This article originally appeared on VICE Belgium.
This year, El Salvador became the first nation on Earth to adopt Bitcoin as a legal currency. A law passed on the 7th of September, 2021 meant that businesses across the country had to accept the cryptocurrency as a form of payment.
Shortly after the law was enacted, President Nayib Bukele, the 40-year-old leader of the centre-right Grand Alliance for National Unity party, announced plans for a “Bitcoin city” to be built at the base of a volcano. Not everyone was impressed: Is El Salvador at the forefront of a fiscal revolution or has its hip, young president taken a huge risk? I went to El Zonte, known by many as “Bitcoin Beach”, to find out.
The 102 bus route takes from El Salvador International Airport to the coastal resort of El Zonte. Reggaeton pumps through the speakers of the converted American school bus. To the right, the road is flanked by street vendors hawking their wares between banana and coconut trees. On the left is the Pacific Ocean. What was once paradise for surfers is now the home of one of cryptocurrency’s potential biggest victories to date.
The journey to El Zonte takes the best part of an hour and a half. The town’s dusty, unpaved roads are empty, except for a few pickaxe-wielding workers preoccupied with infrastructural maintenance. “There’s too much work to do,” one of them tells us. “There’s been a huge increase in visitors these past few months and things get very crowded at weekends. So we’re going street by street, fixing things up. Everything has to look impeccable.”
We walk into a small supermarket. A QR code on the wall lets us know that they’ll accept Bitcoin, along with El Salvador’s other official currency, the US dollar. Spotting us looking confused, Nilson, a 21-year-old employee, talks us through how it works. All we need to do, he says, is scan that QR code. “We all use it here for our daily transactions,” he adds. “It’s changed our lives.” We buy a coconut and leave.
It isn’t a total surprise that Bitcoin has caught on in El Zonte. The small, poor town, home to around 3,000 residents, has been thirsting for positive change since the early 2000s. There have been occasional social initiatives set up over the years, all with the purpose of supporting the town’s youth population.
One of those is Hope House, an organisation founded in 2007 with the mission of enacting positive change for young people. “We focus on schooling and education, digitalisation, free time and spirituality,” says Ismael Galdames, a 19-year-old involved in the scheme. He’s been a proud Hope House member for many years. When we speak to Galadames, he’s wearing a Bitcoin t-shirt.
“With the work that we do, we want to dissuade young people from leaving our beaches and to look for a better life elsewhere, which has happened a lot in the past,” adds Roman Martinez, who works as a community manager in El Zonte. The town’s small size and relative poverty means that many youngsters find themselves looking towards America as a place to find stable work. “The goal was – and still is – to spread knowledge. We provide classes in English and computer science, and even first aid courses and surf lessons to more than a hundred families a week.”
For the first 12 years of its existence, Hope House was kept afloat by donations. Everything changed one day in 2019 when an anonymous gift changed the fortunes of not just Hope House but El Zonte itself. It was a donation with a difference. “There was one condition attached to it,” Martinez recalls. “We had to create a circular economy based on Bitcoin.”
It wasn’t the first time that El Zonte’s residents had encountered the currency; they’d even experimented with it in their workshops. “We mostly thought of it [the donation] as a way of keeping our social work going,” Martinez says. “What ended up happening was that the local population gained knowledge about finances. I saw people starting to save for the first time, for example.”
The transition wasn’t necessarily a smooth one. Martinez cites the town’s merchants as the most difficult people to sell on the idea. “There was a deeply rooted belief here that money was something you touched. This is no longer true. The shopkeepers have come to recognise that.” If his mission was to make crypto converts out of them, he’s succeeded.
The president is encouraging Bitcoin adopters across the country to use Chivo, a virtual wallet that can be used to save and trade cryptocurrencies. He has claimed that two million people – in a country with a population of just under 6.5 million – have downloaded the wallet which, in Bukele’s words, means that it has “more users than any individual bank in El Salvador”.
In order to get more people interested in using the virtual wallet, the government gives each person €26 when they open an account – a sizeable amount in a country where the average monthly income hovers around €330. “It’s impossible to tell how many people have only downloaded the app only so they could access those €26,” says Haegebaert.
Martinez feels similarly: “Bitcoin’s growth was spurred by a social point of view. It’s unacceptable that the government is using its own wallet to try and hack this initiative.”
We meet Nilson’s family a few blocks from where the nonprofit is located. “Bitcoin has been a breath of fresh air in El Zonte,” says Maria, his mother. “Tourists from all over the world are visiting and they’re spending money here. We’re making more money and my oldest daughter was finally able to move to the capital for school. We couldn’t have imagined that three years ago.” This was also President Bukele’s argument at the Latin-American Bitcoin conference on November 20. “The Bitcoin-rich of the world will come to El Salvador. Look at El Zonte. There, Bitcoin has increased tourism, revenue and employment opportunities,” he noted.
The family has no use for the repeated criticism of the country’s newfound love of cryptocurrency. “Everyone has to decide for themselves how they want to handle digital developments, and whether to embrace them or not. We’re no longer waiting for advice or approval from the government,” Maria says. “Those who don’t want to have anything to do with Bitcoin don’t have to use it. Nobody is being forced. But one thing is certain: It’s here to stay, so you’d better get used to it.”
In a documentary called Bitcoin in El Salvador, Dutch writer Arnold Hubach discusses the country’s reliance on US monetary policies, a side-effect of El Salvador’s adoption of the dollar in 2001: “Cryptocurrency is giving a community that used to run largely cash access to a digital financial system. In a country where 70 percent of the population doesn’t have a bank account, that can definitely make a difference.”
Unsurprisingly for a journalist who also edits Bitcoin Magazine, Hubach goes on to sing the emancipatory praises of the currency. “With Bitcoin, anyone can download an app and log into an open network that enables transactions all over the world.”
Global financial freedom does seem to be an important part of El Salvador’s long-term financial strategy, but the president is currently occupied with local plans – namely, the development and construction of the aforementioned Bitcoin City. This city will be a bigger version of El Zonte, with a focus on environmental friendliness. Plans indicate that the city’s central square will be shaped like the Bitcoin logo.
Bukele hopes to harness geothermal energy from an extinct volcano lying dormant near the proposed site of the city. This, he believes, will immediately put paid to criticisms around the environmental cost of cryptocurrencies.
Establishing a new city requires a huge investment in infrastructure, which poses big problems in a non-wealthy country like El Salvador. Bukele’s proposed solution is to appeal to the worldwide financial markets by launching Bitcoin bonds in American dollars, with a coupon of six and a half percent and a ten-year maturity. “From year six, bondholders will earn extra dividends, provided that the Bitcoin is doing well,” he clarified at the time. “Half of the money that is made available by selling these bonds, will immediately be put towards Bitcoin. The other half will be used to build the city.”
The International Monetary Fund (IMF), the UN institution responsible for keeping an eye on the stability of monetary systems, has been highly critical of the El Salvadoran government. “The high volatility when it comes to price means that using bitcoin comes with a significant risk for consumers, financial integrity and financial stability”, the institution said. They’d much rather see Bitcoin be used sparingly “to protect consumers and curb money laundering and financing terrorism”.
Levi Haegebaert, a Belgian crypto expert, is significantly more lukewarm than Bukele on the potential viability of the new development. “This whole thing is still in its infancy. There’s still a lot of room for growth and success is never guaranteed.”
He also sees plenty of reasons to temper some of the current excitement around Bitcoin. “It’s very volatile. If you have it in your wallet, you can lose money without spending a dime. That’s already a big risk, especially in countries like El Salvador where the poverty rate is high.”