Bitcoin is now legal tender in El Salvador. Or is it?
A recent article online states that Bitcoin is now acceptable as legal tender in El Salvador, and in fact if you are retail establishment in that country you are required to accept it, provided you have the technology to do so.
To the Bitcoin bugs, this is proof positive that Bitcoin has a future and is a real currency. After all, if they work a small rural town in El Salvador, it would certainly work anywhere else in the world, right?
I sensed something was wrong with the story from the get-go. It's been well-documented that Bitcoin takes several dollars per transaction and the process he can take as much as a half an hour. Surely this isn't a practical solution for buying chips and soda at a convenience store as posited by author of the article.
And indeed, this isn't the case. The more you scratch the surface of this thing and the further you get into the article you realize something's not right here. The entire thing is being pushed by a foundation from America funded by a secretive investor, probably somebody who is heavily invested in Bitcoin, who wants to make a big splash, and drive the price up through the roof. And no doubt, a press release was recently put out, regarding this event in El Salvador, to try to hike the price of Bitcoin.
What they're trading down in El Salvador's isn't Bitcoins. Rather, it's a closed ecosystem where people are using an app to pay for things being priced in Bitcoin, but actually no Bitcoins are changing hands. It's just a mere payment app using Bitcoin as a nominal placeholder. This is not an example of using Bitcoin as a real currency.
Moreover, one has to wonder why this secretive investor in America is pumping money into this small town to make this happen. Apparently the investor is spending a lot of money on the local economy which is making the locals happy. Also, he's apparently persuaded El Presidente to pass a law mandating the use of Bitcoon in El Salvador. I know this sounds shocking, but presidents of small Latin American countries can be bribed. Our government does it all the time.
I was having drinks the other night at the new restaurant at the golf course. I ran into a friend of mine whose son just graduated from college with a degree in accounting. He's a nice kid but only 21 years old and a fervent Bitcoin believer. His mother told me she didn't understand anything about this Bitcoin deal and thought that she didn't "get it." I said to her, "You DO get it! You understand completely it doesn't mean anything at all!"
Her son, who spends an awful lot of time on the internet, thought otherwise. He thought this is going to be some sort of super-duper new currency that will take over the world. But it's had over a decade to do so and hasn't taken over anything except some people's wallets. And by that I mean a lot of people have lost a lot of money at this game, while the people who set it up and are rigging the deal, are making an awful lot.
And I'm sure this young man, reading the first three paragraphs of the article will say this is living proof that Bitcoin can be used as a real-world currency. After all, if the people in rural El Salvador can pay for things with Bitcoin, why can't anybody? Of course they're only doing so because somebody's plowing a boatload of money into their economy and making it mandatory the local merchants accept this Bitcoin-based alternative currency app.
But given the huge transfer costs involved in using Bitcoin, it's clear Bitcoin can never really be a reasonable currency other than for big-ticket items like paying computer Ransom. But even then, I wonder if Bitcoin has a future. It was recently revealed that of the ransom paid to unlock the pipeline computers, the government was able to claw back about three-quarters of the money.
That would be like having a Swiss bank account where the bankers reported your income and income sources to the government. Or offshore accounts that could be attached. What's the fun in that? The primary uses for Bitcoin – namely trading and drugs, arms, and children - are no longer uses. Bitcoin used to be favored by criminals for illegal transactions, but now it doesn't seem that Bitcoin is useful for even that.
So what does that mean? All that leaves is the so-called "virtual gold" investment - investing in scarcity itself. How long will it be before the rubes and plebes figured that one out?
UPDATE: A reader sends me this blog entry that illustrates how opaque the "crypto" world is. Will "Tether" take down the. whole cryptoverse? Stay tuned!