Originally posted at https://news.ycombinator.com/item?id=26238410. Slightly edited at https://news.ycombinator.com/item?id=26654767, https://news.ycombinator.com/item?id=27337189, and https://news.ycombinator.com/item?id=27448744.
I’m not in El Salvador, but I do have some experience with how Bitcoin gets used in practice in low- and middle-income countries, despite the transaction fees sometimes being high. I don’t have experience with Strike or Lightning in general, so while in theory they should help a lot with the transaction-fee issue, I don’t know how they work out in practice.
I’ve been using Bitcoin to get paid for a couple of years at this point where I live here in Argentina. It’s currently 13 years after Bitcoin’s invention, and some people think it’s regressing instead of progressing. Well, 13 years after the internet’s invention was 01982; not only couldn’t you get so much as a weather report online, much less IRC, but many of the early interesting experiments like NLS at SRI had shut down, and more and more places were disabling guest access to their hosts—you couldn’t run so much as a game of ADVENT without getting a username. And a password. Things were seriously regressing. The only people you could talk to on the internet were other people who really bought into the subculture.
If you live in a country with a highly functional banking system and no kleptocracy, Bitcoin is probably a bit puzzling unless you have family in Cuba. But it’s not puzzling at all for those of us who live somewhere in the middle of the broad spectrum between Switzerland and Somalia, because most places have a little kleptocracy. Argentina is a stable democracy, far from being “a failed state,”† but if you want to send US$500 abroad via non-Bitcoin means it’s basically impossible, and the only broadly available savings vehicle is real estate (“ahorrar en ladrillos”), which of course grossly inflates real-estate prices, with a substantial part of the capital city occupied by empty apartments someone bought “as an investment”. Historically, Argentines have saved by buying dollars, but that’s limited to US$200 a month now, and then only if you have a non-under-the-table job (about a third of total employment is under the table):
You can see that in September 02019 when this measure was imposed the price of a dollar was AR$63.50; now it’s AR$155. So whatever savings you had in pesos in 02019 have lost 59% of their value to peso devaluation.
In 02001 a lot of Argentines had saved dollars in their dollar-denominated bank accounts. This did not preserve their savings through the financial crisis that year; the cash-strapped government limited withdrawals to a trickle, then converted dollar deposits to pesos at a one-to-one rate, then released the exchange-rate peg, at which point peso went overnight from being worth US$1 to being worth US$0.25 before settling at about US$0.31 for the next few years. The US did something similar in 01933.
Some might suggest using “alternatives to banks like credit unions where customers—as owners—hold more power,” but Credicoop depositors suffered the same two-thirds confiscation of savings as depositors in for-profit banks. And they pay the same 3% tax on bank transactions including checks. That’s more than a fast Bitcoin transaction fee of US$15 for transactions over US$500.
But we’re not a failed state. There are no gangs of bandits roving the streets in Argentine cities (though there are some pretty bad slums where you’ll get robbed if you wander in without knowing anybody). Courts, free public hospitals, and roads continue to function, though there are more potholes than a year ago. Argentine infant mortality is 10 per 1000 live births, down from almost 20 in the late 01990s and the same as the late 01980s in the US; life expectancy at birth is 77 years, worse than Switzerland’s 84, but the same as China and Hungary, and better than Saudi or Mexico. (Somalia is 54.)
Most of the world, and notably El Salvador, is worse off than Argentina, although not necessarily in such a statistically transparent fashion. About one fourth of the people in the world are unbanked, 51% here in Argentina, 70% in El Salvador; even advanced countries like Russia, Hungary, and Uruguay have roughly a quarter of the population unbanked:
https://www.gfmag.com/global-data/economic-data/worlds-most-unbanked-countries
And if your family lives in a country like Iran or Venezuela subject to US sanctions, and you live in the US? Good luck sending them an ACH, instant or otherwise!‡ It’s well known that Bitcoin is very popular in Venezuela, which kind of is a failed state, so one of the Venezuelan governments is trying to tax Bitcoin remittances at 15%.
Bitcoin handles a few billion dollars per year in such remittances, which are the lifeblood of the Salvadoran economy. A few billion dollars a year might seem like a trivial amount of money to someone in a rich country, but in poor countries, it’s enough to keep several million people alive.
Even in the US, it’s common for the police to confiscate large amounts of paper currency just because they can (“civil forfeiture”); US bank accounts are probably fine for US$100K but probably somewhat risky for US$10M if the bank thinks you don’t seem like the kind of person who ought to have it. US$10M in US$100 bills fits in a box you can wheel around on a dolly, but Bitcoin is a lot more practical. (And of course US$10M in dollar bills loses about US$200k per year to inflation.) The problems with official corruption in El Salvador are reputed to be dramatically worse than in the US, and Bitcoin should help a lot with that.
Transaction fees are usually high enough that you wouldn’t want to use Bitcoin to pay for a can of Red Bull or even a restaurant dinner. But it’s extremely practical as an alternative to Western Union or US$100 bills or gold, even with the current very high transaction fees. At the moment, the Bitcoin transaction fee is very low—the median Bitcoin transaction fee in the last block was 0.0495 millibitcoins, which is US$1.72:
When I last checked a week ago, it was 0.00678 millibitcoins, which is US$0.25:
Three months ago it was at what I think of as a more normal rate of 0.31 millibitcoins, US$11, which is lower than the 3.4% spread you’d pay to a jeweler or black-market money changer for transactions over US$350:
So, Bitcoin doesn’t have to be a cypherpunk utopia to be a big improvement on the status quo ante. For those of you living in stable countries where your worries are things like “instant and extremely low-fee ACHs” and “decentralized utopia”, this may be very confusing, but try to remember that most of the world lives in places with much more pressing concerns, concerns that Bitcoin helps a lot with. And you may live there too, soon—the loyal subjects of Kaiser Wilhelm in 01913 certainly didn’t expect that in 15 years they’d be in the middle of a hyperinflation episode that remains legendary a century later.
I think that, by providing workarounds to the people who need them, cryptocurrencies probably not only ameliorate the most immediate and pressing concerns of poor parts of the population like Venezuelan immigrants and MS-13 victims, but probably also adjust the power balance in a more liberal and democratic direction. This will improve the chance of those concerns being ameliorated by public policy over the next decades as well. But it’s hard to tell what will really happen. The potential disaster scenario is that, by making most taxation impossible, cryptocurrencies destroy the modern welfare state without providing anything to replace it. So the public hospitals close, the enormous police force starts to support itself by extracting tribute, and the infrastructure decays. Pretty similar to what’s happened in the US over the last 50 years, in fact, only more so.
However, at this point I think the modern welfare state is already doing a good enough job of destroying itself without any significant help from cryptocurrencies—as evidence, I can point to Maduro, Macri, Bolsonaro, Trump, and Brexit, and metonymically to the social changes they betoken. So at this point I’m more worried about cushioning the collapse than preventing it.
† We’ve remained democratic since 01983, electing presidents from three different political parties (UCR, PJ, and PRO), and there’s no serious insurgency. It’s the economy and government policy that are ruinously unstable, to a point that seems satirical to anyone accustomed to the US, but is lamentably common worldwide. Rich people sometimes say they don’t know of legitimate uses of Bitcoin outside of “failed states”.
‡ Family remittances are specifically exempted from the US sanctions on Iran, but good luck finding a US bank that’s willing and able to take that risk: https://www.wiggin.com/wp-content/uploads/2019/09/26580_advisory-family-remittances-from-us-to-iran-not-prohibited-by-iranian-transactions-regulations-martini-glasser-november-2011.pdf