Here’s some unsolicited relationship advice: Get yourself a partner that loves you as much as El Salvador President Nayib Bukele loves bitcoin. That may not be physically possible, because this man really loves his blockchain money.
Depending on your point of view, his recent performance was either historic, or a thoroughly delusional and yet an entertaining plan.
Bukele last week unveiled a plan that will see El Salvador, fresh from making bitcoin legal tender, potentially issue $1 billion in “volcano bonds” that would be half used to purchase bitcoin, with the other half used to construct a Bitcoin City.
This libertarian paradise would have no taxation, except for a value-added tax, and would get completely clean thermal power from a nearby volcano.
No, this is not some B-grade Bond movie fan fiction — although it certainly might be out there on the wider internet — this is something that is meant to happen in 2022.
“This is going to make El Salvador the financial centre of the world,” Blockstream chief strategy officer Samson Mow said on stage beside Bukele, as reported by Reuters.
Mow talked up the “game theory” surrounding the bond issuance, and said bitcoin would hit the $1 million mark, allowing El Salvador to easily repay the 10-year bonds issued at 6.5%.
Before the hype takes over, it’s time for a dose of crypto-cynicism thanks to David Gerard.
“It is all but certain that if the Bitcoin City project even breaks ground, then it will be a haphazard disaster, courtesy incompetent but politically trustworthy cronies hastily pushing out the most slapdash and dysfunctional nonsense,” Gerard wrote.
“If Bitcoin hits a million dollars — as Mow is sure it will — the bond pays out handsomely. If it doesn’t, Blockstream gets the land. That’s a pretty sweet deal — though not so sweet for El Salvador.
“Note that real-world usage of Bitcoin by the populace of El Salvador doesn’t seem to matter for this plan. Just as well, given that Chivo doesn’t actually work reliably.”
Gerard concludes that Bukele and the bitcoin crowd probably think each side is the bigger sucker, and that both sides could easily lose. In the 2020s, everything turning out bad for everyone is a hard prospect to bet against.
Earlier this month, an actual economist in Australia and head of payments policy at the Reserve Bank of Australia Tony Richards issued some home truths in a speech of the kind that people only give as they approach retirement.
“Cryptocurrencies have no intrinsic value, typically do not have any issuer standing behind them, and rely on users’ trust in the software protocol that controls the system,” Richards said.
“While the term ‘cryptocurrency’ may suggest that they are a form of money, the consensus is that existing cryptocurrencies do not have the key attributes of money (which is why some people prefer the term ‘crypto-assets’). As many observers have noted, they are rarely used or accepted as a means of payment (at least in everyday life), they are not used as a unit of account, and their prices can be very volatile and so they are a poor store of value.”
Richards said distributed ledgers have a future, which could enable smart contracts to take off, but warned proper peer-to-peer decentralised finance as sold via cryptohype was unlikely to appear since intermediaries would maintain a significant role, if only to get lay people to use the technology.
If regular users had less fear of missing out (FOMO) and ignored fads, combined with government clamping down on energy consumed by proof-of-work-based cryptocurrencies and the use of cryptocurrencies in laundering and cleaning money, Richards said he could envision a path where crypto price increases unwind.
Little wonder that bitcoin holders would be pleased if El Salvador did indeed lock up its volcano bitcoin for at least five years, as planned. An extra layer of scarcity from government bonds would really help keep the FOMO going.
Helping to stoke that FOMO has been Australia’s blockchain-promoting Financial Services Minister Senator Jane Hume.
“A recent Senate Committee report said an extraordinary 17% of Australians are investing in cryptocurrency — this is an asset class that has captured hearts and minds, but beyond that — whatever you might personally think — it’s a technology that’s not going away any time soon,” Hume joyfully declared in a speech last week.
Unfortunately for the minister, Richards had already batted that survey and its claim away a week prior, as well as the claim that 5% of Australians held Dogecoin.
“I must say that I find these statistics somewhat implausible. I cannot help thinking that the online surveys they are based on might be unrepresentative of the population,” he said.
“There are important segments of the population — most notably older people, those who live in regional areas and those who do not regularly access the internet — that online survey panels do not capture well; our experience is that it takes a lot of work to do a really good survey of the population.”
However, Hume was undeterred and called for people not to be like those that decried new technologies like email, smartphones, or the internet itself.
“De‑centralised finance underpinned by blockchain technology will present incredible opportunities — Australia mustn’t be left behind by fear of the unknown,” said the Senator about a country that closed its borders in 2020 to its own citizens over fear of a virus, and has had fear as a primary driver for most of its despicable immigration policies since Federation.
Counting against the rosy view of Hume is the dose of reality served up by those who recently hoped they could buy a copy of the US constitution with ether. As Vice reports, many of those that contributed smaller levels of funds have seen that the fee structure of using the Ethereum blockchain and the high levels of gas to be paid for transactions to occur sometimes eat up all of the money intended to be used for the purchase once it has been refunded. In one instance, a user ended up with a bill for processing after their refund occurred.
Vice reckons about half of those who contributed to ConstitutionDAO will see a great portion of their funds eaten up by gas fees.
As is the way in the crypto realm, while this attempt to make an impact on the real world failed, the next one is likely to avoid some of those pitfalls and the state of crypto art marches on.
Whether it can be good enough for purpose is up in the air, but it is hardly anymore preposterous than a volcano-powered, low tax economic zone in Central America funded by bitcoin bonds.
The next year will show which one is able to materialise first, if at all.
The Monday Morning Opener is our opening salvo for the week in tech. Since we run a global site, this editorial publishes on Monday at 8:00am AEST in Sydney, Australia, which is 6:00pm Eastern Time on Sunday in the US. A member writes it of ZDNet’s global editorial board, which is comprised of our lead editors across Asia, Australia, Europe, and North America.