On September 7, 2021, El Salvador made history and surprised the world by becoming the first country to introduce Bitcoin as legal tender after swiftly approving the law only three months prior.
The announcement generated quite a stir, and many Bitcoiners have spent much time visiting the “Bitcoin country”, with some relocating and others setting up businesses or local operations in the Central American nation.
Changing any monetary system on a national level takes time and requires education, infrastructure and incentives to drive adoption and seed the groundwork.
Putting policy into practice
To start the push towards a Bitcoin standard, El Salvador rolled out a local Bitcoin native wallet, Chivo, and a national airdrop to distribute Bitcoin to citizens, along with plenty of plans to integrate Bitcoin into the country’s operations.
The country planned to roll out a national Bitcoin mining operation, leveraging its geothermal energy supplies, selling volcano bonds to purchase and fund these mining operations and even discussed plans for building “Bitcoin city”, a brand new city.
President Nayib Bukele also claimed the country would begin accumulating Bitcoin for its treasury at one coin per day starting in November 2022.
Since that announcement, the president has published a series of acquisition tweets updating the world on the countries’ purchases, which Nayib Bukele Portfolio tracker has tracked. The tracker had previously accounted for 2,864 Bitcoin based on the record of previous pubic tweets by Bukele.
However, a tweet has no bearing on the Bitcoin network, so we were left to trust and not verify. According to reports, the countries’ Bitcoin holdings were with Bitgo, an American custodian, which is a precarious place to leave your country’s treasury, given El Salvador’s Bitcoin Laws have not enthused the US government.
Where have all the coins gone?
Even with the tracking of Tweets, the amount of Bitcoin El Salvador has acquired was, at best, a guess until recently. President Nayib Bukele of El Salvador, in a Michael Saylor-esque MSTR update, announced that the country had taken self-custody of a significant portion of its Bitcoin, holding it on-chain in a multi-sig.
Bukele tweeted the public address (32ixEdVJWo3kmvJGMTZq5jAQVZZeuwnqzo), showcasing 5,689 bitcoins in a cold wallet in a vault. The address revealed that 4,560 were received from Bitfinex, which is strange considering funds were supposed to be with Bitgo while Chivo apparently also worked with BitSo on the backend.
Given that the Tweet states it’s a big chunk, we assume the country has more bitcoin stored elsewhere, perhaps still with BitGo; who knows?
While it’s never wise to dox your public address, or re-use the same public address for transactions as a pleb, when it comes to national treasuries and public funds, I suppose it’s a different story.
The move brings much-needed transparency and allows Salvadorans and everyone worldwide to audit El Salvador’s Bitcoin reserves and see all inbound and outbound transactions.
So where does all this Bitcoin come from? According to Bukele, the primary revenue streams are:
- BTC revenue from our passport program
- Revenue from converting BTC to USD for local businesses
- BTC from mining
- BTC revenue from government services
Bukele has also stated that the country would continue to acquire 1 Bitcoin per day until it becomes unaffordable with fiat currencies.
The market reacts: From donations to degens
Unsurprisingly, once Bukele released the public address, some people donated to the wallet address; who are these psychopaths? I don’t know, but either they have too much Bitcoin on their hands, or they want to make your OPSEC harder by tying yourself to a prominent public address.
But more power to you; it’s your Bitcoin to do as you please.
A little donation to El Salvador’s efforts is one thing, but as is the case with anything Bitcoin, we can’t have nice things, and the shitcoiners would try to rain in on the parade.
The address also received 67 inscriptions, including an airdropped “Runestone” and a copy of Eric Hughes’ Cypherpunk Manifesto.
To note, El Salvador has not claimed to be collecting ordinals or associated themselves with any ordinals collections, so before you buy into a pump and dump because someone claims a country is a holder, you might want to take a beat and have your head examined.
El Salvador is keen to encourage foreign capital investment.
To keep acquiring Bitcoin, you need to generate cash flow from somewhere; while taxes can be a revenue stream, El Salvador is looking to lower taxes to drive more volume.
In its bid to get more forex into the country, its congress approved a reform to remove income taxes previously imposed on money from abroad to attract more foreign investment. Before the reform, incomes equal to or greater than $150,000 had to pay a rate of 30% at the time of entry into the country.
Money flows from abroad in forms such as remittances, and company investments will now be exempt from tax.
The authenticity of funds is called into question
It’s not all sunshine and rainbows for the new public treasury, with the announcement catching heat and critics disputing the origin of the funds. Mario Gomez, a vocal critic of Bukele and his Bitcoin plans, has claimed that Bukele’s purchase announcements do not correlate with transfers to the El Salvador crypto wallet.
He alleges that Bitifinex has been providing the country with Bitcoin despite El Salvador claiming BitGo and Bitso as its custodians.
The Bitcoin timechain doesn’t lie; if funds are in a wallet, they cannot be disputed, but who owns the funds, where the funds are coming from, who lays claim to those funds, and who holds the keys is always up for debate.
