El Salvador’s embrace of bitcoin may be a grand experiment, marked by great expectations … or it may be a technological flop with few takers (from the public at large).
Or maybe something in between.
As Stephen Pair, CEO of BitPay, told Karen Webster, “We want people to use bitcoin and other cryptocurrencies because they want to, not because they’re forced to. I don’t know that I would necessarily agree with forcing companies to accept it as currency.”
El Salvador, of course, became the first nation to accept — and, really, promote — bitcoin as legal tender. And merchants must process those transactions or perhaps face punitive action from the government itself.
Pair said it would have been sufficient for the country to just take steps to make “sure that cryptocurrency and innovation around it is encouraged and protected.”
Read here: El Salvador Buys $21m Bitcoin
The launch has been uneven, to say the least. The first day, when the bitcoin eWallet debuted, and citizens were given $30 worth of bitcoin to spend, in effect incentivizing them to use the crypto at merchants, servers crashed and the wallets themselves were (temporarily) taken offline.
And bitcoin? As a proxy for the El Salvadorian launch itself — well, the pricing action has been bumpy, too. At this writing, the price of the digital offerings had plunged to a bit more than $45,000, down significantly from more than $53,0000 seen earlier in the week, before El Salvador began its rollout.
To be sure, El Salvador’s approach has been, to lift a popular movie title, fast and furious. From the presidential announcement that a bill would be sent to the legislature to bitcoin being accepted at McDonald’s — it all took place within the span of roughly three months.
Read more: El Salvador Struggles in Bitcoin Debut
As Pair told Webster, El Salvador “will get over these hiccups. I don’t think it will be a bump in the road for bitcoin, either.”
But as bitcoin becomes more firmly entrenched within the country’s economic system, said Pair, some fine-tuning will be necessary. We may see the emergence of off-chain payments, wrapped BTC on the Ethereum blockchain, or broader use of custodial accounts — all in service of smoothing transactions and encouraging consumer/merchant adoption.
“There are a number of different possibilities and ways in which you can deal with the, the limited capacity of the network. And it will be interesting to see how to deal with that,” said Pair, adding other countries will follow El Salvador’s lead as they see the value blockchain payments afford consumers and businesses.
As for the wallets themselves, he said, there are limits of a sort in place. When bitcoin first debuted more than a decade ago, the notion and design of the wallets themselves were well-defined. Those wallets were analogous to having an actual wallet with physical cash in it.
“Now we have a digital wallet with digital cash in it — and similar to walking around with a physical wallet, you don’t want to put too much money in it. You might lose the wallet and lose the money,” he said, if users lose electronic keys or passwords. There are, of course, no counterparties to take on the task of recovering those funds.
In terms of the mechanics, bitcoin has been much discussed for its relatively long processing times, where it can take a long time — minutes — for transactions to process and settle. Pair said there’d been a bit of misconception here. The transactions themselves are instant, but when many transactions are coming across the network at once, that’s when the latency occurs, when the fees start accruing. The easy solution to fix that lag, he said, lies with custodial accounts.
In that event, firms hold bitcoin in reserve, backing wallet balances.
“The payment actually never touches the bitcoin blockchain,” he said, adding that “it’s no different than a PayPal or MasterCard or Visa transactions. That’s the technically easy path for you know, businesses and individuals to go down if they want to avoid those fees.” Separately, the Lightning Network, marked by smart contract transactions, can scale instant bitcoin payments.
Beyond the Technology
But beyond the technology, there’s a headwind in place, too, in terms of consumer education and downright wariness. A majority of consumers don’t actually want to use the coins, and as noted, the president has a policy in place that would give users $30 in bitcoin to spur some adoption. Pair expressed confidence that the trial amount given to those consumers will get them to try spending bitcoin with enterprises.
Conventional wisdom holds that the pricing volatility of bitcoin will deter commerce. But as Pair said, though bitcoin is volatile, the general trend has been in the “up direction.”
Only a few years ago, bitcoin’s price was pretty much zero or a few dollars per coin, and now, tens of thousands of dollars later (at that recent $45,000 per bitcoin), the system has been proven to work. With the finite supply of bitcoin on hand, there’s some scarcity value at work, and bitcoin also works well as a store of value, said Pair.
“The fact that it goes up and down in price, well, that’s OK,” he said, adding that “lots of things — actually everything —goes up and down in value. ”
BitPay, of course, has some proverbial skin in the game, as it works with a number of companies in El Salvador — and he noted, too, that his firm can help companies onboard quickly to begin accepting bitcoin. There may be a tailwind here, as the government mandate that firms accept bitcoin may drive traffic to BitPay.
But as Pair said to Webster, there’s room for organic growth, despite El Salvador’s early missteps and hiccups.
“You just need to create a favorable regulatory environment for companies to operate and for individuals to be able to use the platforms and the technology,” he said, and bitcoin’s use in mainstream commerce “will happen on its own.”