President Bukele is betting that the bitcoin community will lend him money on less onerous terms than the IMF and invest their profits from bitcoin in El Salvador. He is buying goodwill from the bitcoin community, whether he also makes a profit on his bitcoin is secondary.
If Bitcoin had instead surged 31% since the "bitcoin bet", the same people pointing to this decline as proof of failure would be (rightfully) dismissing the surge as insignificant due to the intrinsic volatility of bitcoin. The truth is that its impossible to know how El Salvador's bitcoin gamble will ultimately play out, and most of the criticism being leveled at El Salvador right now is due to the pre-existing bias that many have against Bitcoin and crypto in general. This bias is also closely linked to the unfounded faith that crypto naysayers hold in the solvency of the US federal reserve and legacy financial system as a whole (which is similar to the unfounded faith that Bitcoin zealots have in crypto).
The gamble isn't just for the value of the currency...
By putting some effort to displacing the US dollar, El Salvador gains negotiating power with the USA. The USA might provide incentives to end the bitcoin project all together, or some kind of anti-inflation guarantee to persuade El Salvador to hold dollars.
That extra power is what makes this a good gamble. It's a thing that you and I don't get on top of what a regular investor wins or loses.
If you know of a country where the government doesn't gamble its resident's taxes on risky schemes, or (even worse) just flat out waste billions bombing and invading countries on the other side of the world like mine does, please let me know so I can make my visa application!
>So as a Salvadoran myself, I would like to see more transparency on this project.
Couldn't agree more! More government transparency is always good, in every case, in every country, on every issue. It is far too lacking.
Bitcoin has died 442 times. Do they understand that USD 80M is peanuts? even for such a small country? Even in the small countries, 80M is not a significant amount, is more like a normal sized bribe for a state funded project. I would say that the entire ElSalvador move to bitcoin had the purpose to move the price up or down.
Reading the past news from Romania would be enough for a research, the 'small fish' generally get convicted for 500k-5M EUR the big ones never get caught. You can google "romania 30 years of democracy" to get a background of the country and some information and then continue with all the material from 'recorder', most of the bribes come in form of contracts 'clanul marelui alb' is another good documentary centered on the corruption inside the Romanian Orthodox Church and how the bribes and kickback works.
seems in romanian? i'll need to locate subtitles to watch.
Why would anyone bribe the Church tho? seems hilarious. Some kind of tax scams involving their tax-free status or they actually still have influence worth buying?
For context:
* El Salvador has 2 legal tenders, most of their reserves is still in USD that is know to go down in value over long term. More likely their bitcoin holdings will be worth more than their USD holdings some day.
* They own a bit over 1,000 bitcoins, while MSTR owns over 140,000 bitcoins. Apples to oranges, but still.
I’m surprised nobody has ever considered that Bitcoin is vulnerable to attacks. It hasn’t happened yet, but imagine if someone finds a way to do fraudulent transactions. Then it’s all over.
>I’m surprised nobody has ever considered that Bitcoin is vulnerable to attacks.
It's hard to know sometimes if one is being sarcastic on HN, but at any rate, Bitcoin is quite possibly the most scrutinized piece of technology ever developed and there is an enormous amount of research, both academic, corporate, and even just random independent individuals looking for any kind of fault with it whatsoever.
Does that mean Bitcoin is infallible? Absolutely not, but to claim that nobody has considered that Bitcoin is vulnerable to attacks is just one of the most ridiculous claims I've read on HN, once again assuming you're not being sarcastic.
Fraud in a mining pool would only impact miners, and anyone who doesn't like it can use a fixed version of the mining pool software. Nobody would see major losses, and I don't imagine it would cause a lack of confidence in bitcoin.
What about a scenario where a hack of widely used mining software enables an attacker to do a 51% attack? Miners would unknowingly aid the attacker by using the compromised software, and the attacker could execute a double spend.
It would be caught after the fact, and the software patched, but money would be lost and confidence in Bitcoin's resistance to double spends would be shaken.
Because this would enable a 51% attack. If you could attack pool software for 51% of hashrate, you would be able to validate a fraudulent transaction and make millions of dollars out of it.
One of Bitcoin's essential properties is that the miners are not trusted to validate correctly. If a miner mines an invalid transaction, then the network will simply reject their block.
Yup, nobody ever considered Bitcoin is vulnerable to attack. Thank you for the insight!
Snark aside, all risk is relative. Your bank account is also vulnerable to attack, and also a lot more vulnerable to human error and a bunch of other risks. Various instruments are good for various goals - as it happens, BTC is a pretty good value store. Not what anybody expected in the beginning, but there you go.
I think a key point is that traditional finance/banking has far more buffer and dampening built into the system than crypto. Crypto seems incredibly rigid and brittle - so it works well until it doesn't. Crypto seems to work well for people that know what they're doing but it's no surprise that the majority of people don't. Far from a new insight but worth pointing out.
Yes.. by regularly shutting down payment systems due to ” computer errors”.
Banks have never had any data loss or hacks.. but online banking systems are offline regularly.
Also, it’s kind of fun that certain banks have “data recovery” people who go out and try to gather 20+ year old info which was already present.
Organizing a bank run is illegal.. but not with crypto
Is it? I don't see why I shouldn't be able to withdraw my cash from a bank, nor be able to tell others that I'm doing so and why... So what part is illegal?
Well when I'm looking for a store of value to use in exchange for goods and services, it generally is helpful for me if my $100 is not $80 the next week, $110 the one after that, then $70, etc.
What you mean to say is that BTC is a pretty good speculative asset, and I would agree up until the point that people want to actually turn their speculative asset into tangible wealth. Then they are going through fiat, or an exchange, and all the issues with the traditional finance system come through full force on top of crypto volatility.
DeFi and all these attempts are reinventing the wheel but without the traditional protections put in place. If I forget my password and email with Chase I can still recover my assets. Not so with crypto, and if someone does get my wallet key there is nothing stopping them from draining it dry. My bank would probably freeze the account for suspicious activity.
I haven't even brought up malicious theft of crypto, which happens all the time. Mt Gox wasn't that long ago and what was it, 10% of all circulating Bitcoin at the time that went missing? Most users aren't using hardware wallets and I imagine even less know how to really audit a smart contract. These are all barriers to widespread adoption.
"If" someone finds a way to do fraudulent transactions? That already happened about 10 years ago when someone exploited an overflow bug to create billions of Bitcoin for the hacker within a single transaction. The bug was fixed and Bitcoin hard forked over it. Everybody moved onto the new chain.
Hundreds of billions of dollars are staked on the security of Bitcoin protocol. Bitcoin is not some hyper-complex enterprise software suite with thousands of hidden micro-bugs just waiting to be noticed and exploited. It is lightweight, straight-forward and provable by mathematics while being the single most financially exposed and the most audited piece of code ever.
Don't you think somebody would notice something by now?
Anyways. Do you really think the network wouldn't do anything about it? Even quantum-proofing Bitcoin is a possibility, so why not fixing a bug?
I bet that the humans running the machines that run the Bitcoin network would simply update their Bitcoin-core and go on from the point just before the transaction that stole everyone's Bitcoin. A significant nuisance, but hardly a catastrophe.
MSTR, like his last fraud in the dot com bubble, is busy imploding and will probably be investigated for fraud again at some point. Those bitcoins were bought with borrowed money from insane bond issues at much higher share prices.
This is not really newsworthy. Anyone remotely familiar with BTC trends will know this happens every once in a while and so far we got back higher after every single crash. It was likely to happen at some point and it will happen again unless something major changes about the crypto market. Otherwise it's "the thing that happens once a year or so without long term effects happened last week (again)".
"The price of X always recovers" is one of those statements that's true until it isn't. Bitcoin's a volatile asset with a lot of regulatory and reputational risks.
In a real currency that thing that happens every once in a while (i.e. massive volatility) has very real impacts on food prices and salaries and is highly undesirable.
Yes, the impact on people, salaries, etc. would be a very interesting topic indeed. I'm very curious if anyone is being paid BTC salary already and if it was adjusted, or is everyone expecting a quick recovery, or is the reliance on BTC is high enough that the crash changes the fiat prices as well. But that's not what the article is about, or I wouldn't criticize it for being shallow.
El Salvador uses oracle pricing of goods in USD when paying in BTC. Which solves over half of the equation. The other half, of course, is people that choose to continue holding BTC would have wildly fluctuating purchasing power ether way.
By oracle pricing I assume you mean they actually pay salaries in USD (a reasonably stable currency), then convert to BTC at the last minute in order to try to avoid price fluctuations - this doesn't help any of course if it crashes right after they were paid and they can't pay their rent.
What a terrible way to be paid - you get paid and then your salary may drop in price by 10% that day, and you have no idea whether it will happen or not. This is the sort of thing that starts revolutions.
What a great way to be paid - you get paid and then your salary may rise in price by 100% that day, and you have no idea whether it will happen or not. This is the sort of thing that starts vacations.
Oh I see you mean the pricing of assets is actually in USD, but then they convert to bitcoin at the last minute, in an attempt to avoid the instability of bitcoin (which renders it entirely unsuitable for pricing anything). I like the cute name though - oracle pricing.
But this won't help you if you're paid in bitcoin then it crashes, it will make it even worse than if things were priced in bitcoin where at least your spending power for the internal market would not change (even if external goods became more expensive).
CPI is a completely different measure that includes a lot more than currency value vs other currencies (usually the dollar).
I'm curious why you wouldn't compare it to the direct measure, which is the value of the Argentine Peso.
Because if El Salvador had bought Argentine Peso instead and let's assume they bought them in September, when they first started buying Bitcoin (if I assume they bought the Peso gradually over the past 4 months like they did Bitcoin the Peso would look better since its value has only dropped over that period), they would have bought $88mm USD of Peso on September 1 at a price of 97.71 Peso per dollar, giving them a 8.598 billion Peso holding.
At today's price of 104.50 Peso per USD, that holding would now be worth $82.28mm USD.
Compare that to their BTC holdings of $60mm spending the same amount of USD to buy Bitcoin. Clearly $82.28 > ~$60mm, so they would have done a lot better with the Argentine Peso instead.
Of course, BTC is highly volatile and for all you know it may rise by 50% making their holdings more valuable than the Peso. However, what it does show is that BTC appears to be a poor currency, that specifically does not protect from inflation or currency risks.
It might be a great investment, as a lot of people appear to be treating it, but that in fact makes it a poor currency. An investment should appreciate over time. Whereas a good currency should depreciate over time (although slowly) because if it appreciates over time then that greatly reduces the incentive to spend/invest the resources that currency represents in actual productive endeavors, which damages the real economy, and means a country does not build as much infrastructure, grow as much food, or employ as many people, as it would with a slowly but consistently depreciating currency.
The Argentine peso is at 220~. Without snark, I think talking about argentinian peso is reserved only for argentinians. It is just impossible for non-argentinians to understand a multi-currency multi-denomination monetary economy.
Venezuela also has currency controls, but Argentina is still different, because we have had more monetary systems and we also have a non-repressed black market economy+currency economy.
This time btc is down because the markets are down; when they up a bit, btc followed yesterday. One way we will see a real deep btc crash is when the recession comes; I can see it going close to 0; depends on how miserable the recession will be. All the rest is just normal (for crypto!) volatility. This can be the start of a real crash or just volatility. Time will tell.
