El Salvador makes Bitcoin legal tender

The nation-state games begin.

In case you aren’t aware, a bill was announced and passed to make Bitcoin legal tender in El Salvador in the last week. This bill essentially puts Bitcoin on par with the Dollar in El Salvador, and the two will be akin to co-national currencies.

Below is announcement video from the Bitcoin 2021 conference if you haven’t seen it. The emotion in the room is real.


One thing that’s clear to anyone who follows Bitcoin closely is that for the people developing Bitcoin tools and software, being in Bitcoin is not about making money and getting rich. It’s about better money.

Typically I’ve been pretty good at keeping my newsletters concise and focused on a single thought. This one is… not that. Instead, I’ve just decided to bullet out a bunch of scattered thoughts stemming from this news. The points don’t necessarily connect, but there are many different ideas at play here. Each bullet could be its own newsletter.

Okay – so what does this all mean?- First and foremost, this is the President of a country embracing Bitcoin. This is not your annoying Bitcoin friend, it’s the leader of a nation. That is significant.

– This is not a country with a hyperinflationary currency, they use the dollar! I find that particularly interesting. Take a look at this section of the bill:

“IV. Central banks are increasingly taking actions that may cause harm to the economic stability of El Salvador;

V. That in order to mitigate the negative impact from central banks, it becomes necessary to authorize the circulation of a digital currency with a supply that cannot be controlled by any central bank and is only altered in accord with objective an calculate criteria.

I would have expected the first nation to look to Bitcoin to be one with an unreliable local currency.  The fact that a dollarized nation is the first is notable. There are 60+ currencies around the world that peg their local currency to the dollar. Something to watch…

– The bitcoin bill mandates that every merchant must accept bitcoin, as long as they have the technology to do so, but they are not required to hold the bitcoin once they receive it. A whole lot of of people are going to learn how to use Bitcoin in the coming months.

– There will be no capital gains taxes on Bitcoin in El Salvador since the dollar and Bitcoin are both legal currencies. This will surely be another common theme for countries that embrace Bitcoin and look to entice people to move there. Pretty darn good inventive..

– The nation-state games have begun. There will be other countries like El Salvador. Countries that feel they are excluded or limited in the global financial system are likely to be the next to follow. Other countries in Central and South America and some of the usual suspects in the Middle East and Eastern Europe are the next natural places to look.

– In fact, look at this list of politicians in Central and South America that have come out in favor of Bitcoin since the El Salvador announcement. Politicians in Paraguay, Panama, Argentina, Brazil, Colombia, and Mexico.

– Latin America unifying under Bitcoin would be a heck of a way to push back against the USD-based debt that has plagued these economies for decades. That’s getting a bit far ahead though..

– Word on the street is that the US government and state department wasn’t prepared for what El Salvador did and the news is a major wake-up call for people downplaying Bitcoin in politics. What happens from here?

– We are way beyond the point where it’s possible to argue that Bitcoin has no purpose. If that’s still a belief that you entertain, it’s time to Check Your Financial Privilege (brilliant piece by the CSO of the Human Rights Foundation Alex Gladstein. You can listen to the audio version here).

– This is in all stark contrast to the recent G7 agreement to set a minimum national corporate tax rate. The wealthiest countries in the world are mad that big companies are working in more favorable tax locales. So how do they react? By attempting a cartel-like attempt at stricter controls. As I said in Physical Borders and Societal Borders, more stringent restrictions will not work in an increasingly digital world. Why would any nation outside of the richest few agree to an international minimum tax?

– While having nothing to do with taxes, the move by El Salvador shows one way that smaller countries will increasingly be able to opt out of the control of larger players, powered by neutral technology that doesn’t pick sides.

– I know many of you still look at the price of Bitcoin and feel like you missed out. One company in the S&P500 has Bitcoin on its balance sheet (Tesla), and now there is one Bitcoin country (El Salvador). You are earlier than 99% of companies and nations.

– One fascinating point is that the President of El Salvador might not be the best guy. He’s done a few questionable things. That’s part of what makes this extra interesting. He easily could have designed his own surveillance/spyware digital currency like China is about to launch, with the US and Europe eventually following. Instead, he’s embracing a currency that gives his people freedom.

– Quote from President Bukele on Twitter – “I’ve just instructed the president of @LaGeoSV (our state-owned geothermal electric company), to put up a plan to offer facilities for #Bitcoin mining with very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanos.”

Now THAT is interesting. I’m here for volcano energy. Maybe I should bring that idea to Hawaii?

This is exactly the kind of economic incentive to invest in renewable energy through Bitcoin that I’ve discussed previously. You might wonder “if they were able to harness electricity from volcanoes before, why weren’t they?”. The answer – because people don’t want to live near volcanoes! Duh! So there was no reason to generate electricity there. Now though? Not only does mining Bitcoin drive investment into renewables, but it has the opportunity to bring crucial revenue to many cash-strapped locales. There is now an international market for energy.

If I’m one of the following countries/states, you bet I’m exploring volcano mining – Guatemala, Costa Rica, Honduras, Colombia, Chile, Guadalupe, Nicaragua, Peru, Ecuador, Italy, Alaska, Iceland, DRC, Indonesia, Philippines, New Guinea, Japan.

Okay! That’s all for now. I know it was a lot. There’s a ton at play here and it’s all just getting started. Interesting stuff, though, isn’t it?

Leave a Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s