from Hacker News

An Entire Country Switched to Bitcoin and Now Its Economy Is Floundering

by monsieurpng on 1/20/22, 10:57 PM with 57 comments

• by HWR_14 on 1/20/22, 11:33 PM

  Summary - president of country YOLOs the state's treasury on bitcoin at the top, it loses 25% of value and so does their bonds. Claims about cheaper transaction costs with banks outside the country (primarily the US) turn out to be false and instead are 300% more expensive. Turns out Western Unioning money is pretty cheap.

  This is an unsurprising turn of events. Yet somehow some people will still be surprised.

• by addicted on 1/21/22, 1:28 AM

  Bitcoin as a currency is a scam. That is true beyond a doubt. Every promise made about Bitcoin as a currency has predictably, proven to be false (claims proven false include easy/cheap transactions, no traceability, no depreciation).

  Which is why the Bitcoin industry now pushes it as an investment, which would require it to have diametrically opposed properties than as a currency.

  The only question remaining is whether there is some genuine use for Bitcoin, but the original marketing of Bitcoin is indisputably false at this point.

• by remarkEon on 1/21/22, 7:48 AM

  This article is really, really poorly written.

  The headline implies that the "country" (El Salvador) "switched" to Bitcoin, but this isn't what happened. They passed a law that allows BTC to be used as a legal tender, and apparently 46% of the country now has a BTC wallet[1]. As far as I can tell, USD is still accepted there (I've been to SA but not El Salvador so I don't have first hand experience, let alone recent experience given the pandemic). Also worth noting that "as of 2017, only 29 percent of Salvadorans had bank accounts."

  TFA goes on to meander about on how El Salvador's bond situation is bad, is asking for an IMF loan, and the BTC price is volatile. Day that in the English language ends in "y" I suppose.

  Anyway, I'm still bullish on crypto for a couple of reasons but this from the wiki about their BTC law caught my eye:

  >In the early hours after the law took effect and the official launch of new technologies to deal with a major change to the national currency infrastructure, the government had to take its bitcoin e-wallet, Chivo, offline due to excessive load. The Bukele government increased server capacity and brought the e-wallet back online by mid-day.

  I've wondered before about how in order for BTC to properly function ... (setting aside the inevitable and boring arguments about "is it a currency?" or "no it's a store of value!") you need to have modern and robust internet infrastructure. That really seems to be a bottleneck for adoption here that in my mind keeps BTC and other crypto gate-kept behind the physical infrastructure that exists in your country. I don't know, maybe that gets governments to invest in modernizing their networks but I'm skeptical. Suddenly if modernizing your internet infrastructure means your citizens start rejecting your sovereign currency ... that presents some, well, problems. Unless you fully embrace it, which is what Bukele seems to be doing with this experiment.

  [1] https://en.wikipedia.org/wiki/Bitcoin_Law

• by whythre on 1/20/22, 11:16 PM

  >El Salvador has found itself in an ever-deepening sinkhole of debt, with its cringe president lobbying the International Monetary Fund for a $1.3 billion loan, according to the magazine, and shortly after the Bitcoin City announcement in November, the country’s sovereign bond dropped from 75 cents to 63 cents overnight and is now at 36 cents.

  The above sentence is nearly impossible to parse, it has so many commas and clauses.

  I agree that the financial decisions of the current administration of El Salvador are unwise- but saying the president of El Salvador is ‘cringe’ is so low effort it’s insulting.

• by jiveturkey on 1/21/22, 12:50 AM

  source article which is somewhat better: https://fortune.com/2022/01/19/el-salvador-bitcoin-economy-d...

  Some of the implied conclusions are intellectually dishonest, so it's quite a clickbait article, so really just skip to the last paragraph:

  > The heavily indebted nation is seeking a $1 billion loan from the IMF and also courting aid from the World Bank. But Bukele's getting nowhere with both, and the IMF has strongly criticized his crusade to create the first Bitcoin-powered economy. In late November, Bukele unveiled his nuttiest idea yet, a plan to build a Bitcoin City on the Gulf of Fonseca, funded by a $1 billion bond offering, $500 million of which would be deployed to speculate in Bitcoins! Practically overnight, the price of sovereign bonds dropped from 75 cents to 63 cents of their par value, on its way to its current level of 36 cents. "El Salvador now has the most distressed sovereign debt in the world, and it's because of the Bitcoin folly," says Hanke. "The markets think that Bukele's gone mad, and he has."

  Obvious money grab (wealth transfer) is seen as obvious. News at 11! The bitcoin aspect of all this is a bit of a ruse. It's the device, not the cause. Great for clicks.

• by pitched on 1/21/22, 12:48 AM

  I’m not sure this is a crypto-specific problem, like TFA implies. Using a currency you don’t control is giving up a lot of power over your own economy. Wasn’t there a similar issue like this a few years ago in Greece because they use the Euro and couldn’t adjust to inflation because of that?

• by m348e912 on 1/21/22, 12:31 AM

  I encourage anyone with curiosity to look into the roll out of Bitcoin in El Salvador. https://www.youtube.com/watch?v=P1cIH1ZB70o

  Compare with what is going on in St. Kitts with a similar crypto rollout.

• by StanislavPetrov on 1/21/22, 2:25 AM

  It isn't surprising that some countries would rather have an economy at the mercy of the unpredictable volatility of Bitcoin instead of having an economy at the mercy of the predictable actions of the IMF and the US government.

• by randomhodler84 on 1/21/22, 4:22 AM

  Another hit piece article. I think on the ground it’s going better than this is reporting. El Salvador doesn’t need the IMF, they are going to crowd fund their sovereign bonds. Should be interesting!

• by idontwantthis on 1/21/22, 9:56 AM

  Cambodia moved its banking infrastructure to block chain without changing its currency and it’s awesome. Free and instant mobile transactions between banks.

• by ilaksh on 1/21/22, 9:28 AM

  I heard that behind the scenes they were actually using Algorand. It's economy was bad before. And they didn't switch, just got some adoption.

• by unstatusthequo on 1/21/22, 12:45 AM

  Wasn’t it floundering before?