One evening this spring, Strike CEO Jack Mallers was eating at a sushi restaurant in San Salvador with a couple of his friends when he got a strange DM on Twitter. It purported to be the brother of El Salvador’s president, saying they wanted to talk to Jack about the sudden growth of his app in the country.
The Strike app, which had launched in the country in March, had quickly become El Salvador’s most-downloaded app. Jack didn’t know if the government was pleased or furious about this. So, for the meeting he was summoned to the next day, he brought a friend who promised he’d go with Jack to jail if need be, and another to wait outside to make sure they actually returned safely.
Their concern turned out to be misplaced. El Salvador’s president, Nayib Bukele, welcomed what Strike was doing–which was basically to offer fast, cheap money transfers to a nation where 20% of the GDP depends on remittances, and using existing players like Western Union can be prohibitively expensive and dangerous. The Strike app’s new way of doing payments is where Bitcoin and its “second-layer” Lightning network come in.
Basically, the Strike app lets users do things like pay bills or send money using Lightning’s technology (typically through a QR code) connected to their bank account or debit card. You need Lightning because otherwise Bitcoin transactions could take ten minutes each and involve steep fees. Lighting is not unlike Visa or Mastercard facilitating your payments instantly before they are actually settled by the bank.
You can see how transformative this would be for a country like El Salvador, whose current system is so broken you can barely even transfer your dollars from one bank to another. So the government and the banks are jumping on board with this fresh alternative. After many meetings and discussions with Jack, the country even decided it will start accepting Bitcoin as legal tender on September 7th, making it even easier to do transactions that don’t have to be switched back into dollars.
That announcement, originally made at the Bitcoin Miami conference in early June, is plenty controversial. Critics say it will enable even more corruption in a highly corrupt country (since taking office in early 2020, Bukele has been called “autocratic” and “authoritarian”), and that more than half of El Salvadoreans don’t even know what Bitcoin is. The World Bank has even refused to help the country implement Bitcoin as legal tender, citing its “environmental and transparency shortcomings.”
But proponents argue that El Salvador is already being abused by the reigning financial system. A decade-long civil war in the 1980s that the Reagan administration got involved with resulted in a devastated economy and population flight to the U.S. The country then adopted the U.S. dollar in 2001 in the hopes it could help juice growth. Despite heavy trade with America, that hasn’t panned out.
Now that El Salvador is adding Bitcoin as legal tender, and demonstrating its unhappiness with the dollar-based financial system upon which it currently depends, many are wondering who else might be next. With its move, “Latin America has started to chip away at a financial system that doesn’t work well for the region,” one observer has written. There’s lots of speculation about Paraguay, for instance.
And while this obviously all represents a threat to the dollar as the global standard, along with the primacy of the World Bank and the IMF, it may not actually be the worst thing from their point of view. As El Salvador’s situation has become increasingly desperate, it has actually tried to deepen relations with China in recent years. In mid-2018, it severed diplomatic relations with Taiwan. In late 2019, it signed a “massive” infrastructure deal with China.
Could Bitcoin actually become an ally of the west in its “cold war” with China, one that by offering a financial alternative to Chinese funding could actually improve existing relations in the Western Hemisphere? Sure makes you reflect back on China’s shocking recent decision to ban Bitcoin mining. And hey, I hear Bitcoin Beach is lovely this time of year.
See you if Powell finishes early!
P.S.–You can listen to the whole story from Jack Mallers himself here.