El Salvador’s Bitcoin Move Could Trigger Hyperbitcoinisation

unTLDR

Editorial

Whether you like him or not, Nayib Bukele, the President of El Salvador, a little over a month ago made one of the biggest plays in global economics in human history.

The consequences of this still could go either way in these early days.

With the legislation coming to effect to make Bitcoin legal tender on the 7th of September 2021, Bukele sent a very clear signal to the world. It said “Come in. El Salvador is open.”

Purchases of bitcoin made by El Salvador through Bitso, on what has since been dubbed Bitcoin Day, saw hundreds of BTC added to the reserves for El Salvador.

Regardless of what the short term price movements were doing, Bukele continued to stack sats in the interest of the people of El Salvador.

Why does Hyperbitcoinisation Matter?

At a time in history when the current day debasement of the currency supply dwarfs that of the efforts of the Roman Empire, more than just Prepers are waking up.

For a long time now, under the popularised mantra of “First they ignore you. Then they ridicule you. Then they fight you. Then they join you” which has been largely misattributed to Gandhi, we are seeing change happen.

The move by Bukele could be interpreted as an early indication of the “Then they join you” stage.

We are a long way down the road from the “Who invented Bitcoin?” days. But, where does this then go?

Paradigm Changes

It has been argued that the ability for Businesses and Nations to gain increased adoption in new technologies is in part supported by their lack of a legacy system to move away from.

This almost seems counterintuitive.

How is it that a Business or a Nation that had little to no infrastructure in a specific area suddenly leapfrogs ahead of those who have previously embedded older infrastructure?

It’s all to do with change, and changing systems. But, paradigm change is not just about Businesses and Nations.

As a User, when you have so much invested in a particular network there is a tendency for a habitual pattern of use. So, change on a User’s part needs to be incentivised differently.

As the legacy system custodian, a.k.a. the centralised equity holder, adoption of something new requires a paradigm change.

Change is easier to make where there are less barriers in the process to change for all parties. Those barriers can cross a broad range of categories.

Changing people’s habits is not an easy thing to do. But when there is something new offered that opens the door to a world which was previously inaccessible, the ground swell event is eventually phenomenal.

We have seen this take place with what is a fundamental technology today; the Internet. But we’ll take a closer look at this in more detail a little later on.

Looking Back a Little

To keep things more contemporary, let’s consider the world of business over the last five or so years.

Take for example the most recent disruptors that have since become household names, Netflix, Uber, and AirBNB just to name a few. All of which brought innovation to a business model that hadn’t changed in so long.

The failings of the legacy system custodians here, ala Blockbuster, and to a slightly lesser extent the Taxi Industry and the Hotel Industry are well known.

This has seen them go down in the annals of history as being too narrow in their vision and capability to adapt and survive, or maintain their positions in the market to the same ends.

The King is dead, long live the King.

But who are the legacy system custodians, and what are the most common barriers to change outside of the populous and their behaviours?

By and large it is the entities that have a stake in the old way of doing things, those with centralised equity.

Change with this extent of impact has also been hampered by those who are aligned with the centralised equity holders. Those who have a vested interest in their often exclusive structures.

Demonstrations of public power plays, lobbying, media campaigns and narratives are some of the tools used to solidify the foothold of the centralised equity holders.

Regulations are often imposed to seemingly throttle growth and adoption of new ways of doing things that threaten the old way.

The message sent by centralised equity holders through their public facing enforcement representatives; Regulators, can be interpreted as ‘don’t mess with Old Money’s business’ and this is often sent in a very clear manner.

We saw this with Uber and AirBNB in various parts of the world. Heavily taxed, regulated into veritable non-existence, banned, attacked through unionistic bodies and their members. All operating from fear. Fear of losing their grind.

The intention is to dissuade the use or adoption of the new way. Disrupt the disruptor. But at whose cost? Typically the broader populous. Those who have been provided with a better and often much more cost effective service.

Hence, the blatantly obvious plays we have seen made to keep the game in the hands of those who line the pockets of the Politicians and Lawmakers.

This is not to say that all Politicians and Lawmakers are of a questionable standing. However, you could also argue that birds of a feather flock together.

I do firmly believe that ‘by their fruits you shall know them’ is rather appropriate phrase here.

And then you have the financial and vision burden. Old heads in business can be reluctant to change their methods for a number of reasons. Often, this comes down to the priority of balance sheet blended with a touch of ego.

Costs of shifting from one business model to another, a bit like a cruise ship trying to turn, can be an impediment and take much longer than a smaller, or newer operation.

When the new kid on the block is smaller, more agile, not burdened with debt or reporting to shareholders, and needing to consider the impacts of a new model on thousands of employees, they can act on opportunity and implement change at a comparative moments notice.

Paradigm Changes Today Taken for Granted

We can all agree that with a paradigm change comes major issues around familiarity, old habits, and adopting new ways of doing things.

The Internert saw people move from what they thought in the mid to late 1990’s as nothing more than a phone book on the computer to full blown ecommerce today.

Did you now that public use of the earliest iteration of the Internet was prohibited in the USA?

Today, in some countries, even general access to the Internet is heavily regulated. From personal experience, China is prohibitive when it comes to accessing some websites and services. And then when you travel up to Tibet, the chokehold is much much tighter.

Yet, in most other parts of the world, we just expect that the Internet will be wherever we are. Accessible and ready to use.

This is a far cry form where most of us started off in the mid 1990’s with that all too familiar dial-up modem tone.

I’d like to invite you to keep those examples of disruptors and new systems in mind as you look at Bitcoin through a slightly different lens.

Removing Friction in New Systems

Many of these disruptive companies mentioned brought more than innovation and cost improvements. They also brought a reduction in friction.

This is key to improving adoption in anything. The greater the friction, the lower the adoption rate. People typically want things to be easier. We are creatures of habit who tend to the path of least resistance.

While the traditional financial system appeared to want to remain static to some degree, and felt it wasn’t necessary to adapt, the newer market player, Bitcoin, revealed a massive opportunity.

Along with this opportunity there has been brought about a huge change. The simplest of friction reducing elements of this new system include is being open and accessible 24 hours a day, 7 days a week.

No bank has ever done this. Save for the offering of DBS who promote their ‘self-service’ banking as a 24/7 means of banking. But that’s still not really likely to measure up to the rails offered on the Bitcoin network.

Think about the layers of friction encountered in first setting up a bank account anywhere, let alone in Singapore; one of the hardest places to open a bank account and then get back to me about friction and barriers to entry.

To this end, the ability for Nations to be agile and adapt to a new technology is supported by their lack of a legacy system to move away from.

Hospitable regulation is preferable to no regulation or hostile regulation. Through removing these layers of friction there will be a migration of talent and capital to greener pastures.

El Salvador is a prime example of opening the door to hospitable regulation with other countries hot on their heels in laying down a framework for crypto to operate within.

Outside of Western Union, El Salvador previously did not have a legacy system for international remittances that their population could easily access.

With the rollout of the Chivo Wallet, this has all changed, and the estimated benefit for the people of El Salvador is that a staggering $400M+ will stay in their hands instead of the likes of Western Union.

That’s got to be the ultimate in incentivisation and friction reduction. Virtually fee free and instant with no need to be bound to a discriminative banking system.

Enter Hyperbitcoinisation

With the introduction of volcano Bitcoin mines in El Salvador, rumours of Ethiopia becoming the next country to harness the power of volcanoes to mine BTC are bubbling on the interwebs.

The US have also been reporting an increase in Bitcoin mining operations since the China FUD. It seems like the race is on for Nation States to establish their position in this new space.

Bukele’s move appears to be one that is much to the chagrin of the legacy system custodians and their cronies.

I see this as the evolution of digital finance. It’s clearly moving much faster than banks, government regulators, and insurance companies can keep up with.

Bitcoin and Imagining a New Vision

In 2017 Bitcoin made headlines after breaking the $1,000 per BTC barrier for the first time, only to fall below $750 before finishing the year out at the dizzying $20K highs to enter the long and cold crypto winter.

Even at the lowest of the bear market prices of a little over $3,000 it held the promise of eventually rivaling a number of established economies.

Today, trading at just below $55,000 and still a long way from hyperbitcoinisation, I can’t help but hold to the ideology that the dollar is a broken form of measurement. Why could I possibly think that way?

The market, as they say, was flooded. That’s the same thought that’s been running through most people’s minds when talking about the introduction of cryptocurrencies.

Hyperbitcoinisation and the Ripple Effect

As much as this article is looking at the evolution of nation state economies and the adoption of new ways of doing things, we need to look at the bigger picture.

It would be remiss of me to not highlight that the wider blockchain industry is predicted by the UNCTAD to grow to a $61 Billion market by 2025. This seems conservative when you stack it up next to the Grand View Research report which estimates that it will hit a whopping $394.60 Billion by 2028.

If the number of blockchain events in various locations around the world is anything to go by, the writing is clearly on the wall as to where the innovation is finding a home.

The ripple effect of this is that as more innovation is introduced, more opportunities open up in the marketplace. Businesses that can apply elements of the technology in an efficient way will evolve.

Some may have zero use case, while others will be on the bleeding edge prying the door open to an exciting new world.

The adoption of Bitcoin as a store of value has long been confronted with objections based on it’s volatility. When considered across any normal investment timeframe, these objections pale as the trend has been consistently up and to the right.

But, hyperbitcoinisation in my opinion is not about playing the speculative game. It’s much more than that. It’s about unlocking a way for people to transact and store value in a way that is open and transparent.

Something that the legacy system fails to do on a number of levels. The duopoly of governments and banks are what come to mind for me here.

All Eyes on El Salvador

The latest rumors indicate that Brazil may well be hot on the heels of El Salvador too. A new global currency seems to be emerging, and Central and South America may well become something of a hub for blockchain economic activity.

But is Bitcoin really a currency? Or is it something more?

Recently, Jack Maller, Founder and CEO of Strike, spoke about how through the Lighting Network, a surface fiat to fiat transfer can achieve cross border settlement finality using the Bitcoin rails under the hood.

In short, ‘Person A’ in Florida can send US Dollars to ‘Person B’ in Indonesia and have it come out at Person B’s end as Indonesian Rupiah. This is able to be done instantly, not over 72+ hours, all using Strike and Bitcoin on the Lightning Network via Twitter!

Twitter may well see a big increase in users as a result, and possibly a reflection in their share price (not financial advice).

El Salvador Sets Up a Lightning Node

For those who are wondering about the volatility component of the BTC to fiat pair, within the Chivo wallet there is a functionality to transfer the BTC into fiat as an ‘auto convert’ which then gives the option to move to a static, yet still inflationary prone fiat value.

Not only will individuals be able to use the Strike and Twitter integration to arrange remittances, the Chivo wallet is built to operate on the Lightning Network which reduces the cost of transacting in BTC.

Bitcoin All Time Highs

The revolution of disruptive technologies is unlikely to see Bitcoin go down as a final entry in monetary shifts.

It has truly changed how we think about money, and as a result caused people to think about their economic energy and how they choose to store it.

As much as proponents are calling for a $100K+ BTC by the end of 2021, and some saying it will hit $1 million before 2025, this is measured in dollars.

In my opinion, dollars (all fiat currency), although widely accepted today, in their current form they are likely to lose their status in society as a result of their ever decreasing value seen in their diminishing purchasing power arising from economic policy and distrust.

As easy money it will eventually go the way of the denarius. Diluted beyond recognition. Hyperbitcoinisation will provide a safe haven in my opinion.

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