President Najib Bukele's decision this week to be the first country to formally adopt Bitcoin as a legal tender was hailed as the start of the revolution by bitcoin maximalists and the price of BTC rallied on the news.
Speculation was rife of which other countries, especially in Central and South America would adopt Bitcoin next - would it be Paraguay? or Panama? Honduras? Further froth was built with the announcement that by depositing "only" 3 BTC, one could gain permanent residency in El Salvador. No time was then wasted by the detractors image searching for face tattooed gang members to retort the move.
While it is certainly a shift forward that any country has publicly adopted Bitcoin, we should keep perspective. This event came about due to the standard barriers to entry being lowered and a publicity hungry president.
Moving from FIAT:
El Salvador is one of only seven countries not under US administration in some capacity that uses the US Dollar as their official main currency. Of these seven, the Marshall Islands, Palau and Micronesia have tiny populations - Palau has 17,000 and Zimbabwe and Timor Leste have endured sustained economic hardship, famine and violence.
One of the main levers of power for any government is the control of the money supply. Governments of all stripes are continuously temped to keep printing money to pay for debt, pet projects and buying good will. The lessons of Weimar Germany and 1946 Hungry, where inflation peaked at 1.3 × 1016% per month ( prices doubled every 15.6 hours, leading to the printing of the 100,000,000,000,000,000,000 (1020) pengő note) are cautionary tales that resonate with many within the crypto community.
El Salvador however has no control over it's money supply, using US dollars. As such, it has no incentive to remain loyal to a currency that it can not manipulate and print more of when wanted. This gives artificially low barriers to adopting Bitcoin; Crypto is not a threat to your power if you had no power over your chosen fiat currency in the first place. So maybe we will see those 17,000 inhabitants of Palau, or Ecudaor the largest country that uses USD as the next converts to Bitcoin, but be reminded that governments on both the left and the right are loathe to give up power and especially over their printing presses.
Publicity:
Bukele is a polarising figure to put it modestly. Young, handsome and espousing populism and a just-do-it attitude, he styles himself as the saviour of the country and the workaholic selflessly fighting for his people. Detractors would call him a showboating dictator in waiting who has trampled over institutions and engages in populism as oppose to any meaningful reform. He marched the army into congress when he wanted to 'persuade' the law makers to approve his bill, and issues edicts on all subjects great and small, expecting immediate compliance.
Never one to miss a media opportunity, Bukele loves to interact with his followers on Twitter and Instagram, jumping on meme band wagons on TikTok and anywhere else he can rep his brand. Discussions over the good a benevolent dictator can achieve (Singapore, Malaysia etc) are outside the scope of today's article, but as Baron Acton once said "power corrupts and absolute power corrupts absolutely." The majority of dictators start by wanting to build their country, and justify their actions and repressions in a Machiavellian Faustian bargain with their conscious - we are yet to see what Bukele will do, but a clean transfer of power is likely an optimistic dream.
And so, The idea of gaining world attention and a fawning press was too good an opportunity for Bukele to give up, complete with the low opportunity cost and risk of accepting Bitcoin in a partially impoverished country where worrying about high gas fees is not a concern for the majority (appreciating that BTC and ETH are different in objective and operation).
It's great that a country has shown that it is politically possible to adopt Bitcoin. But don't mistake this as the first Domino of a cascade, but another peg along a winding road.
