Mike Peterson was a California surfer whose search for the perfect wave led him to this sleepy beach town in El Salvador. As he tells it, he was doing charity work for young people when an anonymous American donor offered a gift of more than $100,000.
There was just one condition: It would be paid in bitcoin — and distributed directly to residents of El Zonte with the aim of kickstarting a local bitcoin economy.
The donor, whom Peterson said communicated with him through an intermediary, had gotten rich while trading the cryptocurrency and believed it “was going to change the world.”
Two years later, El Zonte is known as Bitcoin Beach — one of the only places on the planet where people can use a cryptocurrency for routine transactions such as buying groceries or paying the electric bill — and bitcoin fever has swept the nation.
Citing the town as inspiration, El Salvador President Nayib Bukele pushed a law through congress this month that will make his country the first in the world to adopt the cryptocurrency as legal tender. The law, which was drafted in part by the CEO of a bitcoin-based cash application, leaves the U.S. dollar as the country’s other official currency.
By early September, Salvadorans will be able to pay taxes in bitcoin and businesses will be required to accept the digital currency for goods and services.
“If you go to a McDonald’s, they won’t be able to say, ‘We don’t accept bitcoin,’” Bukele said in a recent online forum. “They have to accept it by law.”
Bukele, a 39-year-old Twitter star with autocratic tendencies who fashions himself as a Silicon Valley-style disruptor, is now a hero to cryptocurrency fans who view his plan as their chance to prove to the world that bitcoin can replace traditional money on a wide scale.
But critics say bitcoin’s extreme volatility could devastate El Salvador’s economy, further impoverishing communities that are already among the poorest in the hemisphere. Doubters also question the motivations of those pushing the bitcoin agenda, many of whom use the language of human rights in touting the “freedom” from global financial systems that cryptocurrency will bring, but who also have a clear financial interest in bitcoin’s adoption.
“Bukele is helped by these bitcoin bros who are only interested in getting money from working-class Salvadorans,” said Ricardo Valencia, a communications professor at Cal State Fullerton and a native of El Salvador. “These rich Americans are going there and they’re changing the financial system just by having the ear of the president.”
As the experiment conducted in El Zonte goes national, there is both hope and fear.
“I don’t see how this can help people’s daily lives,” Valencia said. “I think it’s going to make more problems than solutions.”
* * *
Local leaders in the town of 3,000 were skeptical when Peterson explained the bitcoin gift.
“When I told them, ‘Hey, we’re going to start using this magic internet money and we’re going to get stores to accept it and we’re going to get people to start taking their salaries in it,’ they just kind of looked at me like, ‘Yeah, Mike,’” he said recently.
Peterson, 47, had moved his family to El Zonte in 2005. He wasn’t a big tech guy — he and his wife still own a concessions business back in San Diego, and he sometimes relies on his two children to help him navigate his iPhone — but he had majored in economics in college, leaned libertarian politically and thought the Bitcoin system was cool.
He began charity work in El Zonte in large part because of his evangelical Christian faith. Now he felt like a bitcoin missionary.
He noticed that older people’s eyes often glazed over when he tried to explain bitcoin — a digital currency that people exchange without the involvement of governments or banks. But younger folks seemed to grasp it quickly.
Peterson put together a local team led by a 32-year-old surfer and community activist named Jorge Valenzuela. Their new organization, Bitcoin Beach, started to pay teenagers in bitcoin to work as lifeguards or pick up trash along the shore. It gave out bitcoin to students who earned good grades in school and to families weathering the pandemic.
Watching money pile up in an online account — and sometimes gain value with time — was a transformative experience for many in El Zonte, which does not have a bank, Valenzuela said.
“The traditional financial system has blocked them,” he said on a recent muggy morning. “Bitcoin is allowing young people to get in the habit of saving.”
He was ankle deep in the ocean, dressed in board shorts and a Bitcoin Beach rash guard, helping give surf lessons to a group of local kids. “All of them have bitcoin,” he said.
If things went well, he said, they wouldn’t have to think about migrating one day to the United States like so many Salvadorans before them: “They now have a future to dream about.”
For Valenzuela and his team, the biggest challenge after giving out bitcoin was persuading local businesses to accept it.
“At the beginning I thought it was weird,” said Roxana Valles, the 42-year-old proprietor of a small beachside grocery store where a parrot named Bonito greets customers. “But it’s turned out to be a really nice experience.”
Customers can pay using a variety of smartphone apps created for small bitcoin transactions. Two of her brothers in the United States now use the technology to send home remittances, avoiding commissions of 10% or more charged by traditional money wiring services.
“You don’t have to go to Western Union or waste money on the fees,” she said.
Most importantly, she said, bitcoin has allowed her to invest for the first time. In March, when the value of bitcoin spiked, she made the equivalent of $500, money she cashed out into dollars put back into the store.
But bitcoin’s wild fluctuations in value mean users can also get burned.
Construction worker Alfredo Amaya, who is helping build a community center for Bitcoin Beach, is encouraged to accept his weekly pay in the currency.
By early May, he had saved up the equivalent of $1,000, money the 60-year-old hoped to use for his retirement.
Then billionaire Elon Musk announced that his Tesla electric car company would no longer accept bitcoin because of the environmental toll of creating the cryptocurrency and processing transactions — an operation known as mining that eats up an immense amount of energy powering huge banks of computers around the world. The price of bitcoin fell 35% and Amaya saw a good chunk of his savings disappear overnight.
When he needed dollars for a recent emergency, he opted not to cash it out of his bitcoin account, hoping that if he left his reserves, they would eventually regain value.
“If I take the money out, I lose it,” he said. Instead, he got a cash loan from a friend.
Some people in town see bitcoin as nothing more than gambling.
“It’s the devil’s money,” said one restaurant owner who does not accept bitcoin and declined to give her name out of fear of retribution from the town’s bitcoin evangelists.
Estánislao Hércules, a 58-year-old pastor, is also unsettled by the changes.
His small, sky blue church sits next to the town’s bitcoin ATM, where people can exchange the digital currency for real dollars for around a 5% fee. Since the bitcoin law was passed, hundreds of people from other parts of the country have showed up, feeding greenbacks into the machine to buy bitcoin. At one point, the machine stopped working and a local woman started taking dollars on her own, charging an 8% commission.
Hércules grumbled about the time that his taxi driver son was paid in bitcoin. By the time he converted it into dollars, it had lost nearly 50% of its value.
“They present it as a great marvel,” Hércules said. “But it’s a trick.”
* * *
As Bitcoin Beach has attracted more attention over the last year, cryptocurrency leaders have flocked here,
recording podcasts, making documentaries and talking in bitcoin jargon in the town’s sandy, narrow streets.
Arriving in late February was Jack Mallers, a 27-year-old who was born into the world of finance. His grandfather was chairman of the Chicago Board of Trade. His father, a futures broker, turned him on to bitcoin as a teenager.
Back in his hometown of Chicago, Mallers had founded Zap, a company that facilitates bitcoin payments. Now he had a plan for people who weren’t comfortable having their satoshis — as the smallest unit of bitcoin is known — exposed to the ups and downs of the market.
After surfing each morning at the beach’s spectacular point break, he would work on Strike, a Venmo-like application that allows people to send bitcoin to each other almost instantly and allows them to freeze their money in a dollar amount.
Mallers was surprised when about a month into his trip one of the president’s brothers and informal advisors, Yusef Bukele, reached out on Twitter.
They hit it off, both showing up in hoodies to their meeting, where they discussed everything from anime to the impact of central bank monetary inflation on El Salvador’s economy. Soon, Mallers said, the president’s team asked if he could help write a bill that would make bitcoin legal tender in the country.
After weeks of meetings, Mallers and President Bukele appeared together at a bitcoin conference in Miami on June 5.
“Yo, yo, are you guys ready for this?” began Mallers, pacing the stage in a trucker hat.
He teared up as he spoke about the poverty he saw in El Zonte, and fired off an expletive-laced rant about money transfer services that take a sizable cut from remittances. “If you can fix the money,” he said, “you can fix the world.”
Then Bukele beamed in on a video screen. “We hope that this decision can help us push humanity at least a tiny bit into the right direction,” he said to roaring applause.
A few days later, Bukele presented a two-page law to congress. It was approved in the wee hours of the following day despite protest from opposition lawmakers who complained that there had been no real debate or testimony from economic experts. The same day, Bukele changed his Twitter profile picture to one showing him with lasers coming out of his eyes, a meme used by bitcoin fans.
The law established a $150-million government trust fund that Bukele says will give Salvadorans the option to convert their bitcoin to dollars if they wish.
“They have to take the bitcoin, but they don’t have to take the risk,” Bukele said to a digital gathering of more than 20,000 bitcoin enthusiasts in a Twitter Spaces hangout.
He did not explain how the fund would be big enough, given that El Salvadorans in the United States send home $6 billion in remittances each year.
“We might earn some money or we might lose some money, but it doesn’t matter,” he said. “The purpose of the trust fund is not to make money but to support making bitcoin a legal tender.”
He said the new law will make the country a magnet for cryptocurrency entrepreneurs, whom he has promised immediate permanent residency and a break from paying capital gains taxes. He has even offered up the country’s picturesque volcanos to the cause, saying the geothermal power they produce can be used to power computers to mine bitcoin.
But the plan has set off alarm bells in the global financial system.
The whole point of bitcoin is to allow people to hold and move money outside of government regulation — in the early days of cryptocurrency, it was most associated with Silk Road, a site on the dark web used where people bought and sold drugs and guns.
That has raised concerns about corruption, with the Central American Institute for Fiscal Studies saying the plan will turn El Salvador into a “money laundering paradise.” It didn’t help that the day before the Bitcoin announcement in Miami, Bukele, whose health and finance ministers have both been accused of graft, had pulled out of an anti-corruption accord with the Organization of American States.
Economists say the bitcoin plan could derail El Salvador’s negotiation of a more than $1-billion loan from the International Monetary Fund, which economists say will be necessary by the end of this year. Bukele’s liberal spending has left El Salvador nearly broke and at risk of default on its debt, which is 92% of the gross domestic product.
“If banks in El Salvador were holding large amounts of bitcoin and the price was fluctuating wildly, you could have banks having losses suddenly,” said Carlos de Sousa, an expert on emerging markets at Vontobel
Asset Management, an investment firm in Switzerland.
Another downside to bitcoin: It doesn’t offer credit like a bank.
“If you only have money, but no credit, then economic development becomes really difficult,” De Sousa said.
Bukele is one of the world’s most popular presidents, maintaining high approval ratings even as he has come under international criticism for his anti-democratic tendencies.
In February, Bukele’s party swept midterm elections. On May 1, the day the country‘s new legislature was sworn in, his supporters moved to oust his critics on the Supreme Court and in the attorney general’s office — an illegal power grab that political scientists have called a “self-coup.”
Many Salvadorans stood by him, saying such moves were necessary to continue the country’s progress.
But the bitcoin plan has sparked widespread anxiety.
Many people in El Salvador had never heard of cryptocurrency before the president’s announcement, in English, in Miami. It evoked memories of El Salvador’s bumpy transition from the colon to the dollar in 2000 — a decision made in the middle of the night by congress that suddenly reduced people’s purchasing power.
“I’m worried the economy will crash,” said Mario Avelar, 55, who runs a roadside restaurant high on a cliff overlooking the ocean a few miles north of El Zonte.
He doesn’t know how he’ll be able to participate in the Bitcoin system — there’s not a strong enough cell signal at his place for online transfers. And he was angry that the entire country’s monetary policy was about to change “on the whim of the president.”
“Whatever happens, we are the ones who are going to end up paying,” he said.
Like many people, he wonders who the original bitcoin donor was. Peterson claimed he doesn’t know, though some have speculated that it might even be him. He also refused to say exactly how big the original gift was.
“Who was the donor?” Avelar asked. “How did this happen overnight?”
This story originally appeared in Los Angeles Times.
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