state fund known as Banco de Desarrollo de El Salvador providing dollar-to-bitcoin liquidity.
An embrace of bitcoin offers many potential dividends to El Salvador: access to a monetary network independent of the political stipulations that accompany the dollar, and free from Fed-driven dollar debasement; a beacon to attract wealthy and mobile crypto entrepreneurs to Salvadoran shores; and potentially a more efficient and direct system for settling remittances.
A far stronger gesture of faith in bitcoin would be to establish it as a parallel monetary network, on a par with dollars.
In practice, it is the specific friction imposed by tax policy that keeps fiat currencies like the dollar sovereign and subjugates others.
For governments focused on unleashing the economic potential of bitcoin and its adherents, merely removing the tax burdens should be sufficient.
I question the hysterical projections of the critics regarding a mass mobilization of state force to mandate bitcoin acceptance at every pupuseria and supermercado.
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