El Salvador’s bitcoin experiment tests its limitations

A future economy transacting in bitcoin may invoke sci-fi imagery. But El Zonte in El Salvador is hardly that. Perhaps, that’s why it is the most fascinating test case to date for a bitcoin-as-currency economy.

Driving the news: “60 Minutes” traveled to the 3,000 person surfing village known as “Bitcoin Beach.”

• While the existence of El Zonte is hardly a secret to crypto acolytes, the “60 Minutes” segment brought the story — both its promise and its warts — to 8.5 million mainstream viewers Sunday night.

Catch up quick: Long before the country of El Salvador made bitcoin official legal tender in September 2021, El Zonte was deep into its experiment.

• In 2019, an anonymous bitcoiner recruited an American expat, Mike Peterson, who was familiar with El Salvador, to help him advance the bitcoin cause.
• Peterson’s backer wanted to create a circular economy somewhere, that is, one where people were both paid in bitcoin and used it to buy the daily things they needed.
• Peterson saw an opportunity for the people of El Zonte, mapped out a plan, and got the ball rolling by using the donated bitcoin to pay local teenagers for odd jobs and persuading a popular food spot to accept it as payment.

When the pandemic hit and crushed El Zonte ‘s surf tourism revenue, Peterson seeded 500 families in the village with $35 worth of bitcoin.

• With more bitcoin-ready customers, more stores started accepting it as currency. And the experiment was on.

State of play: Today, around 45 businesses in El Zonte accept bitcoin as payment, including dentists, coffee shops and the electric utility company.

• Last summer, following El Salvador’s move to make bitcoin an official currency in the country, downloads of the Bitcoin Beach app exploded and began seeing about 8,000 transactions a day, Peterson told Bloomberg at the time.
• Another app, Strike, was brought to El Salvador to challenge Western Union in the country’s $7 billion market for international payments.

Yes, but: The warts.

• Bitcoin’s volatility has scared off certain merchants, with many no longer accepting it for payment.
• Technical issues have plagued the country’s official wallet, and the technological hurdle of understanding — and trusting — bitcoin itself has been too high for many. (Paper cash is king in El Salvador, with 70% of the population unbanked.)
• In March, El Salvador’s Chamber of Commerce and Industry released a survey (Spanish) stating 86% of contacted businesses had never facilitated a payment using bitcoin, the publication Rest of World reported.

Bottom line: For a look at whether bitcoin can ever work as a currency, El Zonte is a good start.