Richard Yan (twitter.com/gentso09)
Today’s motion is “It's a bad idea to make Bitcoin compulsory tender.”
If you’re somewhat into crypto, you must have heard about El Salvador’s Bitcoin Law that has made Bitcoin a legal tender in addition to USD. With an asterisk. Dictionary definition of legal tender says a legal tender is a money that must be accepted if offered in payment of a debt. But El Salvador goes one step further, and says not only do lenders have to accept payment in bitcoin, but merchants that provide products and services must also. This is why the motion uses the term compulsory tender instead of legal tender.
The two debaters today will discuss what all this means. One of them will argue why this is not in line with bitcoin’s values and why this may even hurt bitcoin’s adoption. The other will argue that adoption of a new money necessitates such coercion, and this will give the little guys the same kind of opportunity as sophisticated financiers in getting involved with bitcoin.
If you’re into crypto and like to hear two sides of the story, be sure to also check out our previous episodes. We’ve featured some of the best known thinkers in the crypto space.
If you would like to debate or want to nominate someone, please DM me at @blockdebate on Twitter.
Please note that nothing in our podcast should be construed as financial advice.
Source of select items discussed in the debate (and supplemental material):
George Selgin is a senior fellow and director of the Center for Monetary and Financial Alternatives at the Cato Institute and professor emeritus of economics at the University of Georgia.
Yves is the founder of 2B4CH, a Bitcoin Think Tank and Industry Advocacy Group in Switzerland. He also writes about Bitcoin and crypto for the Swiss business magazine Bilan as well as the daily Swiss newspaper Le Temps.
Bitcoin Compulsory Tender Debate
[00:00:00] Richard: Welcome to another episode of The Blockchain Debate Podcast where consensus is optional, but proof of thought is required. I'm your host, Richard Yan. Today's motion is: It's a bad idea to make Bitcoin compulsory tender.
[00:00:20] If you're somewhat into crypto, you must have heard about El Salvador's Bitcoin law that has made Bitcoin a legal tender, in addition to the US Dollar, which is already El Salvador's main currency.
[00:00:30] But why does our debate motion say compulsory tender instead of legal tender? The dictionary definition of legal tender says: "a legal tender is a money that must be accepted if offered in payment of a debt." But El Salvador goes one step further in the Bitcoin law and says, "not only do lenders have to accept payment in Bitcoin, but merchants that provide products and services must also." This is why the motion uses the term "compulsory tender."
[00:00:57] The two debaters today will discuss what all this means. One of them will argue why this is not in line with Bitcoin's values and why this may even hurt Bitcoin's adoption. The other will argue that adoption of a new money necessitates such coercion, and this will give the little guys the same kind of opportunity as sophisticated financiers in getting exposure to Bitcoin.
[00:01:18] If you're into crypto and like to hear two sides of the story, be sure to also check out our previous episodes. We feature some of the best known thinkers in the crypto space. If you would like to debate or want to nominate someone, please DM me, @blockdebate on Twitter. Please note that nothing in our podcast should be construed as financial advice. I hope you'll enjoy listening to this debate. Let's dive right in.
[00:01:38] Richard: Welcome to the debate, consensus optional, proof of thought required. I'm your host, Richard Yan. Today's motion: Making Bitcoin compulsory tender is a bad idea. To my metaphorical left is George Selgin arguing for the motion. He agrees that making BTC compulsory tender is a bad idea. To my metaphorical right is Yves BennaÃ¯m arguing against the motion. He disagrees that making BTC compulsory tender is a bad idea. Let's quickly go through the bios of our guests.
[00:02:07] George Selgin is a senior fellow and director of the Center for Monetary and Financial Alternatives at the Cato Institute, and he is also Professor Emeritus of Economics at the University of Georgia. Yves is the founder of 2B4CH, a Bitcoin think tank and industry advocacy group in Switzerland. He also writes about Bitcoin and crypto for the Swiss business magazine Bilan as well as the daily Swiss newspaper, Le Temps. Welcome to the show, Yves and George.
[00:02:36] George: Thank you for having me.
[00:02:37] Yves: Thank you for having us.
[00:02:38] Richard: Awesome. So we normally have three rounds: opening statements, host questions, and audience questions. Currently our Twitter shows that roughly 70% agree with the motion, they think it's a bad idea to make BTC compulsory tender, and 16% disagree. They think that it's not a bad idea to make BTC compulsory tender. After the release of this recording, we'll also have a post debate poll. Between the two polls, the debater with a bigger change in percentage of votes in their favor wins the debate.
[00:03:11] Just for quick context, this debate was inspired by El Salvador's Bitcoin law that passed in June of this year. That seems so long ago, to be honest. The government made it so that merchants and lenders must accept Bitcoin payments, unless they're not technologically set up to do so. This aspect of the law was cheered by some Bitcoiners, but also booed by other Bitcoiners, hence today's debate.
[00:03:34] Although I don't know about George's position well enough to call him a Bitcoiner. I suppose he's more of a "free coiner" if I understand his position correctly. Anyway, so let's get started with the opening statement. George, you're in the pro position. Please go ahead and explain for us why you think making BTC compulsory tender is a bad idea.
[00:03:55] George: Thanks. First of all, let me say that if I were President Bukele, I would have my reasons for making Bitcoin compulsory tender because my goal presumably is to try to have Bitcoin adopted as El Salvador's principal medium of exchange, general medium of exchange, taking place of the dollar for that role. So if that were my goal and if I thought that were a worthy goal, I would have no objection to this legislation. But I'm not President Bukele, my concern isn't whether or not making Bitcoin compulsory tender achieves his desired end. My concern is whether doing this is a good idea for Salvadoran people, first of all, and also for Bitcoin itself, and I'm going to argue that it's a bad idea for both, that is it's bad for the Salvadoran public, and it's also bad, though perhaps less obviously so for Bitcoin itself.
[00:05:02] Let me start by saying why I think it's actually bad for Bitcoin. The whole idea of Bitcoin is, was from its onset, to be an alternative to government monies, and as such, a contributor to the goal of free choice in currency. It was meant to give people something they could use that was not official money, and that was not something governments compelled them to use, official or otherwise. What we have in the case of the El Salvador Bitcoin law is a very odd departure from the original, as it were, Bitcoin script. Here we see the spectacle of a government compelling or trying to compel its people to accept Bitcoin and what this does to Bitcoin, meaning to the whole philosophy behind Bitcoin, is to corrupt it. It turns Bitcoin into not a symbol of freedom, not just another choice people have to escape from official currency alternatives, but into something that they are forced to accept and that they might indeed wish they could now escape from, and that I think is not good for Bitcoin and it's not good for the whole general movement for free choice and currencies and for alternatives to compulsory government currency.
[00:06:37] So what the compulsory tender aspect of El Salvador's Bitcoin law does is to sort of turn the whole philosophy of Bitcoin its original purpose on its head. But the compulsory tender laws are also bad for the people of El Salvador, and of course I think this matters more than its philosophical implications. And that's because Bitcoin is a very risky asset. It's a highly volatile asset, certainly compared to the US Dollar, which is the currency unit that's presently in almost universal use in El Salvador having been adopted previously as its official monetary unit. We have seen all the evidence, I think anyone needs to see of just how volatile Bitcoin can be just in the course of the weeks, since the Bitcoin law was passed in early June. So I don't think anyone needs to be convinced that this is an asset that a lot of people would rather not have in their portfolios. And let's not forget that although Bitcoin has made remarkable strides and is certainly a much more popular today than it was 10 years ago, it is still not widely popular with the general public. There are many more people who don't touch this stuff and don't want to have anything to do with it than who do want to deal in it.
[00:08:15] And that's true in El Salvador as well. We've seen opinion polls taken by the chamber of commerce down there soon after the Bitcoin law was passed that overwhelmingly demonstrate that the mass of Salvadorans don't want to receive Bitcoin in remittances, don't want to be paid in Bitcoin. I should say that the government backed off from what appeared to have been a plan to pay people and pay its own workers in Bitcoin because of the protests that that inspired. And they don't really want merchants down there, do not want to be paid in Bitcoin rather than US Dollars for ordinary sales, with very few exceptions. Even a Bitcoin Beach where a voluntary program designed to encourage the use of Bitcoin among traders has been in place for some time, there are many small merchants who consider accepting Bitcoin too much trouble and would rather not. And many who have stopped accepting it because of the difficulties involved.
[00:09:21] Now, it's true that the risks associated with bitcoin use are mainly risks for people who hold on to Bitcoin as part of their portfolio. And it's therefore also true that if a merchant can immediately dispose of any Bitcoin received in exchange for goods and receive the full dollar equivalent for those goods, that is the dollar price originally charged for them, then that merchant isn't bearing any risk.
[00:09:55] And so in fact, the Bitcoin law includes arrangements to protect merchants from the risk in question. It does include, facilities that would allow those who accept Bitcoin, and I especially mean those who have to, because they have the equipment to do so. The law exempts those who don't yet have that equipment it protects them. But it's a fallacy to think that what's happening here is the Salvadoran government is assuming the risk. Yes, that's one way of putting it, but of course, governments don't assume risks. What they do is to shift risks from certain civilians to others. And that's exactly what the new arrangement that will take place that will be set up in September does in El Salvador, there is to be a kind of exchange fund or exchange facility for Bitcoin funded by a trust fund with an initial value of $150 million, which is to be invested in Bitcoin.
[00:10:59] And that fund will be there to allow the government to instantly convert for those merchants who wish, who so wish all the Bitcoin they receive into dollars at. Dollar price that they would have received if they had sold their goods or services for dollars in the first place. Now the risk comes in because there's a lag between the receipt of the Bitcoin and the exchange by the exchange facility of the Bitcoin for dollars in a bear market, there could be some losses and the trust fund is supposed to cover those losses, but it's a very dangerous arrangement, the trust, and it's a costly one. The trust fund has to be funded with dollars. Initially that comes, that's a cost born by the Salvadoran people. Furthermore, More Bitcoin will be presumably presented for exchange by merchants in a falling market. That is where people think Bitcoin is not going to be appreciated then in a bull market for Bitcoin.
[00:12:04] So what's going to tend to happen. I believe is that the government will be losing money more often than it gains money by operating this exchange facility. And eventually that $150 million trust fund, which is not a lot of money will have to be replenished. At least there's a high probability that this could happen. And all of the costs of this, of maintaining this risk absorption device fall on the general Salvadoran public. So the risk is there. The harm is there. It is shifted from those merchants immediately forced to accept Bitcoin in exchange to others, and perhaps ultimately to more poor people than those who were originally affected by the compulsory tender. I want to say a little bit more here about compulsory tender. Compulsory tender is not the same as legal tender, at least not in most countries. Legal tender laws resemble article 13 of El Salvador's Bitcoin law, which applies only to already outstanding debts says that they can be settled with Bitcoin at the Bitcoin equivalent of the dollar value of the.
[00:13:17] And that's not unlike most legal tender laws, our own US Dollar bills say that their legal tender for all debts, public and private, for example, but most democratic countries with some exceptions I'll come to don't go any further than that. An American firm doesn't have to accept dollars for spot payments. It could operate on a Bitcoin standard voluntarily. You could set up a business and say, we only accept Bitcoin, and it would be perfectly legal because US Dollars are not compulsory tender here. There are some countries democratic countries that have compulsory tender laws. Yves has mentioned them, Switzerland and France are among the most prominent.
[00:14:00] There are others as well. What they all have in common is that the laws that they've got in place today are results of the Napoleonic code that Napoleon in his various campaigns. Spread beyond France where the code of course was also put into place. And the Napoleonic code is therefore exceptional in having compulsory tender as its components. But that doesn't, that example or those examples of democratic compulsory, tender laws are not anything or don't constitute a recommendation for such laws. In fact, the laws are either otiose as when they tell people they have to accept in payment a currency and official currency that they were already accepting anyway, which means that the law isn't really doing anything.
[00:14:51] If you took it away, nothing would change. The exception is when the law is applied, as it was originally in France during the revolution. To compel people to accept something that wasn't a popular money at all, like the French assignats and to do so when it's harming them, because the currency in question is in their minds inferior to what they were accepting back then that would have been precious metal levers or their equivalents.
[00:15:24] So either a compulsory tender law doesn't do a thing, or it forces people to accept money. They don't want to accept, and it's perfectly clear what's happening. What compulsory tender is doing or is intended to do in El Salvador. And that is the second saddle people with an inferior money. So the fact that France has such a law that Switzerland does that some other places do is itself no argument in defense of El Salvador's adopting the same, especially since the Salvadoran context is one where the law is to be used to force people to accept something they wouldn't normally be accepted, accepting an exchange. Finally what should Bukele do instead if it's, if he's, if he wants to promote Bitcoin use and do so in a way that doesn't harm the Salvadoran people and also doesn't harm Bitcoin, at least doesn't undermine the philosophical underpinnings of Bitcoin.
[00:16:27] Doesn't corrupted by making it stand for something it was never meant to stand for. What he could do is most of what's done in the Bitcoin law. Only article seven, the compulsory tender component is truly obnoxious. Then of course, there are the arrangements to shift risk that are only there because of article seven, to make it more palpable. Those could go too. What's fine about the law, in my opinion, are all those measures that includes that put Bitcoin on an even playing field with the dollar and other currencies, by not taxing it in a discriminatory fashion by treating it as currency rather than as a commodity or security as is being done here in the United States.
[00:17:10] For example, also fine, our efforts to improve the internet, to equip people with cell phones, wallets, and other devices that help them that make it easier for them to accept Bitcoin if they want to and to dock the country with ATM's to make it easier for people to convert Bitcoin into US Dollars and or the other way around conveniently. Now, if that were all that the Bitcoin law did, I would have no objection to it I'd even think it was a great law, but I must admit, I don't think it would, I don't think it would succeed in causing Bitcoin to become El Salvador's main currency. And so it would disappoint those who see that as a desideratum, it's something that's absolutely desirable, but the reason it wouldn't succeed is very simple.
[00:18:04] Bitcoin is simply not that obviously superior to the US Dollar that people are already using. Yes. The US Dollar is flawed. Yes. It depreciates slowly over time or has tended to do so, but it isn't as volatile and it has a worldwide acceptability that gives it a great advantage compared to Bitcoin or any other currency. And so that's why you need compulsion to make Bitcoin take the place of the dollar, but it doesn't mean that laws like the kind of described a modified Bitcoin law aren't desirable and couldn't be helpful elsewhere. Imagine such a law applied in Venezuela where the Bolivar is clearly a totally decrepit currency.
[00:18:53] In that kind of context, even with the absence of any compulsory element, one could well imagine the law serving to cause the voluntary, spontaneous adoption of Bitcoin in place of the Boulevard as a rival to the dollar as a substitute to boulevards. And perhaps even as a an ultimately favored alternative, that's the kind of thing that would be very desirable. We want to see governments make it possible for people to junk inferior, official monies for Bitcoin when it's worth doing so. And that would be entirely consistent, both with the wellbeing of the people in question and with the ultimate original philosophy that gave rise to Bitcoin in the first place.
[00:19:42] Richard: Thank you, George Yves. I think you might be fighting an uphill battle here. So I'm really looking forward to your response to George in your opening statement. Go ahead and tell us why you disagree with the statement that making BTC compulsory tender is a bad idea.
[00:20:01] Yves: Thank you. So there are many things that George addressed. I'm not going to be able to respond to all of them but I'm sure we'll have time to discuss about it during the debate. The first thing I want to say is, It's not so much that it's a good thing or a bad thing, I think it's impossible to assess whether or not it's a good thing or a bad thing, because it's so unique. It's so such a new thing. We actually have no hindsight or no experience. Now the real question as George said, is it good for Salvadorians? I really don't think it is a good or a bad thing for Bitcoin. I think Bitcoin really doesn't care. And I think Bitcoin didn't care in 2011, when Wikileaks started receiving Bitcoin donations and back then Satoshi Nakamoto was still online, still participating in the discussions and everything.
[00:20:55] And he was actually against it because he was saying this is dangerous. This is gonna make Bitcoin go a wrong direction. Maybe make it more vulnerable to the government, for example. At the end of the day, the thing with Bitcoin is that it's like the internet whether you believe in it or not, whether you believe what it's about in terms of libertarianism or or free choice or anarchy or anything. Bitcoin doesn't care. Bitcoin is a system. It's a protocol that is moving forward. What is really the heart of the debate today is the Salvadorian people gonna benefit from the fact that it's imposed on them or would they benefit more? If it wasn't. Where I disagree with the motion is that I think they will benefit better.
[00:21:50] It's not going to be a hundred percent perfect, but I think they will benefit better if it is compulsory. Instead of being something that would take a much longer time to establish itself, because it would be. So another thing I would like to not discuss about is of course the price of Bitcoin going up or down, because this is completely irrelevant. And I really want to make very clear that it's not me as a Bitcoiner that I'm saying, number go up or anything like that. It's really completely disconnected from that. I really want that we discuss about the political aspect of it. And another thing I don't want to discuss about is the whole concept of government.
[00:22:30] In general or law, because as George was saying, there are some things that people don't want and the government is imposing on them. I think for example, in the us you have a whole system of tax on Bitcoin. You have it in Europe as well. And I'm sure a lot of Bitcoiners are saying, I don't want to pay that tax. Why would I, why should I but this is again a completely different topic and it's almost philosophical if we want to discuss about, should a government impose thing on the people that it's representing now. I think what we need to be doing is look at existing situations, and connect the dots and try to understand the best case scenario, the worst case scenario.
[00:23:15] And I think what is really important here as far as this is concerned is it's a new technology. And if you want that technology to work, you need to have it work at scale.. Just like the car, just like the television, just like the internet or mobile phones. It's not going to be something that works if only a very few, tiny elite minority can access it or can use it or can benefit from it. If that was to happen, that would actually create even more of a clash between a certain category of Salvadorian and another category of Salvadorian. I think the fact that it's compulsory makes it even more fair for everybody. So this is the first thing. The second thing is it's not only a technology, it's a technology and it's also money.
[00:24:05] So if we go back a little bit or we step aside the whole question of what, what money is, what currencies it's about. Transforming a certain amount of wealth whether it's work, whether it's time into a different kind of tool that you can use to transform it into a different kind of wealth, for example, paying your rent or buying food in order for that to work, you need to have both sides. And in order to have both sides, you have to have a circular economy. Now, one of the things that in El Salvador is very specific to this country is that they are having a lot of remittance coming from overseas. They are having I forgot now, but I think it's 25% of the GDP or something like that, maybe you can correct me that is actually money coming from Salvadorians overseas, sending money back home in order for the people who are receiving that money to be able to receive it and to welcome it, they need to feel comfortable that they can use it.
[00:25:12] And this is how you're going to be able to have that circular economy starting, because when you're talking with people about Bitcoin in general, not in Salvador one of, one of the first questions that comes back is okay, it's great, you know, it's going up and it's the revolution and it's great. But if I buy Bitcoin, where do I use it? And the second question that comes is okay. I buy Bitcoin. I think it's a great thing, but if I want to sell it. Who's going to buy it from me. And of course, as you discuss people understand better and they understand the whole technology behind it.
[00:25:46] You understand also that it's a close circuit where whenever you buy, that means you're buying from somebody, therefore, when you're selling somebody else's buying from you. So this makes more sense, but you have to put yourself in the shoes of President Bukele on one hand and the Salvadorian people. On the other hand, they are not necessarily completely comfortable with that concept. So what they need to have is also the guarantee that they will be able to use that money and that technology now to go back to the us system that does not force a merchant or any kind of economic actor to accept the US Dollar of course the law doesn't necessarily force anybody to accept US Dollars.
[00:26:36] But if we look at, let's say, as we were discussing earlier Switzerland and France, nobody's complaining about it. This is really not the problem. The problem that you would have let's say in France is that you are not allowed to spend cash above a certain amount. So the idea that you're forcing people to accept their own currency is really like a big nothing sandwich because nobody's even paying attention to that. But the fact that whenever you have to spend more than 1000 Euro, which is not that much, depending on what you're buying, let's say a car or something, you are not allowed to use cash. Therefore you need to have a bank account. Therefore you need to be able to make a check or you need to be able to make a bank transfer.
[00:27:20] What if you don't have a bank account, you can't buy a car. For example, you can't pay your taxes for example. So this is actually creating a real problem politically and socially within the population because people are accumulating cash. Let's see when they're having a cash business, but they can't use that cash for spending above a certain amount for everyday transactions. So this is more of a problem. The idea that cash is actually not forced upon people, but it's limited. So if we go back to the Salvadorian law this is where there is the article eight and article 12. Those quote unquote loopholes and the fact that the, the, the law, the tax law is actually very short on purpose is way for President Bukele to say, okay, let's move forward.
[00:28:11] We'll decide about the details later, but we're leaving a lot of loopholes for people to be able to not feel completely oppressed by let's say today in the US this infrastructure law that is so huge and has everything in it. We are making it very simple. We're making it very short to make sure that there is a lot that can be interpreted. So today, the real problem is to me, not so much the people in the street selling, bananas or, or tomatoes, because those people, they accept cash and they will be it's going to be very easy for them to switch to Bitcoin if they so want. But it will also be very easy for them to say, look, I don't have the infrastructure.
[00:28:55] I don't know how to do it. I don't want to do it. However, if tomorrow someone has to go to the bank and pay for a house that they bought just before the law. And they come to the bank and they have 10,000 or a hundred thousand dollars worth of Bitcoin. I'm not sure the bank, even though they have internet connections, they have computers, they have everything. I'm not sure they know how to deal with it. And this is going to be more of a problem for them. But. The whole spectrum of the economy will be that all those people will be at the very beginning asking questions and using those loopholes to say, okay, we're going to do it, but we're going to do it a little bit later, or we're going to do it our own way?
[00:29:37] But you can't really force us or you can't punish us for doing it our own way because the law is so vague that right now we can move forward. And this is where I think that forcing Bitcoin. On people is not so much the problem. It shouldn't be the problem. It shouldn't be the danger. I think there are much, much bigger dangers. One of the dangers now is that the wallet from the government will be giving an airdrop of $30 worth of Bitcoin to people. But those Bitcoins cannot be sold into dollars, it cannot be converted. It's going to be an airdrop of something that is very unclear. And I didn't find anyone who knows exactly what is prepared and how it's going to work, but in a way it's going to be an altcoin. It's going to be something that will behave like Bitcoin within the Chivo Wallet of the government so that people use it. But at the same time, it's not going to be Bitcoin. You can't sell it. You can't send it overseas, you can't send it to another Bitcoin wallet.
[00:30:39] And I think this is more of the danger. It's the confusion. The fact that people will actually want to move forward, because I think everybody is interested in moving forward in general, in El Salvador or in Switzerland or in the US I think people are interested in getting 30 free dollars or not having to spend 10% in commission fees for Western union when they receive money from overseas or things like that. But at the same time, they will be a lot of confusion. And I think. The idea of making it compulsory and forcing it is in a way evening out the field to say, look, we're all on the same boat. It's going to be difficult. It's going to be complicated, but it's the same for the big bank. It's the same for the president of the bank.
[00:31:30] And it's also the same for the little family business who is making I don't know, food on the side of the road, for example. And I think this is really important in a way that the law applies to everybody, and is compulsory for everybody as a message as a symbol to say, we are all in the same boat together, we're all moving together. And of course there are lots of people who are very angry atin general. And from what I understand, of course, I'm not an expert in El Salvador politics, but I understand that he's a very interestingly charismatic person like Donald Trump, where some people really love him and some people really hate him.
[00:32:10] But I think the only way that it can work is that he's saying I'm putting my foot down and I'm going to be a leader because if you want us to say it's going to be compulsory, but not really with some exceptions. It may or may not actually make the whole project crumble because people will actually lose trust and he will lose credibility. So now, as far as he's real plan I have no idea of course, because he's not consulting me. But where I would like to end this opening statement is that I think we shouldn't lose focus and lose sight of the fact that it is not only something that he's doing for a small community, let's say Bitcoin Beach, for example, or inside a company, he's actually doing it at a country level.
[00:32:59] And it's a country that has very tense situation, very tense relationship with its neighbor, the United States and the recent history of central America and South America. And after the Bitcoin law passed, there was this report about corruption in three countries, which were El Salvador, Guatemala and Honduras, which are of course the two neighbors of El Salvador. Just next to the US I think I don't know how to say this.
[00:33:27] This outward message is also a very, very important aspect of this new law. It's not just a law for the El Salvadorian, it's the law for the El Salvadorians in relationship to the US or in respect to the relationship of their country with the US and I think this is really important because the US with the US Dollar has extra territoriality Applied on all countries, wherever in the world, you're using the US Dollar, the US law may or may not apply up to a certain degree. And I think one of the message that President Bukele is saying is we want that we are at the same level as other countries where the US Dollar is part of our economy, but not a hundred percent of our economy. And this is really important in that particular discussion.
[00:34:15] Richard: Thank you, Yves. So if I may just quickly summarize, I feel like the structure of the arguments from both sides can be broken down into three parts.
[00:34:25] So number one is whether Bitcoin itself is a viable currency, and that's sort of your layer, one of the debate, then the layer two is whether it's a good idea to impose it on your citizens. Even if this currency turns out to be a good medium of exchange, a good unit of account and good store of value. And then the third layer is, are there cases where some countries don't really need this new currency and therefore you're just introducing unnecessary trouble.
[00:34:54] Whereas there are some cases where the situation with the currency is much more dire and this introduction of a more sound currency is much more sensible. So I think that George has basically. articulate his points fairly thoroughly on all three fronts.
[00:35:11] And I think Yves has responded to some of them in return, but maybe we can dive a little bit deeper into each one of them going forward. I think we'll probably be really hard to discuss Bitcoin itself. The layer one, it's probably going to be hard to reach some kind of conclusion, me having hosted debates between No-coiners and Bitcoiners in the past. So maybe it's better to focus on the second and the third layers here. George, do you want to respond quickly to Yves' points?
[00:35:37] George: I have a couple things to say in response to Yves' points. If I may. First of all, regarding compulsory tender laws in Switzerland and France, I said myself that for the most part, there they are otiose there, which means they don't do anything. They don't do any harm, but they're not really doing anything. If you abolished them, if you repealed them, you would still have the Swiss Franc being accepted by merchants. And you'd still have the French Franc accepted by merchants in Switzerland.
[00:36:08] Richard: Okay. But would you still agree though? This is still in the spirit of restricting people's freedom.
[00:36:15] George: Yes, it is. But if you, you know, you can have a law that compels people to do something that they were going to do anyway. And then of course it is not so obnoxious.. It needn't bother anybody or hurt anybody at all, but clearly that is not what is going on or what will be going on when the Bitcoin law kicks in, in September.
[00:36:37] And we will have large numbers. I don't know how many but large numbers of merchants who don't want to have to accept Bitcoin, who will have to accept it. And even though they'll be protected from risk of loss, if all the other measures go through as planned the rest of the Salvadoran public, including those merchants themselves, to the extent that all our taxpayers will have to bear the costs of assuming that risk, that is the risks will be born by the people one way or the other.
[00:37:10] So that was one point I wanted to make when we mustn't compare the innocuous. Presence of compulsory tender laws in those countries that impose them on people. Who've been accepting some official currency all along and don't mind it with what these laws do when they're used to propel a new currency into use against the wishes of the population.
[00:37:35] The other point I wanted to make referred to remittances. And there, Yves pointed out that what these laws do, one of the benefits of making Bitcoin acceptance compulsory was that it made it easier for people who receive Bitcoin remittances in El Salvador to use them. Because if everybody has to accept Bitcoin, then they don't have to convert the Bitcoin remittances into dollars, which can involve costs that can just go right ahead and spend them directly.
[00:38:06] But let's put things in perspective. Last may, which was a very, a record month, by the way, this may, I'm sorry. This may total Bitcoin remittances were $1.7 million. It was a very high now. But total US Dollar remittances to El Salvador were $685 million dollars. so (laughs) who's going to be put what change is going to cause more trouble forcing people who accept a Bitcoin to convert them into dollars to do a lot of spending as is the case today, or forcing people who receive dollars to have to convert them into Bitcoin, to do a lot of spending after September.
[00:38:53] so I'm not sure what the point is here. Really, most people want to get paid in dollars. That's why most remittances are in dollars. It's why most other payments are in dollars. It's why the Salvadoran public workers rebelled at the thought of being paid in Bitcoin. And by the way, Bitcoin doesn't cost a lot less to remit any more than dollars do that. It costs of sending dollars. Remittances is declined dramatically. Partly thanks to Bitcoin's competition. It should be said, but now really there's not much difference between sending Bitcoin and sending dollars abroad. You can do both fairly cheaply. I'll stop there.
[00:39:38] Richard: Is the last point right? So with the setup of Strike, where Jack Mallers is advocating for setting up his private network of Lightning nodes for facilitating Bitcoin transactions, would the cost of international remittances, be cheaper, more expensive, or about the same as $4 rebates.
[00:40:01] George: It may be a little cheaper, but it's not a lot cheaper.
[00:40:06] Yves: No, no, it is a lot cheaper and it's not only with Strike it's the Lightning network in general, since we are talking about relatively smaller amounts most people in El Salvador will be using Lightning one way or another. They're not going to go on chain, And light ning is extremely cheap.
[00:40:25] Nowadays of course, it's getting much better, but if you are sending money to someone who lives in the countryside and they don't have a Western union that is really nearby wherever. It can be in north Africa, it can be in Eastern Asia. It can be anywhere. It is a big hassle and it is quite expensive and it forces people also to carry large sums of money because they don't want to go there every week or every two days.
[00:40:51] So they're going to go maybe once a month and get their monthly allowance. And it is still at the moment. Not really something very convenient when you're thinking about Lightning network or Bitcoin in general, but especially with Lightning network, you can have someone let's say in the US who is earning money, putting money in their own wallet and that wallet can be used somewhere else in the world.
[00:41:15] There is no sending, there is no more remittance. They are actually sharing quote unquote, the same wallet or the same bank account. And this is extremely cheap because it's instantaneous and you don't have to send anything.
[00:41:27] George: That is true for people who all are using already equipped to and wishing to use Bitcoin in El Salvador, but it begs the question because a lot of people don't receive Bitcoin. Aren't plugged in to the LIghtning network. And that's why $685 million worth of remittances sent in dollars every month and only a small amount of Bitcoin.
[00:41:53] Yves: Of course, of course, and this is why the law is trying to kickstart this transition as soon and as powerfully as possible, because if you were to tell people it's going to be compulsory, let's say in one year it's like students doing their homework. They're going to wait until the very last minute to make any change.
[00:42:15] Whether on the other hand, if you were saying it is compulsory now, but with some loopholes, people will know that they have to start getting organized. And the dia spora of El Salvadorians everywhere in the world in the US mostly, but also in Europe, for example, we'll start getting organized because it's going to be more convenient for them as well.
[00:42:37] And if you have a few hundred million sent every month, that means you have a few tens of millions that are going directly from the US workers to a us company. Whether it's Western union or MoneyGram or, anything, In order to just make this remittance system work and the money doesn't reach El Salvador.
[00:43:00] So in a way it is very convenient, but at what cost, and this is also another thing, of course the US Dollar is really good, but the US. dollars until 2001 was not the official currency of El Salvador. And then it became the official currency. And now people are, of course, 19 years, 20 years later, they are much more comfortable with it, but it's the same with France and Euro.
[00:43:24] For example, it used to be, as you were saying with the Napoleon, it used to be the assignat and then it was something. And then it was the old Frank, and then it was the new Frank and now it's Euro. Let's not even talk about Eastern Germany, which had another currency and then the Deutsche Mark, and then the Euro, a lot of people were against that.
[00:43:43] And even today, as you can see with Brexit, a lot of people are still against the Euro in general because it brings some positive, but it also brings a lot of negative. But at the end of the day in Salvador today, Merchants accept dollars. I'm not sure if they have a choice to not accept dollars, or if the US Dollar is actually imposed on them the same way Bitcoin will be.
[00:44:07] George: Let me respond to that last question. You the 2001 law does not contain any compulsory tender provision. It does make dollars legal tender in the conventional, or perhaps I should now say the non Napoleonic sense but it doesn't make them compulsory at tender. The ColÃ³n was still illegal. I think it's still technically illegal currency, but it hardly exists anymore. Of course. So that law was different in that respect from both the Bitcoin law and from the Napoleonic laws. One other point on remittances. Let's not confuse two things.
[00:44:49] If all the government wanted to do was to make it easier for people to receive Bitcoin remittances, because they can be cheaper with Lightning and all that, or Strike then dollar admittances that would be accomplished through those positive measures in the law that helped people get at the relevant apps, wallets by making the internet more complete by making it easier for people to convert Bitcoin into dollars, et cetera. But none of that has anything to do with making merchants receive Bitcoin. Of course, taking that extra step does make Bitcoin more useful once they're in El Salvador, because you don't have to convert them into dollars, but it wouldn't make it any harder for people to receive Bitcoin remittances once they are able to do so because they're equipped to do so.
[00:45:48] So I think we should keep those, two goals separate it's true that a lot of people can't use the Lightning network, but steps can be taken or Strike to make that possible nevertheless allow merchants to choose how they wish to be.
[00:46:05] Richard: So let's dwell on that last point just a little bit longer before we move on. I think that there might've been some understanding on the interwebs about the way Lightning will be used, at least by Strike. My understanding is that Strike is actually running a private network of Lightning nodes, which to be honest, I don't completely understand why they need to use Lightning at all if they opt for some kind of permissioned network, right? They could just run things like a Coinbase or a Binance where internally they just keep the Bitcoin in one wallet and then just handle ledgers, the centralized database manner. So that's question number one. How is Lightning actually being used in this case?
[00:46:49] And this is relevant because if Lightning were to be used in this particular way then is the Bitcoin that's being circulated in the country, really being used in the way Bitcoin is intended to be used, because this is no longer censorship resistant and self custody enabled. This is just back to a centralized wallet that happens to purport having some kind of Bitcoin in it.
[00:47:15] That's question number one. And question number two is if let's say the public Lightning network was to be used, maybe not through Strike, maybe some other provider will set this up. for the citizens. The average citizen in El Salvador makes $1,700 per month. And the average transaction size from El Zante, the Bitcoin Beach, is about $10 per transaction.
[00:47:37] So a fee of five to $10, won't make sense. And this is for opening Lightning channels. So if you were to open Lightning channels, closing Lightning channels, my understanding is that there's fees associated with those operations. And so this ties into the practicality of introducing Bitcoin into this. So my second question is if the citizens were to be involved in operating on the public Lightning network, is this actually feasible for a country with such low income? And this question would be for Yves.
[00:48:08] Yves: So I'm not a hundred percent aware how Strike works. And I know that everything is changing basically on a daily basis, they used to have specific functionalities that they were adding. And I think a good reference would be when we were talking about the internet the web is the web.
[00:48:29] Everybody can access it, but maybe sometimes you're using a certain browser or maybe using another browser. And some browsers have more functionalities added, but at the end of the day, when you're using, Google, for example, or Gmail or whatnot, whatever browser you will use, you will see more or less the same.
[00:48:48] There was a time when it was not like this, and we are in a transitional time now where you still have certain system that are more like AOL CompuServe in the early days. And maybe internet Explorer, which is trying to do certain things to get more loyalty from their users within Windows.
[00:49:09] And I think Strike now is a little bit, let's say internet Explorer, however, the liking network, the way it's going to be used in the way Strike uses is the Lightning network. The only thing with the Lightning network is that you are creating a network on top of Bitcoin that has a lot of participants.
[00:49:29] So let's say Strike, again to take that example, if they want to have a lot of connections so that everything can be very cheap and very fast, they will open a lot of channels with a lot of partners around them. A lot of interactors that they're transacting with. And therefore the transactions will be more comfortable for them.
[00:49:51] If you and I today want to use the Lightning network to make a transaction and you have no channel open with nobody and I have no channel open with nobody, it might not go through because we are kind of like isolated, like two islands. However, if both of us are opening channels with Sending from me to you and from you to me will be extremely fast because they are putting themselves in the middle as a big note of the network, the Lightning network, the way it's working and it's getting better by the day and faster and cheaper by the day is actually removing a lot of transaction from the main chain.
[00:50:31] And it makes transactions on the main chain much cheaper, which means that whenever the main pool is empty or semi-empty, it costs a few cents, a few us cents to open a channel with a lot of money and people are now trying to push the boundaries and making more and more transactions with much bigger amounts and I forgot how many dollars were sent last week, but it was a huge amount and it was actually cut into hundreds of tiny transactions that were sent throughout the Lightning network and then settled on the other side. So it is getting much faster and much better and especially much cheaper by the day.
[00:51:14] Strike is only an actor of that. They are just let's say they're like MasterCard. They are bringing their connections. They are bringing their expertise. They are bringing their technology to make it even more convenient, but it's interoperable. You can use Strike. Any kind of Lightning invoice and you can pay anything with any Lightning client, to someone who is using Strike.
[00:51:39] For example, the only difference on the Bitcoin Beach is that they were using some kind of an added, not a hundred percent compatible tech detail. I don't know exactly functionality which was that it was easier or much more convenient for the merchant to just show his or her address, like an on-chain transaction without having to create an invoice because creating an invoice for every transaction is a little bit of a hassle.
[00:52:10] So the way they put it is that the. Transferred the work on the payer so that the receiver can have only just like a printed QR code, which is their address and receive any kind of transaction. This is something that is not at the moment, a hundred percent universal within Lightning, but it's a hack and that hack was done by the Bitcoin Beach wallet.
[00:52:38] But apart from that, it's completely compatible, a completely interoperable all the Lightning while it's private or the one from the government, Chivo, will be able to communicate with each other. Again, the problem that I have that I'm thinking about is those $30 airdrop because that will not be or as far as I understand.
[00:53:02] And as far as logic goes, it won't be on the Lightning network. It will be on their own network. It will be a way for the government to help people on board, but at the same time, forcing the Chivo wallets to say, look, if you want to use ours, you're getting a bonus. So this is a little bit confusing and potentially a problem. I have no idea if it will be, but I see it more like something we should keep an eye on.
[00:53:30] Richard: Yeah, and my understanding of the way the Bitcoin Beach solves the expensive Lightning network opening problem is they basically have a community channel. So I think the community somehow shares the key to the wallet. And then I think inside the community, when Bitcoin transactions get sent around, it's actually not on chain and that's the way they try to solve the problem.
[00:53:58] And there's a good podcast where Nicholas Bertie, the developer for the wallet being used by Bitcoin Beach explains this point. And I'll link that in the show notes, but in general, my sense is that currently there's not a good decentralized solution. Even with Lightning network to allow practical day-to-day payment on a micro scale for the people in El Salvador, especially when Bitcoin was at all-time highs. And the number goes up that will continue to put pressure on the usability. But so let me ask George a question also on practicality, can we talk a little bit about the back doors of the Bitcoin law in El Salvador, I'm referring to this language of merchants without the proper infrastructure. Won't need to accept Bitcoin and merchants that accept Bitcoin can immediately convert to USD. So in this way, it seems like the compulsory tender is only a soft requirement.
[00:54:57] So what do you think is the likely outcome in terms of Bitcoin usage, given these backdoors and I think on top of that, another question is if let's say your conclusion is that the Bitcoin usage simply won't really be there because of these backdoors in place. is the real intention of this whole campaign - Bukele's part?
[00:55:19] George: First of all, the the second backdoor you mentioned, which is the government making it easy for people to convert directly from Bitcoin. They receive, and I mean specifically merchants, but also others, perhaps who can participate in this scheme that arrangement again is taking on risks.
[00:55:45] That otherwise would be assumed by the acceptors of Bitcoin who would incur it perhaps in between the time they accept the coin and the time they're able to convert into dollars. So the government is, this is in with this second back door is taking that risk from them, but it isn't disposing of it or making it go, poof, it's just simply imposing it on its citizens.
[00:56:11] Broadly. Those who are paying taxes, et cetera. That's what has to fund the trust fund that initially backs this assumption of risk allows the government to assume the risk. And they are the ones who will bear the burden of any future replenishments of that fund, which I think are likely to have to become necessary because the setup is asymmetrical.
[00:56:37] You're going to have a lot more people trading Bitcoin for dollars in a downmarket than in a market where they are thinking Bitcoin is going to go up. So all the trading is going to be at a time when the Bitcoin is depreciating and where the fund is there for being depleted. So that's that backdoor once again, to recap, it's not providing any real relief from possible damage or costs that this new arrangement imposes on the Salvadoran public.
[00:57:12] It shifts those costs around and perhaps regressively because it may be that ultimately it's sparing more well-to-do merchants at the expense of poor taxpayers. It's quite likely that that's going to be the net outcome as for the. Backdoor the fact that the law doesn't compel anyone to accept Bitcoin even temporarily, if they're not equipped to do so, let's be clear that the government's intention is that eventually everyone will be so equipped. They will be provided with wallets. There will be improvements in the internet. And so it doesn't take a heck of [inaudible].
[00:57:55] Richard: Sorry, are you saying it's a part of the government's announced intention?
[00:57:57] George: Yes. Yes. It's basically, if you read the law, it talks about this, it says it's going to be providing training. It's going. Taking other steps to make it possible for people who presently aren't equipped to do so, those who can't afford to equip themselves and it's taking steps to improve the internet. All of this has been discussed. It's very clear that the long term goal, which is perfectly consistent after all, with what we all agree is what Bukele wants is to see to it that Bitcoin becomes the universal medium of exchange in El Salvador, And it wouldn't make any sense therefore, to have the law compelling people to accept it where most people are exempt because they don't have the equipment.
[00:58:46] So the intention is to close that door and it's perfectly reasonable to assume eventually it will be closed. And as I put it in a tweet at some point a compulsory law doesn't become any less obnoxious because it won't be applied to everybody right away. The fact that it ultimately - that it applies to anyone is already not nice. And in this case, eventually it's supposed to take in pretty much everyone who has a cell phone and can connect to the internet. So that's a backdoor. That's the plan is to close it eventually.
[00:59:29] Richard: Okay. And to my other question: about what do you think is the intention ofin announcing this? How much do you think this is truly about implementing the Bitcoin payment system in the country? much of this is just a PR stunt as some would have put it.
[00:59:46] George: I don't believe it's a PR stunt. I can't say that I'm privy to the inner workings of President Bukele's mind, but everything I've seen his discussions, his announcements, et cetera. And I've watched most of the publicly available videos bearing on this suggest to me that he's entirely sincere, that he really believes in Bitcoin, that he really thinks this is a good thing.
[01:00:12] And that he's therefore motivated to the point of, of resorting to article seven because she thinks it's going to make everybody better off. I happen to disagree with him, but I don't think he's insincere. I think he's quite sincere. Now, why does he think people will be better off? That's a good question.
[01:00:32] And it's a very important question. One really has to ask, what problem is this supposed to solve again? El Salvador is not Venezuela. It doesn't have a basket case currency that people desperately need to be able to escape from. And and I would be the first to admit that in a situation like that, one could make a case for a compulsory law just because network effects can make it costly for people to switch out of a prominent currency into something else that is less widely used mind you, they don't seem to need that encouragement to switch to the dollar.
[01:01:11] Dollarization is usually the fallback in a basket case situation like Venezuela's when the laws don't get in the way of course, or to the extent that they don't. But that brings us to what maybe Bukele's ultimate objective which is as Yves suggested the fact that he doesn't like the idea that El Salvador is a dollarized country.
[01:01:39] He feels that, first of all, this is some how is an encroachment on its sovereignty. But I think also he feels that it exposes it to certain vague risks. I'm not sure exactly what he thinks those risks are that haven't been well articulated in any of the discussions I've seen, but I can think of one, which is brought to mind by what happened in Panama, back in the Noriega days. I think it was 1982 or three. I'm sorry. I can't remember which day. Butthe US Dollar slaps the US Government slapped sanctions on Panama, which was dollarized at the time in which used actual federal reserve notes as its main currency, which is the case in El Salvador as well.
[01:02:26] And basically froze shipments of those dollars to Panama, which posed problems of course, for Noriega,as part of a larger package of sanctions, that's the sort of thing that the US Government, if it really wants to be mean can do to a dollarized economy, but there are plenty of ways for a dollarized economy to protect itself against that sort of thing.
[01:02:51] Short of forcing people to use a different currency that may itself also pose big problems. One of which is to arrange for kind of currency board arrangement, where you have domestic institutions and it could be private that repackage dollar assets into a local paper currency. This is what they do in Hong Kong. Hong Kong doesn't need any paper US Dollars. It has Hong Kong dollars backed a hundred percent or more lately by US Dollar assets. So they're perfectly solid, but it can't suffer if there's a moratorium on shipments of federal reserve notes to Hong Kong, because it doesn't need the federal reserve notes.
[01:03:38] The paper money. It makes itself. So I can't see much of a national security issue here. I don't think the dollar is a terrible currency, like the Bolivar. I don't know exactly what problem Bukele is solving here unless it's a symbolic one, a kind of twiddling of thumbs twiddling of his nose at the US Government saying well we don't want your currency.
[01:04:02] We don't need it. Unfortunately, I think it may well ultimately boil down to the fact that the Salvadoran people do need it, that it is their best bet right now that they can't really do much better. And for that reason, again, I don't think them to use Bitcoin is doing them a favor.
[01:04:25] Yves: If I may try to extrapolate and this is really out of the box I think there is a carrot and a stick situation here. Central America and South America historically had a lot of tension with the US as you mentioned earlier Panama, but also in so many places including Chile, including Guatemala. But I think one of the situations that they have at the moment is that China is discussing a lot with South America and they are trying to expand their belt and road program all the way to the borders of the us. I think for President Bukele. It's a very important situation today to be able to say no to both, to be able to legitimately and credibly say no to both China and the US at the same time, without putting themselves in a situation that would make them blocked like let's say Iran or Cuba back in the days with all the consequences that would come from that, because if today El Salvador needs to do business with anybody.
[01:05:34] The only people that they can do business with without using the dollar would be China today. Because they would be the only ones that would be big enough and bold enough to say, we're going to be using our own currency. Don't worry. You don't have to use dollars. And we'll have a deal among ourselves, but if they were to do that, they are really closing the door to the US and they're shooting themselves in the foot because politically and diplomat ically extremely dangerous for such a small country. So close to the US to say we're closing the door to you, and we're working with China from now on with their own currency. And I don't think Bukele would suddenly that they are using the Yuan in his country.
[01:06:13] So I think the idea of using Bitcoin is also not necessarily a cheeky way as you were saying to f iddle his finger to the US but more to say, as you mentioned, we are sovereign we are using the dollar because it's really good, but it's our choice. And we want to be able to deal directly with China, but not necessarily to go all in, in a relationship where we would become vulnerable to their potential bullying.
[01:06:40] So I think one of the thing with Bitcoin today is that they're saying we want to be able to do business. For example, Brazil or Honduras without using the US Dollar without using the Yuan, but in a way that we are our own country, but at the same time, they also don't want to go back to the ColÃ³n because that would create even more problems and potentially make them fall into hyperinflation, like in Venezuela, because nobody would trust the government if they were to use their own currency again.
[01:07:14] So it's a very slippery slope. It's a very fragile balance, but I think also the reason why the deadline was so short when the law was. Discussed and then voted and then implemented and put into action. The deadlines are so short in order to not be able to look back and to be able to look at other countries, especially the US and say there is no coming back from that. So from now on, you have to respect the fact that we have an alternate currency and therefore you have to treat us as equal as opposed to the buffer zone to South America.
[01:07:52] Richard: Okay. So I have to go back to the etiology of Bitcoin a little bit. I know that was discussed in the opening statement, but there's definitely a certain amount of online criticism about the hypocritical nature. Certain Bitcoin sentiment towards this announcement by El Salvador. And the argument is basically that if Bitcoin is such a superior alternative currency, why not just let the people opt in and decide to use it.
[01:08:23] And it's going to be such a strong alternative to the status quo that the grassroots movement will ultimately make this a unofficial shadow currency to be adopted by the citizens. Right? The fact that the government has gone in and try to force this upon its people. I think Bitcoiners can have two different attitudes.
[01:08:45] One could be, yeah, this makes the number go up. That's fine. But I don't approve of this. And then the other attitude is this is actually great. This is something we need. We actually want more countries to do this. Yves, I suspect that you are more in the latter camp. I could be wrong, but how do you respond to this criticism?
[01:09:04] Yves: I'm somewhere in the middle. I'm not necessarily saying we need this. Let's say Bitcoin is a wave and the way things have been moving forward, Bitcoin has forced people and companies and institutions to look at itwith respect. And I think what is interesting with El Salvador is not so much to think.
[01:09:29] President Bukele and therefore he's imposing his views on his people. It's more the idea that, there are countries now that are following the steps of say Tesla, which was saying, I want to be able to have my treasury, my reserve into something else than the dollar. And now countries are also starting to say that.
[01:09:59] And it's not so much that it makes me happy as a Bitcoiner, it just makes me feel that it's normal. It's like if a country today was saying, we're going to install a lot of mobile phone antennas everywhere, because we want people to be able to use mobile phones because we think that mobile internet is the future.
[01:10:22] I don't think that. It is because number go up and I don't think it is a victory or something that is quote unquote good for Bitcoin. I think it's just the normal way that things are moving forward. And in a way, I don't think that I would want that. We say, For example, we don't want, let's take a very extreme example, but we don't want North Korea to use Bitcoin.
[01:10:49] Well, I want anybody to use Bitcoin because at the end of the day, I cannot force people to not use Bitcoin. Everybody eventually will be somehow connected to Bitcoin one way or another. So I don't want to force people out. I don't want to force people in, but it is inevitable that when let's say a company like Tesla, adopt Bitcoins and move forward with it. Whether or not, they accept payment in Bitcoin is completely irrelevant. That's really a detail. It's almost a joke, but the fact that they are saying we have a reserve in cash, and we're going to have this reserve in a different type of asset for ourselves to protect our shareholders interests.
[01:11:29] I think it's just only natural that the next step is going to be one country. And that country potentially will because they're having business with their neighbor country will trigger that the neighbor country will start saying, well, you know what, it, isn't also in our interest to adopt this so that we can benefit from it. And it just snowballs like this. I don't think it goes against Bitcoin ethos. I think Bitcoin doesn't care.
[01:11:55] Richard: Okay. So, George, the last question to you. Can you picture a scenario with the country of El Salvador, where let's say for whatever reason, US Dollar is depreciating quickly, meaning it's losing purchasing power? In fact, inflation has been quite dramatic over the last couple of months. And some say, it's transitory some say, it's not by the way, which I'd love to get your opinion on as a economist, but let's say this condition were to persist. And because this is a non sovereign currency, whichregime has no control over. They eventually opt to. Using Bitcoin instead. And let's take Yves point of how this is something that requires networking effect and mass coordination. Unfortunately, it's not something that you can say, you can do whatever you want.
[01:12:47] And then people will somehow converge to deciding, to use Bitcoin. And also for efficiency sake, you do the whole China thing where you just impose this on your citizens and all of a sudden everyone's better off. And in that particular scenario where the USD is deficient and the Bitcoin networking effect is badly needed for a quick revamp of the system. In that particular scenario, would you concede that having Bitcoin as a national currency would be the right move? And also let's assume the Lightning problem gets fixed. The third point is the cost of using Bitcoin. The friction of using Bitcoin is longer an issue.
[01:13:27] George: Right. I'm happy to steer away from that issue, Richard, but there's still, two questions here. One is, would I approve of Bitcoin becoming the national currency? And the other is would I approve of resort to a forced tender legislation to, make it become national currency.
[01:13:47] they are are two different questions. but let me just say that. In the case where you're dealing with a, an established currency that has become decrepit and it's not your local domestically produced currency. It's some other country's currency. So reform is out of the question. And in that case, of course, yes, one wants to have an expeditious way for people to abandon the decrepit currency, to switch to something else when wants to make it possible as it were for them to jump into an alternative currency, lifeboat and conceivably that alternative currency lifeboat could be Bitcoin.
[01:14:32] It doesn't have to be some other national currency. It doesn't have to be gold. So what role. Should the government of El Salvador play. If it faced such a scenario, assuming that it could rewrite the Bitcoin law with such a contingency in mind. Well, first of all, let's be clear that when established currencies really get bad people jump into lifeboats. That is to alternative currency lifeboats on their own. They don't need that much of a nudge despite network economies. What happens is if the domestic currency or the established currency is really unstable, is Jumping into the lifeboat, even if the other one is still floating. and that's what we see in places like Venezuela because nothing is preventing people from dollarizing.
[01:15:27] But of course the dollar has a well-established network. Might there be a case though for encouraging people that the dollar itself is bad and there's no other obvious candidate encouraging them or compelling them to go over to Bitcoin in a situation like that with compulsory tender. And I'm going to surprise everybody by saying yes, in a situation like that, a case could be made because network effects will powerfully deter people from switching out of even a bad established currency when there's no obvious alternative that they can turn to. So, first of all, Favor all of the laws. I said, I would favor even today to make it easy for people to use Bitcoin, to prepare them, to use it voluntarily. But in a case like that some kind of compulsory measure might be warranted only so that people don't feel locked into the dollar when it has become obviously worse than a Bitcoin alternative.
[01:16:35] There could be social gains from that kind of resort to compulsory tender in that sort of very, very special situation. So I'm going to concede that point. I'm also though going to insist that that is not the scenario in El Salvador today. Obviously I don't think it's a very likely scenario in the near future. That allows me to say something about the question of inflation in the US which you raised Richard. I am one of those who does not think that the recent numbers point to any serious lasting increase in inflation. Of course, everything depends on what the fed does going forward. I think it's now time for it to start tightening or that it soon will be time for it to seriously think about raising rates.
[01:17:27] I worry that even with some talk of raising them in 2022, that that might be a little late. I think they should also be thinking about tapering, but no, None of the numbers that have come out in the last few months indicate that we're in for some definite high inflation as many inflation Hawks have been claiming. A lot more bad news about the dollar would have to come in before anyone could claim that it's a more unstable riskier, medium of exchange and unit of account than Bitcoin itself has been.
[01:18:03] Richard: Okay. Great. We did have an audience question about North Korea potentially forcing Bitcoin on its citizens. And the question is where Bitcoiners would draw the line. And I think this is in effect about reconciling. Desire for mass adoption for Bitcoin from Bitcoiners and the Bitcoin ideology of embracing freedom and effectively subverting governmental control, especially with a regime as paternalistic as North Korea. But I think, Yves, you've mostly covered it by basically saying Bitcoin doesn't care. It's something that's going to happen anyway. So unfortunately, both dictators and representative democracies will start using Bitcoin eventually at some point. So if you have anything to add that, feel free, otherwise we'll just go to conclusions.
[01:18:54] Yves: I want to say one thing, I think people who think that it's not good for the everyday people that the government is using or imposing or adopting Bitcoin don't understand one thing. Which is that. The way we're looking at currencies and money today, we're thinking that it's from the top down, it is the government printing money and sending money down to the people.
[01:19:24] What is going to change? Let's say if North Korea was to adopt Bitcoin, is that tomorrow people let's say dissidents and activists and NGOs, and people who have escaped, who are sending money to their families or people in South Korea who are sending money to the people in North Korea that are their former neighbors or family members or something, they will be able to use a network of money. Does not come from the government. It is not controlled by the government. It is not issued by the government. It is not regulated by the government. It is the same as water, gold, whatever that is international. And this is something that would actually be very, very good as a, leveling the field for people in North Korea where maybe the government will become richer.
[01:20:21] Maybe the government of North Korea would become more powerful, but so will it's people. It's people will actually have direct access to monetary system that they can use in and out that is not coming from their government. And in that particular case, I think what's happening today with El Salvador is actually very, very interesting because Bukele is trying in a way probably, to gain more power, gain, more credibility, gain more, whatever, and he can be theoretically just to play devil's advocate.
[01:20:58] He can be evil, but it doesn't really matter because even if he's evil and he gets richer and he gets corrupted by a lot of Bitcoins, his people will also benefit from it, whether he likes it or not. And this is why some people, they call Bitcoin the currency of the enemies, because it doesn't matter. If your enemy gets rich, you get rich as well, rich as in not only wealth, but also in terms of sovereignty and independence.
[01:21:26] George: I think that here we have to get back into some of those nuts and bolts of how this system is actually run. Is it centralized or not? Is it really decentralized? Can people escape? It is there only one place where they can cheaply convert their Bitcoin into dollars or other assets? Is it a government run institution that's in charge? What happens if the institution decides to renege on its commitment to do those conversions, et cetera, et cetera, et cetera. I...
[01:22:00] Yves: Of course, there will be a lot of details.
[01:22:02] George: Yes but these details are - everything is is in the details. God is in the details as they say or in this case, the devil is in the details because much could go wrong. As far as the freedom in enriching capacity of Bitcoin is concerned. A lot of that could be lost with the wrong kind of arrangements. If I don't miss my bet, if North Korea comes up with a Bitcoin currency standard, it's not going to be the kind that maximizes people's freedom, if it were, why it would be the first thing North Korea has ever done that did that.
[01:22:45] So I wouldn't be sanguine about a future north Korean Bitcoin currency on somewhat more optimistic about the El Salvador version, if I have to choose between the two, but Bitcoin's ability to enhance human freedom depends very much on the specific technology that's used that people have to use in connection with it. And and that of course, particularly refers to second layers and the conversion to other currencies and all that. And of course it depends on whether people are forced to use Bitcoin or not, which in my opinion, instantly detracts from its freedom enhancing power. And this gets back to the philosophical question that, that you've addressed before.
[01:23:34] I think one way to look at this. Is that the big divide is between Hayekians and Bitcoin Maxis, where the Hayekians are all about freedom. The Maxis are all about getting Bitcoin as widely used as possible, whether it's to increase its market value or just because they like seeing it more widely used. And of course I'm a Hayekian here. I don't think everybody fits neatly into this dichotomy clearly. Doesn't and he sees a middle ground where the ideas that Bukele's compulsory tender law contributes to the growing respect and appreciation of Bitcoin in the same way that Tesla's support a Bitcoin has done so, but I don't think they are the same thing. And this is where I disagree with Yves and it's where I believe his middle ground is not so firm, so from social secure, because Tesla is contributing to Bitcoin's respectability in a voluntary way, by showing the world that, they're willing to put some skin in the Bitcoin game, same with JP Morgan, same with some other big outfits.
[01:24:42] Now all of that is, is, very good for Bitcoin from a Hayekian point of view, as well as from a Bitcoin maxi point of view, the same can't be said for what Bukele is doing to promote Bitcoin or for article seven in particular. And it certainly, I don't think can be said for any plans that North Korea has in mind. So I like anything that. Increases the prominence of Bitcoin while sticking to the Hayekian agenda there that shows people are voluntarily interested in it and supporting it and buying it and betting on it. But as soon as force comes into the equation, it ceases to be obvious that what you have going on is a true public expression of sentiment in favor of the coin that you Can just have certain government leaders who happen to be imposing their own wishes on others, which is a whole different kettle of fish.
[01:25:43] Yves: Can I ask a tricky question? Cause I think you're not comparing things on the same level. If the board of Tesla decided to put their treasuries in Bitcoin, they did it voluntarily and they did it because they thought it would be a good idea for themselves. It's the same thing as president Bukele is saying, I'm going to, push my government to accept this law and to impose Bitcoin to my country and to my people.
[01:26:13] But today there are people who are shareholders of Tesla, and one of them for example, is the Swiss national bank. They were not consulted. They don't really have a choice. And it's the same for the people of El Salvador. You have to compare at the same level. And of course I have no idea about North Korea has plans and it was really just as a very theoretical question. But what is happening today with Tesla is a unilateral decision that they made without asking small shareholders, like let's say you and I, if we are libertarians or anarchical capitalists who believe in Bitcoin or not, they just decided we used to have dollars and now we have Bitcoin.
[01:26:58] And if they wanted to have euros or. Maybe some people would have sold their shares. Maybe the shares would have gone up or down in value. And it's the same thing that is happening today with the government of El Salvador. I think we need to put things into perspective of what is comparable today. President Biden is making decisions that half of the us voters or citizens or residents may or may not be disagreeing with. That is also part of the whole democratic system where he was elected to represent people. Maybe he will have to make decisions that are not in their interest of everybody individually, but they are in the interests of everybody as a country.
[01:27:41] And I think that Bitcoin's low in El Salvador is doing is, of course, it would be nicer if everything was opt in and if everybody was free, but I don't think they're asking everybody's permission to raise taxes or to build a highway. They are within the limits of democracy, they are also doing what they think is best for what they have been elected. And I think Tesla is completely different from Iran or Cuba or North Korea or El Salvador. But I think what I wanted to express was that it started with some geeks.
[01:28:17] It went into early adopters. Then it went to traders. And today we are at a level where bigger entities that represent a bigger amount of people. And those bigger entities are doing the domino effect to the next people. I personally don't care if the number of users in El Salvador is up or down, what I do care about is the fact that Bitcoin functions that Lightning network is working more and more and that more and more people are adopting it.
[01:28:49] And if it stops today, if the amount of people that are in it today is the maximum amount of people. It will still be a success and it will still work. I don't think that I was first a maximalist. And then I pushed my agenda. I think that I was gradually convinced by Bitcoin so much that I became a maximalist and therefore I want to quote unquote, and this is a very big word, but I want to evangelize people at least so that they can see the benefit of it and therefore decide without prejudice whether or not it's going to benefit them, their family, their business, their country, et cetera.
[01:29:28] George: Well, but don't, you know, that laws like article seven will put evangelists like you out of business, Yves. Because people will have to accept Bitcoin whether they want to or not. And you won't have any convincing to do. I actually favored evangelism because it's using reason to encourage people to use a new currency instead of compelling them.
[01:29:52] I do, by the way, perfectly concede your point. That the Bitcoin law is a law passed democratically, albeit in a real hurry without any real serious discussion and not a popular law to judge by the polls taken afterwards. But of course democracies pass all kinds of laws that people can argue about this way or that I don't think it's quite analogous with Tesla for the simple reason that if I'm a small shareholder and I don't like what Tesla has done, presumably with a majority of voting shareholders approving it, I can sell my shares. Not so It's not so easy for the people of El Salvador to do something equivalent, presumably voting with their feet or whatever, if they don't like a law that's passed there. So it is different in that respect, an important respect,
[01:30:46] Yves: But isn't it the same with every law?
[01:30:48] George: Yes, it is the same with every law and all laws passed democratically of course, again, the question here is always what we've made it, it hasn't been whether this was a democratic decision or not. I think we both are happy to allow that that's what it was. The question has always been whether this is good for the people in the long run and whether it's good for Bitcoin or in what it represents a question, admittedly, an issue I consider somewhat more important perhaps, but I think both of them are important. So neither of those questions hinges on whether or not this was a democratic decision, but let me say that I'm not questioning that it was
[01:31:37] Yves: Of course.
[01:31:38] Richard: Okay. So we're at time, let's get to the concluding remarks. This will be a chance for you to synthesize your thoughts. Talk about some points of views you might have picked up from your opponent. final word, let's go with Yves first.
[01:31:53] Yves: I think George and I in general are in agreement on the majority of the important points. I think if there was a conclusion, the conclusion for me would be that nobody can predict the future. And if I have been an advocate of Bitcoin for the last 10 years or so, it just only makes sense that I'm cheering for people that I have been. Hoping that they would be affected positively by Bitcoin actually being in that Petri dish that they are in today. I wish that it would be safer. I wish that it would be something that would be nicer, but at the same time as George was talking about Venezuela, I'm looking at neighboring countries.
[01:32:38] I'm looking at what's happening in the US or in Switzerland today. In terms of budgets I'm thinking that even if we don't have a huge inflation, if tomorrow the US started to do universal basic income for their citizens every country that is on the dollar outside of the US would not benefit, but would probably be hurt by it. So I think in general It's not the best situation, but I don't think there is ever a best situation. I think Bitcoin is something that will always be somehow contentious, somehow revolutionary. And I think that what is happening now. Even if it's not the best case scenario, it's definitely not the worst.
[01:33:20] I think on the other hand that there are lots of little things that are not being discussed because it's too early. In terms of the government doing some fractional reserve banking with Bitcoin in terms of the way they will tax Bitcoin as opposed to the dollar, for example as we were discussing, how are they going to be dealing with instant conversion?
[01:33:42] And is it going to be something that will be very natural or if it's going to be something that when they realize that there is a problem, they will be extremely harsh on how to crack that problem. But I think overall it is a very positive thing that, that law is so succinct and so vague because it is actually a statement of, we are not trying to cover everything. We are trying to move forward as soon as possible. And as we move forward, we will be able to smooth all the little details that need to be addressed. And I think this is the best thing that can happen to any countries citizen.
[01:34:22] And in that case Salvadorians that their government is willing to move forward and be agile as opposed to try to fix every possible problem before anything moves forward. And eventually nothing moves forward or it moves forward but it's so bland because it's like a compromise of a compromise that there is no solution. I think that that particular law is not perfect, but the fact that you and I are able to discuss it and we were able to read it in five minutes. I think this is a very big chance for Salvadorians.
[01:34:57] Richard: Okay, great. George?
[01:34:59] George: Yes, well, sometimes people think I'm a Bitcoin skeptic I've even been called a no coiner, but I'm neither of those things. I'm actually a Hayekian Bitcoiner as opposed to a Bitcoin maxi. And I am so because I do think Bitcoin is a very important option, even though it's also used for a lot of things that people don't like Bitcoin has a value for allowing people to escape from oppressive government laws we see it used in various countries. Not only as a cheap means for remitting funds, but as a way for invading exchange controls and capital controls, et cetera, et cetera. And therefore, I like to see Bitcoin placed on a level playing field with official currencies. I'd like to see that happen everywhere.
[01:35:57] And I have no objection to measures that would even subsidize its use in some cases, by making it possible for people who don't have cell phones to have them after all cell phones can serve many other uses as well, that are valuable for fighting poverty and inequality. And I favor of course, steps to improve infrastructure.
[01:36:24] So with d igital monies of all kinds, including Bitcoin can be used, but when it comes to compelling people to accept Bitcoin as El Salvador plans to do I draw the line, I am willing to concede if I take my Hayekian hat off for a moment I'm willing to concede that there's an economic argument for such compulsory tender laws, as a means for nudging people quickly out of a rapidly decaying or otherwise unreliable currency into something better.
[01:37:01] And I'm willing to concede that under some circumstances that better alternative could be Bitcoin despite its volatility and all that. So I'm willing to concede those things as a matter of theory, but I am not willing to concede that there's a case for such compulsory tender laws in a country like El Salvador today, where the established currency, the US Dollar is after all fairly stable.
[01:37:32] I just don't see enough reason to resort to coercion in this case. I think it makes Bitcoin look bad. I think it gives it a bad taste in the mouths of the many Salvadorans who don't like it. And it's a shame to do that. And I ultimately think that if anything goes wrong in El Salvador with the arrangements it comes up with, and I think that might well happen that too.
[01:38:01] Give Bitcoin, as it were a black eye, Yves says that Bitcoin doesn't care, of course, Bitcoin doesn't care itself, Bitcoin - it's not even an inanimate object. It's a purely digital thing. But those of us who value Bitcoin and wanted to be widely appreciated and want governments to do the right things, to encourage it.
[01:38:27] That is to say the voluntary things that I spoke of before don't want it to associated with harm, with coercion, with oppressive measures, don't want to see it contribute to disastrous outcomes that will confuse people about its merits. So I say for practical and philosophical reasons, I'd like to keep Bitcoin close to its original roots, where it was entirely counterpart to freedom and choice in currency and the device that added to that freedom.
[01:39:09] That's how I think Bitcoin can do the most for the world. And it's also the best means by which to get the world ultimately do the most for Bitcoin..
[01:39:20] Richard: Great. Thank you, George. You articulated really well. This was the debate between a maxi and a Hayekian. I hope you don't mind if I brand this episode...
[01:39:30] George: I think that's a little unfair to Yves. If I may say, I. don't think that Yves is a maxi at least I wouldn't describe him. So I suspect first of all, that he has a fair bit of Hayekian gene s and his makeup. He doesn't fall neatly into that otherwise nice dichotomy. And I didn't mean to suggest that he does not, everybody does
[01:39:51] Yves: And I don't take it the wrong way at all.
[01:39:54] Richard: And I think Yves actually wears Maxi as a badge of honor. It's not meant to be a disparagement for him.
[01:39:59] George: Well he's a think so very sensible maxi in that case. He's a mild-mannered Maxi.
[01:40:08] Richard: Right, right.
[01:40:08] Yves: Proof that it exists.
[01:40:09] George: (laughs)
[01:40:10] Richard: Well, there's also a difference between when you talk to someone in person and when you interact with them online. So we'll see see you guys on Twitter.
[01:40:17] George: I must say I found Yves very polite online as well, I think.
[01:40:21] Richard: Maybe you should take that as criticism as a maxi. Alright, thank you...
[01:40:26] Yves: No, no, but that's the thing, I can be toxic and I can be a Maxi, but it really ally depends who is talking with, me. What I don't like is bad faith, if the discussion is between two people who disagree, I don't necessarily claim that there is only one truth.
[01:40:42] Richard: All right. Can you guys share where people can find you, starting with Yves?
[01:40:46] Yves: So on Twitter, I am @ZLOK, Z-L-O-K, and otherwise BennaÃ¯m is spelled B-E-double N-A-I-M if you want to Google me or anything.
[01:40:57] Richard: Okay, and George?
[01:40:59] George: Yes, I'm on Twitter as plain old @GeorgeSelgin altogether. I can also be found online. I work at Cato and I invite people consider reading our online publication, ALT-M, that's ALT dash M for Alternative Money.
[01:41:16] Richard: All right. So listeners, we'd love to hear from you and have you join the debate via Twitter? Definitely also vote in the post debate poll. When that comes out, we look forward to seeing you in future episodes of the blockchain debate podcast, consensus, optional proof of thought required. Thank you both so much for joining. I will see you both on Twitter.
[01:41:33] George: Okay, Richard, thanks. Yves, it's been a very, it's been a pleasure, Yves, and I'll see you on Twitter too.
[01:41:39] Yves: Same here. Looking forward to the next discussion after it passes into effect.
[01:41:44] George: Okay.
[01:41:45] Richard: Oh. Yes, yes. Part two, part two. Thank you guys. Take care.
[01:41:48] George: Bye.
[01:41:50] Yves: Bye-bye.
[01:41:50] Richard: Thanks again to Yves and George for coming on the show.
[01:41:54] Richard: To summarize, George thinks the compulsory tender law not only violates the ethos of Bitcoin, but makes for bad Bitcoin PR if this government-mandated effort doesn't pan out. Yves thinks Bitcoin will eventually become money anyway. And that justifies early action from a small country whose currencies are currently beholden to another superpower's monetary policy, which some argue is getting shakier by the day.
[01:42:17] What was your takeaway from the debate? Don't forget to vote in our post-debate Twitter poll. This will be live for a few days after the release of this episode and feel free to say hi or post feedback for our show on Twitter.
[01:42:28] If you like the show, don't hesitate to give us five stars on iTunes or wherever you listen to this. And be sure to check out our other episodes, with a variety of debate topics, Bitcoin's store of value status, the legitimacy of smart contracts, DeFi, POW vs POS, the merits of economic bailout, central bank digital currency, and so on.
[01:42:49] Thanks for joining us on the debate today. I'm your host Richard Yan, and my Twitter is @gentso09. Our show's Twitter is @blockdebate. See you at our next debate.