EL ZONTE, El Salvador (AP) – After the El Salvador Congress made Bitcoin legal tender this week, attention turned to this rural fishing village on the Pacific coast. Known to surfers for its thundering waves, El Zonte has used the cryptocurrency in its economy for the past year.
About 500 fishing and farming families use Bitcoin to buy groceries and pay utilities, which the government provides for the whole country. Bitcoin was already legal to use in El Salvador, but its adoption was voluntary, so the law passed late Tuesday now requires all businesses – except those without the technology – to accept payments in Bitcoin.
El Zonte’s mini bitcoin economy, 26 miles from the capital, was created by an anonymous donor who began working through a local nonprofit group in 2019, a country where 70% of the people do not have a bank account .
President Nayib Bukele, who enforced the Bitcoin law, is touting it both as a way to help the many Salvadorans without access to traditional banking services and as a way to attract foreigners with Bitcoin holdings to invest in El Salvador, the is the first nation to make cryptocurrency legal tender.
Experts are trying to find out why Bukele is pushing Bitcoin. They say it is unclear to what extent the highly volatile cryptocurrency will be a good option for those who don’t have a bank account, and only time will tell if the new system will lead to real investments in El Salvador.
Bitcoin, which is intended as an alternative to government-sponsored money, is largely based on complex math, data-encrypting cryptography – hence the term “cryptocurrency” – a lot of computing power and a distributed global ledger called blockchain that records all transactions. No central bank or other institution has a say over its value, which is determined solely by the people who trade Bitcoin, and its value has changed dramatically over time.
In El Zonte, construction worker Hilario Gálvez went to Tienda María this week to buy a lemonade and snacks to share with his friends. Instead of reaching for his wallet, he paid through an app on his phone.
The store’s namesake, María del Carmen Avilés, said she is now an expert on Bitcoin transactions.
“When a customer comes, I ask them whether they should pay with the application or in cash. The majority pay with the Bitcoin Beach application. I look for it on my phone to charge it. ”
It won’t take more than two minutes.
“It’s easier than paying with bills,” said Gálvez. “I can buy from home, do the transaction with the Bitcoin Beach application and just come to pick up what I need.”
Avilés points out that bitcoin’s volatility can be a problem.
“People ask me if I recommend Bitcoin, I tell them that I won, but I also lost,” said Avilés. “When bitcoin hit $ 60,000, I won and bought this cold store for the store, but then it went under and I lost.”
Román Martínez was a pioneer in the use of Bitcoin in El Zonte. He said the anonymous US donor learned about community projects through the nonprofit Hope House where he works and started working through another American who lives in El Zonte. Hope House shares a building with Strike, a Chicago-based start-up that worked with the Bukele government on the nationwide rollout of Bitcoin.
A request from The Associated Press to interview Strike CEO Jack Mallers was not granted. In an email, the company said, “The Strike app is designed to empower people in all countries, expand the financial system to include those who have been marginalized, and increase economic opportunities around the world, and that’s at the heart of that effort. ”
El Salvador has been using the US dollar as its official currency since 2001, and Strike said the introduction of Bitcoin “as legal tender will help reduce its reliance on the decisions of a foreign central bank”.
Martinez said El Zonte residents had no bank accounts, no access to credit, and were forced to use cash for all transactions. “Now they are small investors whose lives have been changed by Bitcoin,” he said.
Some wonder how much can be learned from the Bitcoin Beach experiment.
David Gerard, author of Attack of the 50 Foot Blockchain, said El Zonte was an artificial demonstration.
On Bitcoin Beach he said, “The bitcoins are traded within Strike. They’re not really moving on the Bitcoin blockchain or anything. “
Gerard said it seems to be working because the bitcoin dispenser continues to pump bitcoin into the village’s system. “This is not a proof of concept that works. That shows that you can trade this stuff if you aren’t trading real bitcoins and someone is heavily subsidizing it. “
Adoption had been slow in El Zonte but decreased during the coronavirus pandemic when strict lockdown measures prevented most people from leaving their homes.
“Our donor made three deliveries of $ 40 converted to bitcoin to each of the 500 families in the community and they were trained to use the application and now it’s normal to buy with bitcoin,” Martínez said .
El Zonte even has a Bitcoin ATM that will spend dollars against Bitcoin or take dollars and dispense balances in Bitcoin.
Edgar Magaña was in town from San Salvador to convert $ 50 into Bitcoin. He put the dollars in the machine and was surprised to find that his account on his phone only had $ 47 in fractions of bitcoin.
“They took a three dollar commission,” said Magaña, adding that he understood that there was no commission. “It’s like in the banks.”
To encourage national adoption, Bukele said the government will set up a $ 150 million fund so people who receive payments in Bitcoin can instantly convert them to dollars, reducing the risk of the volatile digital currency hold.
Jessica Velis, who runs the business in El Zonte, where the ATM is located, said some people here are already receiving transfers from overseas in bitcoin.
Salvadorans received approximately $ 6 billion in remittances last year from relatives living abroad, mostly in the United States. Bukele said the introduction of Bitcoin could save the cost of shipping that money home.
Not everyone in El Zonte is convinced of this idea.
At Olas Permanentes, one of the city’s most popular restaurants, customers could pay with Bitcoin. But when the waiters were asked if they use it all said no. Some said they didn’t have high-end phones that were needed to download the app, while others said they had doubts about how it worked.
“You pay me in dollars and in cash,” said one waitress who refused to give her name.
As she was walking around town, a woman who only called her name as Teresita was asked if she was using Bitcoin. “Not me, I prefer to have the bills,” she said.
Associate press writer Christopher Sherman in Mexico City contributed to this report.
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