From El Salvador to the world
Adopting Bitcoin: Day 2
Second day of Adopting Bitcoin in El Salvador. Today’s talks mainly focused on scaling Bitcoin, technically and geographically. The world is watching El Salvador, and bitcoiners want to ensure this experiment is a success.
In three separate talks, Alex Gladstein (from the Human Rights Foundation), Monica Taher (Trade & Investments Secretariat of El Salvador), and Ray Youssef (CEO of Paxful) all stressed that the goal of the Bitcoin law in El Salvador isn’t for foreigners to buy a coffee with Lightning but for the 70% Salvadorans without a bank account to get financial freedom: learn how to save money and invest for their future.
What are the barriers for other countries’ adoption? In 1694, the British established the Bank of England and invented modern central banking, then all countries followed. For Gladstein, it could be the same for Bitcoin, but Bitcoin is still early, and it’s a massive risk for countries. Taher mentioned a WhatsApp group with Latin American government officials interested in the Salvadoran experiment, especially Mexico and Paraguay. Ray Youssef said that his company was in contact with many governments that could follow El Salvador. He thinks the next country adopting Bitcoin could be Paraguay, Brazil, or an African country. According to predictions on CoinMarketCap, the most likely countries are Paraguay, Venezuela, Anguilla, and Panama. Latin America is definitely at the forefront of Bitcoin adoption!
Bitcoin is often described as “digital gold,” meaning a digital store of value. But for Ray Youssef, the killer app in Nigeria was Bitcoin as a medium of exchange. It’s expensive to send and receive money from abroad, and credit cards are not widely available (many people are unbanked) and have low limits anyway for Nigerians. That’s why Youssef claims that Africa is leading Bitcoin adoption. Fodé Diop, from Sénégal, came to El Salvador as soon as he learned about the Bitcoin Law to learn how to accelerate Bitcoin adoption in Africa. Here’s a video about Fodé’s mission:
Cool stuff mentioned by Taher, the Salvadoran government now uses profits from Bitcoin investments to fund projects such as schools and veterinary hospitals.
Many attendants criticized the government Chivo wallet because it is custodial and doesn’t offer Lightning transactions by default. However, Gladstein insisted that El Salvador could have launched its own coin, a CBDC, as the Nigerian government recently did with its e-naira. Instead, the Salvadoran government decided to plug the country into an open system, and even if Chivo has issues, it is interoperable with the rest of the network. It will be interesting to compare Bitcoin in El Salvador to the e-naira or Facebook’s experiment in Guatemala—El Salvador’s neighbor—using an Ethereum-based USD stablecoin.
Other talks focused on technical scalability. For instance, Taproot can reduce the cost of running a full node with batch verification and strengthen Bitcoin resistance. Bastien Teinturier from ACINQ then presented some elegant solutions to improve privacy on Lightning, such as Taproot/Schoor, to prevent identifying funding transactions (there’s still an issue with closing transactions, though). According to Bastien, it is also easy to identify mobile wallets (they never route payments, don’t have a stable IP, and are often offline). So if a mobile wallet is in the route, it means it is the payer or the receiver. That’s a privacy issue that trampoline payments can fix.
Another scalability issue: running a big Lightning node. Romain Rouphaël and Victor Afanassieff from LNMarkets started playing with Lightning back in 2018 when they tried to sell… Bitcoin socks (not a typo) online! They felt the magic of Lightning worldwide instant payments with no third party. But there were only 500 nodes and $50k total capacity at that time, and the Lightning UX was terrible. So they gave up (but they still have some Bitcoin socks if you’re interested!). Today, there are 30k nodes and $200M on Lightning. In 2020, they launched LNMarkets, a Bitcoin derivate trading platform running on Lightning. They now run one of the biggest nodes and shared their experience. They expected a lot of work from running such a large node, but surprisingly, because users add funds and then withdraw them, channels are on average balanced. The magic of Lightning! The other magic happened during the conference when another speaker suggested LNMarket could use another technology. Cross-pollination at work!
User experience is also a major hurdle slowing Bitcoin adoption. For Giacomo Zucco, existing Bitcoin wallets aren’t great. I experienced that several times in El Salvador. Chivo wallet is terrible, but others aren’t much better. For instance, I had many issues with Muun, not being able to pay a Chivo invoice because the expiry time was too short (according to Muun). We’re still so early…
For Fodé Diop, QR codes—currently used by all Bitcoin wallets—are awful and should be ditched as soon as possible and replaced by NFC payments:
Fodé also reminded us that many people are illiterate in the developing world and that we need to design Bitcoin wallets for them as well. Thankfully, because Bitcoin is open source, the UI can easily be adapted.
Some talks focused on new use cases:
Bitcoin for the creator economy: Bitcoin is superior to fiat because, thanks to Lightning, we can stream money. This is a revolution in the creator economy. You can, for instance, pay to stream a podcast. Censorship-resistant money will then imply censorship-resistant content. “Fix the money, fix the world.”
The programing language, Simplicity, currently on the Liquid sidechain, enables more powerful smart contracts on top of Bitcoin. It could become a future Bitcoin upgrade… “maybe in 20 years from now”! A reminder that development in the Bitcoin space is… prudent. If not slow…
Discreet log contracts (DLCs) to create oracles on Bitcoin.
So it was a long day. Tomorrow we’ll be in El Zonte, aka Bitcoin Beach, where everything started, to meet with the local community.
The El Salvador Series: