Bitcoin in El Salvador
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The Central American Group: Hello. Welcome to another episode of Central American group podcasts. In these sessions, we speak with experts that address topics having to do with Central America that is of interest to visitors to the Central American Group’s website. Today we have Alfredo Escalon with us. He is the CEO of Fisherman Wealth Management, which is a firm in San Salvador, El Salvador. Today we’re going to talk about Bitcoin in El Salvador. I’d like to welcome you today. Alfredo, could you tell us a little bit about yourself and your company?
Alfredo Escalon: Sure. Thank you very much. I am the CEO and founder of Fisherman Wealth Management. We started the company 14 years ago with the purpose of helping to educate people regarding the relationship they have with money. Well, we work in the area of finance. We try to find easier, cheaper, and faster ways for families and businesses to achieve their goals.
The Central American Group: The topic that we’re going to talk about today is one that’s sort of a puzzle to me. I hear about Bitcoin in El Salvador, and I hear about Bitcoin miners, and I also hear that they need ungodly amounts of electricity to mine Bitcoins. Could you give a little bit of an explanation about all of this?
Alfredo Escalon: In a nutshell, let me tell you what I have learned and what I have found out from all the people that we have asked. The easiest way to explain it is to start with blockchain technology. I think blockchain technology is a platform or a method to, or a system, that will accelerate the digital future. In a nutshell, a blockchain is a decentralized software. Everybody is an arbiter of the transactions that are being made. Let me explain by using this example: I pay all my bills all this month, and I make checks. I pay with credit cards, and I take cash out of the ATM. Once I have all the information of all the transactions, all the people that are involved in those transactions are able to audit them. That’s mining.
People that are involved with the transaction have an algorithm to make sure that all the data in that monthly transaction is accurate, and that all the people have the same data. Nobody can change it once it is a block. When all the parties of a transaction are in accordance with all the information, they make a block. You have an algorithm that is running and checking transactions. That’s called mining in Bitcoin.
The way to stimulate people to make that audit is to make the community, or in all transactions, pay bitcoins to build a block of information. So that’s mining and that’s why it takes a lot of energy. This is because you have to have a lot of computing power. Just running an algorithm to check that all the transactions are okay. Once you finish it in a block and is it’s confirmed with all the information. It gives you a quote that is attached to the next block of information. If you want to change that you have to change the next block also.
It’s practically impossible to change the information that is in there instead of having 1/3 reliable source checking for the transactions, the whole community is checking the transactions. This technology can be used in cryptocurrencies. Additionally, it can be used in the pharmaceutical industry, in medical records, or in the food industry. Blockchain technology has a lot of different potential applications.
The Central American Group: I’ve heard some people say that blockchain technology in the future may be utilized so that people can vote with security online.
Alfredo Escalon: Of course, it can be used in that way. If you use this technology, it’s going to be impossible for people to do something illegal in voting. You are going to be able to vote anytime, from anywhere, and you will be auditing all the votes of all the people. It will be impossible to manipulate the results.
The Central American Group: Hopefully, that’ll be used in the near future for that purpose. Another thing that I hear from people and read is that there’s a concern that using Bitcoin can be effectuated to keep transactions, somewhat secretive. Given what you just said, with respect to everybody auditing, how can that be the case?
Alfredo Escalon: I think that people don’t understand very well.
I want to recommend a documentary on YouTube that is called Banking on Bitcoin. There’s the case of a person that was selling Bitcoins early when this was beginning. He was selling bitcoins to different people. They paid for them in cash, and he will sell Bitcoins to them. He was like, like an ATM of Bitcoins. You know, you pay money, and He will give you the Bitcoins. So, a person that was buying bitcoins from him used Bitcoins to buy drugs, to do something illegal. When the FBI caught this guy that was buying drugs, and all of that, they could trace the transaction all the way to the individual who was selling the bitcoins. They tried to implicate him in a crime. I think that they arrested him. When he was put on trial for that, he asserted that he was not responsible for what people are doing, with the money that I changed for them. He compared this to put the president of Bank of America in jail because someone was taking cash from an ATM and buying drugs. Whenever you use cash, it’s possible to trace transactions. But with this, it’s not. It’s impossible not to trace it.
The thing is that if I buy a shirt from you, and you sell that shirt for twenty dollars to me, though, in blockchain technology, nobody is going to be in the middle. You know, so nobody can know that, that I bought a shirt from you. And that’s, that’s a misunderstanding that people have. So, it’s more secure. It is much more secure than cash for sure. And if people want to launder money, I mean, they launder morning dollars right now, what you need is a person, a banker, or someone who is able to put cash into an account to make it legal.
The Central American Group: You know, let’s get a bit into the present situation that is particular to El Salvador. Could you tell us a bit about the recent adoption of Bitcoin in El Salvador as legal tender? Give us some background?
Alfredo Escalon: Yeah. About two weeks ago, the president appeared at the Bitcoin convention in Miami saying that El Salvador will be the first country in the world to accept a Bitcoin as a legal tender. As I say to all the people, this is like eating a cow you need to see it from three different perspectives. The first one is the way that it’s going to affect people and them in the finance and economics in the daily living of the person that is there. I think that blockchain technology as I told you, is really good because it’s decentralizing a transaction. This is going to make it cheaper. The second part is economics. You know, how it’s going to affect the country. But in that part, I cannot tell you very well because we haven’t seen the rules that are going to be a part of the law. We haven’t seen the rules yet on how it’s going to function. The third issue has to do with the political side of things. A lot of interests are being pushed whenever this is put up as legal tender. So, there’s are a lot of interests that are colliding to be able to see if it’s a good or a bad thing for the country.
The Central American Group: What factors made this occur? What was the impetus for the president of the country pushing the economy in this direction?
Alfredo Escalon: I wish that I could answer that. I can only point to one of the things that he said. According to him, the remittances that are coming from the United States to Salvadoreans would lose less money due to fees. Remittances sent to El Salvador represent approximately 25% of the country’s GDP.
The Central American Group: So, from your perspective, do you see the adoption of Bitcoin in El Salvador as a positive or negative or maybe a bit of both?
Alfredo Escalon: I think it’s too early to say, however, I like blockchain technology. I have seen it applied in different industries. I think it’s the future. I also think we’re at the end of the industrial era, and we’re running into the digital revolution. This is something that cannot be stopped. It’s something that is going to be so good that people are going to eventually jump. Everyone is going to end up using some kind of digital monetary system. And as always, the strongest currency is the one that is going to last.
I’m not sure yet how macroeconomics will affect the country. Seventy percent of the people in El Salvador don’t have a bank account. But only 30% don’t have a smartphone. So, it will be a really easy way to provide financial services to all the people that are not able to have a bank account. So, I think it’s too early to say. I just can tell you that this initiative has a lot of value.
The Central American Group: This could have huge, huge ramifications. And I’m looking at this from the perspective of somebody who lives in the United States. If this were to catch on, this would have huge ramifications for the US dollar.
Alfredo Escalon: Huge. As I was saying, just imagine if more countries were to move in this direction. Cryptocurrencies are as good as the users that have it. As you know, in El Salvador everybody uses WhatsApp. But in the United States, not everybody uses it. So. everybody uses SMS in the United States. So, I need to have a common platform so that we can communicate so. With this more people will be using Bitcoin and cryptocurrencies, digital wallets, and using blockchain technology. I think they’re not going to be able to stop it.
The Central American Group: Alfredo, one of the things that that because I’ve never used it and it’s not on my smartphone, how does this work out in practice? We’ve been reading articles about businesses that are on the Salvadoran coast, I guess they call it Bitcoin beach. From what I understand Bitcoin is actually used in small coastal communities in little stores and surf shops. How does this work?
Alfredo Escalon: For instance, they sell snow cones at the beach, and they accept Bitcoins. They are actually working with it because they have used it as a circular economy. What I mean by this is that they have dollars that they put into an ATM machine, and they change it into a wallet. People always are concerned about the fluctuation of the value of Bitcoin in El Salvador. But as soon as you don’t need to change it again to dollars, it’s irrelevant. The dollar fluctuates, again, let’s say against gold. In March of last year, the ounce was valued at US $1300 and now it’s US $1900. So, the ounce of gold against the dollar has changed due to inflation in the United States. It is going to increase by at least 20%. This is because they have put 20% more dollars in the street. They have printed a lot of money.
The Central American Group: That’s something that has a lot of people very concerned. It probably has to do with what you mentioned about the ounce of gold going up to $600. People are probably buying gold as a hedge against this inflation that you’re talking about. hat leads me to believe that the value of gold will even go higher in the months to come.
Alfredo Escalon: Yes, that’s what I think. Let me tell you this, if you are buying things made in the United States, it doesn’t matter if they put more dollars into the economy. But if you’re going to buy a BMW that it’s made in Germany, the price is going to increase. Because all of them are trading in Bitcoin in El Salvador, it doesn’t matter if it’s more or less. You are going to get charged, every time that you put dollars into bitcoins, and you’re going to get charged whenever you get bitcoins and try to convert them into dollars. As more people use Bitcoin and don’t change it, I think the variable part of it won’t matter. This is because you’re using it as a trading mechanism, not only as an investment mechanism. People are saying that it looked as of people are going to be using losing money. I know a person that bought 2500 bitcoins at US $20. Now he has US $87 million. He is 29 years old you know. Experts say that Bitcoin is going to hit the US $100,000 or maybe even US $200,000. It just makes sense because more people are using it and there are limited amounts of Bitcoins, I mean, you cannot make more Bitcoins. There are going to be 21 million Bitcoins. and that’s it. I’m not saying it’s good or it’s bad, these are facts. If you have some common sense, and if more people are using it, as you can see throughout the since 20o9, till now 11 years. I think that just more people are using it, not less.
The Central American Group – That will probably continue. I know that I asked this question in a maybe a different way a few minutes ago but I’m going to ask again. I know that it’s really tough to have a crystal ball but from a macroeconomic perspective. What do you think the effect of Bitcoin will be on El Salvador’s economy?
Alfredo Escalon: The things that they say like, they are not enough dollars in El Salvador if all the people that hold huge amounts of money in Bitcoins come here to convert them. Also, there’s going to be, as I told you before, I haven’t seen the regulations that will tell what can do and what you can not do with it. I think that’s one of the concerns that people have.
The other concern is the relationship that you have with the global bank and the IMF. You know that in the United States you use dollars. I mean there is a lot of power that politics play in the United States. I don’t know what the implications of the relationship, politically speaking, are going to be. That something that gives a lot of concern to a lot of people. If you asked me, I don’t like the way that this has been done. I’m not saying that is good or bad. I’m just saying that I think you would have needed more consultation with the people. I mean President Bukele was saying it on Sunday night or Saturday night, I’m not sure. On Tuesday, Congress passed the law. So now we have 90 days to learn everything. I hope it’s a good thing for the country. But I don’t know yet. It’s too early to say,
The Central American Group: Well, listen, this has been a good introduction to what is going on with Bitcoin in El Salvador, and what you just said, leads me to believe that maybe in a few months, we can get together again. Maybe some of those questions that are difficult to answer now might be more clearly in focus at that time. What do you think?
Alfredo Escalon: Yeah, I think that by September, we are going to have a better idea of how things will work out. Let me tell you one thing is for sure. One thing that it’s true is that this has made every Salvadorean learn about blockchain, or think about it or ask about it, or at least have a little bit of concern about what the future holds. I think that’s something good, you know. Before this when people talked about blockchain technology and Bitcoin nobody knew a thing.
The Central American Group: Listen, we have lots of people that as a follow-up to listening to the podcast, they have questions. If our listeners want to ask you a question, how could they do that? Do you have an email address that could reach you at?
Alfredo Escalon: Yeah, sure. We’re on all social media because we have a talk show on the radio about finance. It’s in Spanish. Also, we have a lot of ways to get in contact with us also, you can write me at email@example.com. Or you can give us a call or send us a WhatsApp message at 503 2208 9705.
The Central American Group: Thank you very much. Again, we’re looking forward to having a conversation with you in a few months so that we can see how things are working out.
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