"In 2001, we adopted the Dollar for the benefit of the banks, today we are adopting Bitcoin for the benefit of the people.“

— Nayib Bukele, President of El Salvador

In early June 2021, El Salvador became the first country to make Bitcoin an official currency. An extraordinary step forward for the Bitcoin revolution that many opponents have since tried to downplay.

If you listen to them, El Salvador is only a small country in economic terms. So it is not significant. Nevertheless, it scares the powerful people at the head of the current monetary and financial system as we have you. The IMF has warned El Salvador, as has the World Bank.

El Salvador represents a large-scale experimental laboratory for Bitcoin

These powerful people keep saying that Bitcoin is something dangerous and without a future, but when Bitcoin has a chance to show the world that it can fix global wealth inequality, they seem more scared than ever.

If many are not yet aware of it, what is going to play out in El Salvador starting in September 2021 is something beyond the borders of Nayib Bukele's country.

El Salvador will be a laboratory for experimenting with the Bitcoin standard. Dozens of other countries will be watching what happens in El Salvador. If Bitcoin is a success, others will be quick to follow El Salvador's lead. We must then pay tribute to Nayib Bukele for having dared to try something else for his people.

In any case, El Salvador had nothing transcendent to look forward to with the current system given its unfairness to small countries around the world for several decades.

While Bitcoin still has some flaws due to its youth, the focus should be on what a standard Bitcoin will do to improve the lives of the people of El Salvador. This model can then be replicated in other developing countries around the world.

The ultimate goal is to trigger the biggest change in global wealth creation in centuries.

El Salvador's economic model, like that of developing countries, lends itself well to a Bitcoin standard

First and foremost, we need to look at how El Salvador's economy currently works. The first thing that comes to mind when looking at the numbers is that El Salvador is a poor country: real GDP per capita is just $8,891 according to the IMF.

That's less than $25 per person per day. With so little money available each day, every penny counts.

Another important point here is that nearly 20% of the money circulating in El Salvador's economy comes from citizens living and working abroad. These remittances are essential for the country's survival. They represent $6.8B over the last twelve months according to the Central Reserve Bank of El Salvador.

Note that this is not specific to El Salvador. The same thing happens in most developing countries.

From these two observations, it is easy to understand how Bitcoin will help Salvadorians. In the short term, Bitcoin will help speed up remittances while limiting the fees taken by intermediaries. In the longer term, it will give Salvadorians a chance to benefit from the rise of Bitcoin, which is a currency designed to appreciate over time.

There is no shortage of short and long term arguments in favor of Bitcoin for Salvadorans

As for the short-term argument, it is clear that Bitcoin via the Lightning Network will bring about a major change. Transferring money across borders via companies like Western Union is expensive for Salvadorians.

The average fee for the global remittance sector is around 6.5%. Salvadorians pay $440M in fees per year via these transfers. That's a lot of money for such a poor country. Bitcoin will instantly solve this problem.

In the long term, Bitcoin will give the country's inhabitants access to hard money, whereas they only have access to weak money with the US dollar.

Talking about weak money for the US dollar may surprise some people, but it's actually true. How else can you describe a currency where 30% of the units in circulation have been printed out of thin air in the last 18 months?

A currency that a Federal Reserve Chief says can be printed ad infinitum if needed. Remember this surreal statement by Neel Kashkari during an interview on CBS in April 2020:

“There is no end to our ability to flood the system with money... There is an infinite amount of cash at the Federal Reserve.”

The current monetary and financial system is even more unfair to people in developing countries

Printing so much money out of thin air is problematic because wealth creation is not instantaneous on the other side.

Thus, if total wealth remains constant, increasing the circulating supply of the U.S. dollar will result in a proportional devaluation in the value of what people own in U.S. dollars. This is why a purchasing power of $1,000 in 1971 is not even a purchasing power of $150 in 2021.

The system introduced de facto by Richard Nixon in August 1971 is a totally failed experiment.

For those who have trouble understanding the problem here, consider the example of a pizza. The size of the pizza is constant. If you cut ten slices, you can feed more people than if you cut two slices. However, everyone will lose out, since everyone will eat less in the end.

While Westerners often struggle with these concepts, people in countries where hyperinflation is taking its toll are not. Ask people in Venezuela, Lebanon, or Argentina what they think.

Bitcoin represents a unique opportunity to solve the problem of global wealth inequality

The major problem for people in countries like Savaldor is that they are excluded from the potential benefits of an increase in the money supply. They cannot invest the fruits of their labor in assets that will beat the effects of monetary inflation as the wealthiest Westerners can.

Worse still, 70% of Salvadorians are unbanked. They cannot even hope to earn some interest with a bank account to better resist this monetary inflation.

A system like Bitcoin with a limited supply of 21 million units no matter what and a programmatic monetary policy becomes much more attractive to the inhabitants of these countries. There are currently 7.8 billion people on Earth according to the latest UN estimates.

This means that there is at most 0.00269230769 BTC per human being or 269,231 Satoshi.

If the demand for Bitcoin by citizens around the world increases in the future, the value of Bitcoin will also keep increasing if we stick to the basic laws of supply and demand. Under these conditions, the citizens of those countries that have chosen Bitcoin before others will be the big winners. Therein lies the genius in President Nayib Bukele's boldness.

For Salvadorians, and it will be the same for people in other developing countries who will eventually embrace the Bitcoin revolution, the choice of Bitcoin over the US dollar will be a no-brainer. It is better to bet on the success of a currency with a fixed supply that respects its users than to remain in a totally unfair US dollar system.

Bitcoin already fulfills the 3 functions of a currency for people looking for a better solution for their future

The arguments against Bitcoin by the powerful in the current system about the 3 functions of a currency can all be objected to by people looking for a better solution for their future:

• Store of value. The volatility of Bitcoin is part of its design. What you should look at instead is the evolution of Bitcoin's annual lows over time. And these have only increased since its inception.

• Medium of exchange. The Lightning Network addresses the problem of fast and cheap Bitcoin transactions. Rest assured, Salvadorians won't be paying a $10 fee to buy their newspaper. With the Lightning Network becoming the norm in the country, the fee will be around $0.01. Largely acceptable. We'll have to see if the Salvadorians really take to Bitcoin as their preferred means of payment daily. It's all up to them here.

• Unit of account. If Bitcoin is not seen as a way to pay for goods and services today, it will become so over time if it becomes the preferred means of exchange for Salvadorians. We need to take the long view here.

Final Thoughts

Salvadorians have a unique opportunity to change their future for the better with Bitcoin. The start of this full-scale experiment that will be followed around the world will begin in a few days.

If Bitcoin changes the lives of Salvadorians as I believe it will, it's a safe bet that many countries in Latin America, Africa, and Asia will follow the path set by Nayib Bukele. What is most interesting here is that the last countries to embrace the Bitcoin revolution will be the ones who benefit the least.

As you've already figured out, these countries will be those in the West. A good way to finally reverse the balance of power in terms of wealth between nations globally.

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