Thursday, September 9, 2021
You know what no one says ever — especially in relation to technology innovation?
“We’re closely watching what El Salvador is up to!”
But now that El Salvador’s become the first country to approve bitcoin as legal tender, that’s exactly what Bloomberg says is happening.
Or as reporters Michael McDonald & Ezra Fieser put it, “Both enthusiasts and detractors of cryptocurrencies will be monitoring the experiment to see if a significant number of people want to transact with Bitcoin when it circulates alongside the U.S. dollar.”
This “El Salvador experiment” is going to live up to the country’s moniker as the “Land of Volcanoes” by erupting in a fiery disaster.
So don’t waste any time monitoring this situation. Here’s why…
Adoption in Reverse
No offense. But this is not how tech adoption happens — i.e., adoption doesn’t start in third-world impoverished nations and gradually move to developed, wealthy countries.
Let me be clear. I’m not saying “trickle-up” adoption is impossible. However, El Salvador hardly ranks as the poster child for being the exception.
While its new president might be business and tech savvy, he’s also shown a tendency to dismantle any semblance of democratic practices à la Hugo Chavez.
Or as U.S. State Department spokesman Ned Price said in a statement, the nation’s "decline in democratic governance damages the relationship that the United States strives to maintain with the government of El Salvador and further erodes El Salvador’s international image as a democratic and trustworthy partner in the region."
More specific to bitcoin adoption, disrupting the status quo should happen naturally. It shouldn’t require coercion or giveaways. Yet, the El Salvador experiment relies heavily on both.
For one thing, the government is requiring all businesses and banks to accept bitcoin.
At the same time, it’s giving citizens $30 worth of bitcoin if they download a government-run digital app and wallet called “Chivo.”
Riddle me this, Batman:
If nearly 70% of Salvadorans don’t even have a traditional bank account, why in the world would they consider opening a digital wallet/account run by the government? To claim $30?
I highly doubt it. Especially since only 34% of the population has access to the internet, and since the Chivo app was taken offline on the first day due to tech glitches. Sorry. People don’t adopt technology that malfunctions out of the gate.
Not to mention, Salvadorans had been protesting the new law that made bitcoin legal tender. So public sentiment isn’t exactly pro-bitcoin. Rather, it’s massively anti-bitcoin, with 75% of Salvadorans expressing reservations about it.
Let’s Just Pretend a Little
But for argument’s sake, let’s say a meaningful percentage of citizens do use the app…
Even then, there’s no way they’ll instantly change all their financial behavior to transact in bitcoin.
Why? Because human behavior tends to follow the path of least resistance.
With the U.S. dollar still being accepted as legal tender alongside bitcoin, everyone in El Salvador is going to keep avoiding banks and continue using dollars.
We’ve seen the same thing in the developed world: despite contactless payment methods being available as far back as 2004, everyone kept using cash and regular debit cards. It took a pandemic for them to change their ways.
And let’s not overlook another impediment: the massive 17% swing in the price of bitcoin on the first day it was accepted in El Salvador as legal tender.
Such price volatility doesn’t exactly engender confidence in bitcoin’s status as a reliable, stable alternative to the U.S. dollar.
The Diners Club of Cryptocurrencies
Long story short, making something legal doesn’t mean it’ll be widely adopted.
Case in point: Diners Club cards were the first legal credit cards. And they were widely accepted for decades. But do you know anyone that actually used them?
At best, bitcoin will be the Diners Club of cryptocurrencies. At least in El Salvador.
So while people like Garrick Hileman, head of research at Blockchain.com, believe this is “a pretty monumental step in the evolution of bitcoin,” I’m convinced otherwise:
El Salvador’s move is nothing more than a circus stunt by a brash politician to try and stave off insolvency and irrelevance.
Even the International Monetary Fund thinks it’s a stupid experiment, warning openly about the risks of making it legal tender and destabilizing the economy.
So while I believe cryptocurrencies and distributed ledgers will eventually find a place in the world, this is not that moment in time.
Bottom line: I don’t expect Bitcoin to be widely adopted as legal tender because of El Salvador’s experiment — and you shouldn’t expect it, either.
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