Bitcoin is for Dictators

Transcript

i'm probably the person standing in between all of you and happy hour and dinner and stuff so i promise to do my best to keep this interesting and we'll all roll out and get some food and some drinks soon so thank you for coming to listen um my name is lane redig i am i i do core research and development on a project called space mesh that's the t-shirt uh as my day job but i'm actually not here to talk about layer one blockchain protocol r d i'm actually here to talk about geopolitics today and in particular some interesting stuff that's happening in the bitcoin ecosystem and in latin america um i'm sure many of you like like i have have been

around the venue today listening to some very exciting talks on defy and staking and derivatives and fancy protocols and things like that i think all of these developments and technologies communities ecosystems are very exciting and very important but to me and it also kind of makes sense that innovation starts at the top so to speak right it starts with these complex products and services for sophisticated users like we are in relative terms but the reason i'm the most excited about the innovations happening in d5 is because i have a hope that they will enable financial products and services for everyday people all over the world and so that's kind of the theme of this

talk how do we get from where we are to there so i'm going to start with a little bit of a story so this is me in 2017 at devcon3 believe it or not we've come a long way that's not me that's me and i was very bright-eyed and bushy-tailed and very naive and at the time and i have a background in traditional finance i used to work at a hedge fund and after doing that for a few years i began to feel quite frustrated that again that the financial innovation that i was participating in the products and services that we were developing were not ultimately products and services for everyday people everyday consumers around the world and so when i discovered

the blockchain and ethereum ecosystem uh this is the aspect of it that excited me the most right that we have this powerful set of tools these money legos these primitives that we can use to build um products and services for everyday people i'm not joking when i say that i was excited about doing this um so i'm gonna go ahead and dox myself here and admit that my first ico uh was this one it was called everex and it was in 2017. any of any of you who are around at the time will remember that there were you know icos launching every day in 2017. um and this platform this ico was designed to do remittances right so this is payments cross-border payments um and offer

services like micro finance and micro insurance to everyday consumers um i haven't followed this project very closely uh apparently it does still exist i was hoping to come up here and tell you guys it was a scam and i got scammed and this and that that'd be funnier it does still exist i think the project is pivoted a little bit um so that's cool but this is the first thing that i kind of ever invested in in this ecosystem so fast forward a few years this is me about a month ago at the bitcoin 2021 conference in miami one big difference you'll notice is no one's wearing a mask uh that's actually why i took the selfie because people didn't believe me when i said that so that's that's miami for you um yeah it was it was a pretty exciting

event so jack dorsey was on stage and there were some hecklers and some just a lot of fireworks and exciting stuff that happened um floyd mayweather was on stage as well for folks who recognize him fun fact he showed up in an ethereum t-shirt to this conference and they would not let him on stage wearing an ethereum conference at a bitcoin sorry wearing an ethereum t-shirt at a bitcoin conference so they forced him to borrow a t-shirt from someone else and change his shirt just before going on stage i thought that was kind of funny and then this happened right so uh very miami right we have our palm trees and stuff i know you can't see this image very well i'll show you a better image in a moment but um this gentleman

named jack mallors took the stage and uh i think what it says here is el salvador has become the first country to make bitcoin legal tender and so this kind of caught my attention i was like i was actually outside i think like having a drink with a friend or something of course they were projecting the the stage outside and i was like who is this guy what is this of course because i had been so interested in remittances and in these kind of developing world use cases it just immediately caught my attention um so so right so jack mullers is the ceo of this project called strike um i never heard of him i never heard of strike i barely knew where el salvador was at the time

uh and so this is a better image of him and his presentation one small step for bitcoin one giant leap from mankind uh he announced that he has been spending time in el salvador recently as part of a particular project there called bitcoin beach which i'll describe in a moment uh onboarding locals to use his app strike and to use bitcoin uh and lightning network which is the underlying infrastructure and as if that wasn't kind of exciting or impactful enough the next thing that happens is a video of this guy pops up does anybody know who he is someone shout out his name anybody naive right so this guy is the president of el salvador

that's pretty crazy right have you i mean and this video is not a generic video this is a video address um six minutes six and a half minutes long this is on youtube you should watch it it's really interesting it really is quite monumental an address specifically to the attendees of this conference bitcoin 2021 um you know i've seen like state governors speak at ethereum conferences i have yet to see the president of a country speak but maybe it happened and i missed it or maybe it will happen sometime soon but yeah so like what's going on right um and so buchelle in this video made quite a startling announcement that as i hinted at a moment ago he had been working with jack mallors and with the strike team and a few other advisors

to create legislation to make bitcoin legal tender in el salvador um again watch this talk it's on youtube it's pretty interesting um i thought this is a good image i mean this was a very very very emotional talk i i was moved by by it i also highly suggest just watch the whole video of this whole talk um you know this this gentleman jack mahlers he's a very uh he's a good public speaker and uh makes a very convincing case for why this work is so important um he was quite emotional on stage he gave an interview on the what bitcoin did podcast great podcast check it out where he describes kind of the craziness leading up to this

announcement this presentation right it was uh actually all secret not only from like the bitcoin community but from the whole world even from the people in el salvador and so maybe that's not such a good thing um and so there was just kind of a lot of pressure leading up to this moment and a lot of anyway it was all kind of released in this talk so again watch the talk really really interesting so sure enough a few days later uh june 9th president bucheller sent this bitcoin law to congress in el salvador and he also posted the text the full text of the proposed legislation in spanish and in english it's as you can see it's very short it's a page and a half

we will go through it in detail in a moment so don't worry about reading it now and again this was june 9th so a few hours later uh is it down here yeah on june 9th it was approved by a super majority of the salvadorian congress 62 out of 84 votes now what he doesn't mention here is that his party controls a super majority they have something like 60 of those votes for his own party and so that's why this happened so quickly and again i'm sort of fast forwarding a little bit here by saying that it's not entirely clear that kind of the full democratic process played out here correctly and we'll analyze that in more detail later but this is just an overview and that led to headlines like this one um pretty pretty interesting stuff uh so

again this is jack mallors wearing his el salvador football jersey um and this is a local newspaper announcing that bitcoin is now a legal tender in el salvador pretty pretty crazy stuff you'll notice by the way that this is denominated in u.s dollars because as we're about to talk about el salvador is a dollarized economy of course crypto twitter exploded uh again don't worry about reading these in detail we're gonna go through some of these a little bit later um a lot of armchair analysis criticism etc and basically the direction i'm going in this talk is i kind of want to walk you guys through my own process of like understanding what the heck is going on what does this all mean so let's kind of

zoom out a little bit so um we'll talk a little bit about the context of el salvador kind of some of the history and socio-political economic context in el salvador we'll talk about lightning network how that fits in how that's kind of an enabling technology here this bitcoin beach project which i mentioned a moment ago and then zap and strike so strike originally started as a lightning network wallet called zap we'll talk about the bitcoin law take a closer look at it we'll look at uh in detail kind of how remittances work in strike how we kind of follow the money and kind of analyze how this how this all looks under the hood which i think is a very interesting piece and then we'll kind of look at

both cases we'll kind of look at the happy path and the unhappy path and discuss ways in which i think this could end very well and ways in which it could end very very poorly for the bitcoin community the crypto community for the people of el salvador and kind of for the world at large i'll briefly share with you guys kind of where i'm at after looking at both of those paths um and then i think where kind of ethereum fits in and defy and some of the stuff we're working on here we'll talk a little bit about how we can use some of the tools and ideas in this ecosystem to potentially improve the model that's being used here so there's going to be a lot of memes in this talk i hope you guys are fans of memes so uh this is i think this is the

parliament in el salvador or the congress i should say um as i said a moment ago i had heard of el salvador prior to experiencing you know seeing this talk and understanding what's going on but i didn't know where it was i probably could not have found it on a map even though it's close to home for me so el salvador is a country of about seven million people it's a very small country geographically it's kind of in the middle of latin america um to the extent that i had heard of el salvador and you know kind of the the times it makes the news and headlines it tends to be stories like this right so it's a country that has struggled quite a bit with gangs in particular with gang violence with corruption

with inequality and poverty it's a very very poor country also has issues with natural disasters and corruption so uh i think all three of the most recent three presidents prior to bucheller were all convicted of corruption and thrown in jail or house arrest so that gives you a sense of kind of the level of corruption we're talking about here um interestingly el salvador receives around 20 of its gdp in the form of remittances so here we're connecting back to the remittances topic uh i don't know this service i've never used it remittly but this is kind of one of the non you know crypto non bitcoin or lightning related services you might use to send um money typically us dollars to anti-rosa here in el salvador we'll meet

her again a few slides later um 20 think about that for a second 20 of gdp i mean that's billions of dollars of gdp um el salvador you know has some i think it's roughly equal to the amount of exports so they do export certain types of goods things like t-shirts and coffee has been a big trade staple for them but again 20 is a huge number in terms of remittances it's not the highest in the world some countries are higher um but if you realize that every single one of these payments which are typically sent by el salvadorians working abroad in places like the united states um back to family in el salvador every one of those payments they're paying 10

20 30 um fees to western union and other um women's service providers so what percentage you could do the math quickly right what percentage of the annual gdp of this country is going to big corporations it's it's a large number and so it you know kind of explains why el salvador is um a prime place where we might want to try introducing better options for remittances another reason is the is the economy of el salvador so they used to have their own currency called the colom named after christopher columbus um proud history right 120 years plus of sovereignty sovereign control over

their their currency their monetary policy until 2001 when the country faced an economic crisis and decided to dollarize um very very few el salvadorians have access to bank accounts or or i should say just basically they are unbanked even if they have access so more than 70 of the adult population is unbanked um and while all of them sorry well many of them lack bank accounts they do all have cell phones actually relatively modern phones so again if you do the math maybe there's some sort of technological solution that could be better for them than going to a western union location you know receiving 80 of what was sent and then having to hand over another 25 of that to the gang member

standing outside the western union which is kind of how things work in el salvador uh again i mentioned corruption so corruption is a huge issue yeah of the last four presidents sorry this is the actual figure of the last four presidents three of them were convicted of corruption so a lot of corruption um and so now we have this gentleman naib who of course has laser eyes this has become a theme a lot of the leaders in latin american countries have begun putting these up this is actually this is from his twitter profile so this is not like something someone else did he posted this himself he was the mayor of san salvador the capital was elected president two years ago in 2019 he's very young he's 39 so he's been called the world's first millennial

president he is quite populist and he has certain authoritarian tendencies which we will discuss in more detail soon it's been said that he governs his country on twitter that's what it says in spanish which i think is pretty interesting you'll see some of his tweets as well he's very active on twitter and you know i had heard of him right and the reason i'd heard of him is because of articles like this so there have been a lot of articles about quote unquote el salvador's slide to authoritarianism um he has two brothers who will meet shortly who are among his closest advisors but of course they're not elected officials so that smells a little bit like

nepotism to me however in spite of all of this or maybe because of it he has extraordinarily high approval ratings okay he won in the last in the election with greater than 90 of the vote and it was deemed to be a free and fair election so this is like a real legitimate election he is legitimately legitimately a popular populist leader he still has massive support among his people um very high approval rating and so as i was beginning to kind of dig into this and look into what's going on i couldn't help but feel a little bit of cognitive dissonance here right on the one hand we have this guy who's violating all these international norms who's violating the sanctity of democracy and i'll show you some specific examples of what he did later

and so you know those of us who appreciate democracy i certainly do um i think i hesitate to celebrate you know his presidency or or his popularity on the other hand i'm not el salvadorian right so it doesn't matter what i think what really matters is what the people of el salvador choose you know who they choose to be their leader and if 90 of them support this guy then who am i to judge him uh so again just some tension here some some cognitive dissonance and we'll come back to this this is one of the themes i think of this talk so let's change gears a little bit now and look at some of the technology that was sort of evolving in parallel so um this thing called bitcoin exists i think everyone here knows what bitcoin

is um on top of bitcoin this technology called the lightning network has been developed again i think probably everyone here is familiar with lightning but as a very brief overview it's been under development for about five maybe six years it is a layer two payment solution for bitcoin and the way it works is it allows two parties to open a payment channel so in ethereum land we usually call these things state channels between each other and lock a certain amount of funds into that channel and the act of opening the channel does require a single mainnet on-chain transaction but once the channel is open funds can flow basically instantaneously and basically for free back and forth between those two parties

um that doesn't sound that sounds reas sort of useful doesn't sound incredibly useful until you understand that you can do this routing right and so there are projects in the ethereum space like trust lines circles that are kind of using similar ideas right but the idea is if i have a channel to alice and i want to send funds to bob and i don't have a channel channel to bob then i can send my i can route my payment through alice and alice will collect a very very very small fee denominated in satoshis so like orders of magnitude uh less than even like a single u.s cent for that transaction um so it's exciting that this exists it's developed quite rapidly there are a number of implementations but of course you know lightning is still a relatively immature protocol it has faced a number of criticisms

about for example it's a bit capital inefficient right all those funds have to be locked into those channels in order for it to work it's not easy to run to run a node and the revenue you receive for running a node is very very low right now [Music] also people have said that it's kind of centralizing right because you're going to have a small number of these hubs that become very very well connected and you know we all like decentralization not centralization um however you know again it continues to emerge and there's really interesting active research on lightning it's actually one of the areas of bitcoin that has the most active research going on uh so just as one recent example there's some really solid research recently that's emerged around better routing protocols and it is usable i can attest to this

i've done it i used it quite a bit in miami for the first time there are wallets there's one called wallet of satoshi there is another one called moon m-u-u-n from a team of developers in argentina so that's what this is it's very very easy you can buy bitcoin on coinbase or cash app or something like that you can send it into the lightning network into your wallet in an app like this and again the transactions are instant and and being able to kind of send bitcoin instantly in for free is pretty exciting to those of us who are used to high fees and slow confirmation times um and yeah quite a quite an ecosystem of apps and services have emerged on lightning recently so how does this all kind of connect let's go back to el salvador again so

there was a project launched in 2019 in el salvador called bitcoin beach there was it's quite an interesting story uh as always in these cases there was an anonymous donor who donated um quite a bit of quite a bit of money apparently this individual found you know this typical story found an old bitcoin wallet that they had where they had bought bitcoin years and years and years back when it was worth nothing and obviously it got up quite a bit in value and they wanted to contribute back to this local ecosystem this was they had this individual who had spent time quite a bit of time here in el salvador um and launched this project called bitcoin beach in a small town called el zonte which uh is a village it's a fishing village with only 3 000 residents

and the idea was to build a self-contained local economy where everything is denominated in bitcoin and you can transact entirely in bitcoin you can be paid in bitcoin you can buy a cup of coffee in bitcoin you can go to the grocery store and pay in bitcoin and one of the things they did as part of this project was giving grants of about 45 us dollars each to 500 families which 4 000 people 500 families that's basically everybody in elzante which i think is pretty interesting it's kind of an airdrop i guess you could call it they developed their own bitcoin beach wallet application as well which i think also supports lightning and they did a lot of heavy lifting

right they invested a lot of time during the pandemic not an easy time or place to be doing this going around training people in this community locals to use the wallet software you know understanding the benefits of bitcoin this gentleman his name is jorge valenzuela is one of the leaders of this project there's a lot of really what's the word um inspirational photos like this on the bitcoin beach website so and there's some good articles about it so check it out i have not been there but i met someone in this room a few minutes ago who's going to el salvador soon i'm also hoping to go soon if you're interested in coming along you should i'm sure they'll welcome ethereans and you know various other denizens of

our ecosystems um and then you know in parallel to all of this we have going back to jack mallors and and and his projects right so he um is based in chicago that's why it says chicago he developed a project called zap zap lightning strike i actually didn't get this at first but there's a theme here um and zap is pretty cool right so they have both a kind of desktop and mobile version of the application it's open source which is nice it's not only a lightning wallet it also lets you manage your channels if you want to open a bunch of lightning channels fund them zap was developed into a for-profit company

called strike i don't know but i'm assuming that it probably forms the basis of the technology as well strike unfortunately is not open source so i can't confirm this and so strike unlike zap is a custodial wallet so this looks and feels a lot like venmo or cash app if you've used those sorts of applications before the ux is great it's very very smooth you can link it to your bank account you can move us dollars into strike over eft funds transfer instantly basically for free um and strike announced earlier this year that they're sort of growing very rapidly they're going to quote launch in over 200

countries i don't know how many countries they're actually live in right now um and quote onboard 1 million bittrex users and roll out payment cards in the united states and here in europe i don't think that's happened yet but that's what they're planning to do and as part of this mallards and some of his team went down to el salvador and bitcoin beach so i know i'm jumping around a lot but hopefully you could see the threads here are kind of connecting we have the strike team we have lightning we have el salvador bitcoin beach um and this was earlier this year they began onboarding people onto the strike app uh and you know if he did as i imagine he did the sort of analysis that we did a moment ago you kind of look at el salvador it's not

terribly far if you're coming from north america um 70 unbanked huge portion of remittances it kind of makes sense if you're developing this sort of technology to target a place like that and again the bitcoin beach project had already begun to educate people so strike launched in el salvador and very quickly this is quite remarkable this is where the story starts to get very interesting it shot to the number one app in the app store in el salvador and actually i mean this starts in kind of mid to late april but i i think this goes out quite far so for a month or possibly months it was the number one app it was the number one of all apps and it was also the number one finance app i think this this is finance apps in the

um app store or app stores in el salvador so it began to get a lot of attention and you can see it stayed roughly in the top 10 since then they said that they were seeing 15 000 to 20 000 signups a day that doesn't sound like a huge huge number if you're used to kind of silicon valley metrics but again put things in perspective el salvador is a relatively small country seven million people right this is very very significant uptake the next thing that happened is and again this is the story starts to get very interesting here so mallards was contacted on twitter by the brother of the president so i mentioned earlier that

the president's brothers yusuf and ibrahim are two of his closest advisors um and what i'm recounting now was it comes from an interview that he that mallards gave on again this what bitcoin did podcast so you should hear it in his own words but i'm just telling the story um he was out at dinner you know in el salvador with a friend and got a dm on twitter and opened it and basically said hi i'm i think it was jesus if i'm yusuf bukele i'm the brother of the president we're excited about your app we're excited about what you're doing do you want to come meet us and he was terrified i would be terrified too uh and kind of said wait a second you know i need to get my ducks in a row maybe i need a lawyer i need to make sure i'm not walking into some sort

of a scam or a trap or something and kind of said you know give me a few days and apparently they said meet us tomorrow or you're going to lose the chance and what they did was they sent him a set of gps coordinates and that's it right so again remember this is a country that has a big problem with violent crime i think until recently el salvador had the highest murder rate per capita in basically the whole world pretty scary but he went and i think he the way he tells the story he told a friend where he's going to be and said if you don't hear from me in a few hours call the police call the embassy so he shows up and there's like a row of guards holding you know ak-47 holding rifles which apparently is how business gets done in

el salvador uh long story short you know he sat down with with these gentlemen sat down eventually with buchelle the president himself um and i'll circle back i'll pick up this thread again in a moment um and so basically yeah this is where things connect right so going back to miami um that's how this announcement came to happen basically that uh mallards collaborated with naibukele and the government in secret to develop this law this bitcoin legislation um it was kept secret from basically everybody until it was announced at this conference about a month ago and um later so this is a

a screen grab of a talk that pukeley gave a couple weeks after that to the people of el salvador and so here he's kind of explaining um a bit more about the bitcoin law and how it happened so this 30 dollar figure so what this means is that the government itself is rolling out its own wallet software and incentivizing all the el salvadorians who sign up to use it with thirty dollars for the cipher punks in the room you should be yourselves right now this is pretty bad right like there were talks earlier today a lot of good talks about privacy i'm not sure that we want like the governments can already see most of what we're doing on chain you know thanks to the wonderful folks that uh no i won't name any but they know who

they are that the project's doing analysis of blockchain transactions they're all public um twitter for your bank account as it's been called so now you know why don't we give our keys to the government too and have a government wallet anyway sorry i'm getting ahead of myself so let me actually go through a little bit about what he said because i think this is very interesting so he kelly explained that this was in consultation with stryke and with jack mallors sorry um he explained that bitcoin was going to be declared legal tender in el salvador now this is interesting right what does legal tender actually mean i had to do some homework on this this is kind of part of this that i didn't really understand um so here's the official definition from wikipedia very official anything

which when offered or tendered in payment of a debt extinguishes the debt there's a lot of nuances here i don't want to go too too deep into this but the main part i want to highlight is the word debt right so when we say in the united states that the us dollar is legal tender i believe it actually says legal tender for all debts public and private but the key word is debt in particular it does not need to be accepted for spot transactions so if i walk into a shop and i want to buy a sandwich the shopkeeper is not obligated to take us dollars right that's how it's interpreted in most of the world uh that's not the case here so all merchants who are capable of accepting bitcoin not to find what that means are forced to accept bitcoin

not just for debt payment not just for you know the government accepting for taxes but like actually for day-to-day transactions uh what does it mean to be capable do they need a smartphone do they need to be savvy tech savvy do they need a bank account um i mentioned the government wallet already they're not forced to use the government wallet this is still interoperable on the lightning network so you could use strike or another wallet and then i think the most interesting part of the proposal is that the government is opening a central bank administered trust fund um and so what this does is for merchants who are forced to accept bitcoin but don't want to hold it because of

volatility the government trust fund will act as a counterparty and instantly convert that bitcoin back to dollars at a spot rate so that the vendors are not forced to hold bitcoin or be exposed to its volatility um and so the way he phrased this is quote you have to accept bitcoin but you don't have to hold it uh they also just decided that you we non-el salvadorians we foreigners can receive permanent residency for investing the sum of three bitcoin in el salvador um denominated in bitcoin investing not not you're not buying residency you're investing um let's see okay this is more about the

trust fund so the trust fund is going to hold 150 million us dollars you can ask yourselves whether that's a lot or a little um let me kind of quickly go through some of the interesting bits we have some time here which is good we have a whole hour so um act so i'm not reading all of them but so article two the exchange rate between bitcoin and the dollar will be freely established by the market unclear what the oracle is here where the price is taken from prices for any transaction may be expressed in bitcoin okay so it's a medium of exchange sorry a unit of account tax contributions can be paid in bitcoin you're not forced to pay your taxes in bitcoin but you can that's kind of cool exchanges in bitcoin will not be subject to capital gains tax

just like any legal tender so this is actually fairly significant i know that crypto is not um doesn't face capital gains taxes everywhere it happens to be in the united states but this is very attractive for kind of investment um what else every economic agent must accept bitcoin as payment when offered to him by whoever acquires a good or service so again this is kind of forcing people to accept bitcoin the state shall provide alternatives that allow the user to carry out transactions in bitcoin and have automatic and instant convertibility from bitcoin to us dollar if they wish we talked about that um [Music] the executive branch will create the necessary institutional structure to apply this law what structure not

clear at all uh you know i'm used to bills that get passed in the united states congress being a thousand pages long that's probably a little bit too long but i'm not sure a page and a half is enough when so much is at stake so a lot of details left out all obligations in money expressed in us dollars existing before the effective date of this law may be paid in bitcoin so anyone who owes anyone any amount of money denominated in dollars in el salvador which is basically all debt uh may be paid in bitcoin so this is basically the legal tender clause um and then finally right laying out that the bandesal which is the central bank will set up the trust fund to guarantee the instantaneous

convertibility so i was a little confused by this by reading like there's very scant information available on the strike website um the code is not open source as i said so i kind of thought it would be interesting to do a sort of follow the money exercise where we actually follow the path of a transaction and see what that would look like from start to finish so we're gonna do that unfortunately i don't have animation here so i think this should work here give me one sec to find the slide oh sorry yes i had it here perfect so

um let's say i have dollars in a u.s bank account i can as i said before set up a strike account and transfer those dollars into my strike account right so in concrete terms what's happening here is the existing financial rails the eft electronic funds transfer network is moving those funds to strike strike can make those funds available to me instantly the way that venmo and coinbase do but in reality this transaction is going to take a couple days at least to settle because it's not crypto um then strike is going to so okay so so what happens next right so if i want to send funds in strike to my friend down the road

that's not interesting right because my friend down the road also has a u.s bank account also has a u.s strike account uh that's just updating a database row internally at strike it's not interesting it's the same thing that coinbase or binance does if you know funds are transferred internally right but so the interesting case of course is the remittances case so let's say that i want to send funds to auntie rosa we met her before in el salvador so the first thing that strike is going to do is it's going to convert my dollars to bitcoin uh you can't see any of this can you sorry one sec okay now you can see it sorry about that um

so so this symbol is like the exchange symbol and again we don't have a lot of clarity on which exchange is being used or what kind of fees are being paid but we know that uh fees are being paid for every sort of transfer between currencies and we don't know how favorable the exchange rate is right so value is being lost um then that bitcoin is going to be sent to a strike wallet like a hot wallet in el salvador this part's a little confusing right you might kind of think oh bitcoin is global it's international like why does it need to be uh why does what does strike need to maintain kind of different wallets well this is because it's a centralized provider

um and they legally need to custody that bitcoin in venice sorry in el salvador for whatever that's worth um and then that bitcoin is going to be moved to our favorite coin tether um also very interesting so mallors has explained that this is this step is necessary and it's happening because strike is not legally authorized to hold us dollar balances because it's not a bank it doesn't sort of have that regulation regulatory approval in el salvador however they they claim that they're also phasing out tether and that they have sort of deals with banks and maybe this part will go away and then um okay so then this tether is going to

land in auntie rosa's account okay and so she's going to get a push notification in strike she's going to open the app and she's going to see that she has a balance in quote-unquote dollars they're not really dollars they're tether and when she wants to spend that money the tether is going to be turned back into bitcoin um and so if she wants to so there's a couple things she could do right she could withdraw the funds in cold hard cash in actual us dollars and so the way she would do that is she would turn it back into bitcoin um in the strike app send it to a bitcoin atm and then withdraw dollars from the atm that's one thing that she could do

another thing that she could do is send it to a merchant or sort of purchase something right in kind and so in this case the bitcoin so again tether sorry strike would convert the tether back to bitcoin send it to the merchant who had received the bitcoin and then we're now talking about this what we talked about a moment ago the kind of trust fund and merchants who don't want to be exposed to the volatility of bitcoin they can access the central bank as a counterparty and basically basically deposit that bitcoin with the central bank with the trust fund and receive dollars on account uh yeah and they receive the dollars back so there's a lot of interesting things about this flow here uh again i'm a lot of this is my own speculation because

details are not available so i'm piecing together as best i can but the main point is like one two three four right there's four exchanges right there's sort of bitcoin moving back and forth between tether and moving back and forth between dollars um we want like our goal is to do better than the existing remittances rails you know again people are paying at least 10 um for small balanced transfers right 10 20 30 i don't think this would cost that much it probably is significantly better but by how much it's hard to know without understanding the kind of market dynamics here a little better let me switch back i don't speak french which one is the

current slide via positive actual or debut actually this one right oh thank goodness okay okay where are we oh the animation is working here i'll be darned sorry about that that was a waste of time okay cool so um moving now into the kind of latter portion of the talk let's talk about um the happy path right so what happens what what needs to happen for this to work well what's the best case scenario

so let's give buckeley the benefit of the doubt let's assume that he is actually a good actor and really genuinely has the interests of the people of el salvador and maybe the bitcoin community in mind um he and his cronies are not going to try to do a power grab or make a quick buck here and exit scam they're in this for the long term they're going to you know weather the storm and the next crypto winter right they're they're not going to be tempted by the pile of bitcoin that they're huddling in their trust fund uh maybe bitcoin volatility will go down over time because volatility is an issue for the trust fund um maybe the scheme in particular kind of the three bitcoin investment scheme attracts the right types of people the

right types of capital and investment and you know crypto enthusiasts and all of us flock to el salvador um and el salvador benefits from plugging into this global permissionless innovation um and financial network right i think that's the best case scenario um i think it's possible um you know i think we also have to assume that tether is not a scam or at least you know uh maintains value long enough for them to swap it out um and there's also the technical risk of lightning so we have to also uh you know in this positive scenario imagine that lightning continues to develop well

and continues to evolve and overcome some of the technical boundaries uh barriers that it's facing so look it's a lot of things that need to go right but it could happen right and this this could end well i think that there's more to say about the downside risk here so let's kind of look into this and i think that this quote sums it up pretty well so this is from a famous economist having minsky everyone can create money the problem is to get it accepted so we all know by now in this community how easy it is to create money right spin up in the rc20 contract boom um but you know at the end of the day as i think we all are all also aware money is a story right and and it's a shared story and it only works if

enough people continue to believe that story believe in that story and share that story and so what kind of pieces need to fall into place for for this story to work in the case of el salvador um so i mentioned some of buchelle's kind of autocratic tendencies before so um a couple things interesting things he decided to do he sent soldiers these are soldiers into the legislative assembly to encourage the passives passage of a bill and allegedly to overthrow the legislative assembly of el salvador not super democratic he um after his party won a super majority early this year in the legislative elections he there were a lot of investigations

ongoing into him and his party by the attorney general so he fired the attorney general because the attorney general's appointed by congress and he now has a super majority in congress and he fired five of the supreme court justices too because why not you know you can do that when you control all of the um state apparatuses which he now does uh he chose to keep the bitcoin law secret from everybody it was passed by a rubber stamp parliament with almost no consultation as you saw from the tweets i showed you a moment ago it was passed in just a few hours right and the law that went into effect in 2001 for dollarization that took two or three days and at the time that was criticized for being way too fast and it was a very

monumental decision and there wasn't enough debate so how about something that takes five or six hours right um oh it was passed just after midnight local time nobody had seen the law except the president and maybe the minister of the economy before it was proposed at 8 pm so that's about 4 hours of debate um and he didn't like even he didn't tell the people he didn't even tell the press the local press that this was happening and so the press was scrambling to translate stories coming to them off of the international press in english to understand what was going on in their own country again he's kind of governing through through twitter um this so i have a few kind of hot takes here from twitter that i think did

a great job of breaking down some of what's going on i know we're getting a little short on time and it's a bit late so i'm not going to go through all of this in detail but i can share the slides and the links and everything but what this individual louise is pointing out is that um it's quite interesting actually the bouquet regime has been like this is the populist handbook right as you kind of spend a lot of money and make people happy make friends by spending a lot of money and uh he did this in the beginning of his presidency which started in 2019 and then eventually congress again before he had the super majority kind of put their foot down and said okay no more print no more spending they can't print money because they're dollarized but no more spending money no more raising

taxes et cetera and so the case that this gentleman is making here is that bitcoin is kind of a backdoor way for uh for him to get more value flowing into the economy and then in turn kind of spend that money locally and and make people very very happy as a result i wish i could read this whole tweet thread to you it's quite long it's really really good but i'm going to keep moving i like this one a lot when tech bros meet presidential bros when techno solutionism meets kleptocracy and tech washing meets greenwashing for the people empty promises as usual and circumvention of democratic mechanisms we saw a moment ago how democratic mechanisms are being circumvented here for sure

um we saw the tech bros in the presidential bros literally right unelected officials who are sort of acting as governors that's a little scary um this emerged very recently this came out two or three days ago in this newspaper called el faro talking about how there has been a plan for some time on the part of the buchelle administration and his brothers to launch a colon stablecoin so um maybe this is actually a cbdc scheme in disguise like you know he's been you know banging the bitcoin drum a lot but like is the idea here to actually do bitcoin or is it actually to replace tether with some kind of like

government-backed stablecoin we don't know um and this article included some video recordings and screen grabs and some of these private conversations quite a lot was leaked in this article so there's a i haven't even had time to go through all of this then there's the infrastructure question as well right so remember the the bill the now a law said something about how the government is responsible for putting this infrastructure in place the law goes into effect on september 7th if i remember correctly it's um very aggressive time frame just uh three months after the bill was passed um only 45 percent of salvadorians have internet access and only 10 in rural areas this is supposed to be royal el salvador

i don't know if it's actually royal el salvador um okay that's great how do you use bitcoin without internet uh there's a lot of work to do so so the strike app doesn't work terribly well on a lot of the old phones that are in use in el salvador in other parts of the developing world and then remember my example of auntie rosa cashing out her strike balance using bitcoin atms how many bitcoin atms are there in el salvador anyone want a hazard a guess as of a few days ago there were two um this is bitcoin beach and there are none you'll note in backwaters like the capital san salvador uh i actually think that there are a couple that have popped up since the screen grab was taken so you know full transparency but very very

very small number so that that's challenging who's going to do this infrastructural work is the government going to do it another great quote el salvador could become a haven not just for honest bitcoin investors but for money launderers and instead of just meeting merchants legitimate requests to convert modest amounts of bitcoin into dollars bundesel the central bank could find itself laundering large bags of dirty bitcoins if they again promise to act as a counterparty and instantly um convert bitcoin into dollars uh for many merchants in el salvador how do they discriminate right how do they prevent money launderers from taking advantage of the system that's a very thorny complex question and we don't

have any answers to this yet so a lot of very smart analysts are saying this is going to become it's going to attract a lot of money laundering money laundering there's this irony as well right bitcoin is about freedom right people proudly wear these shirts at the bitcoin conferencing bitcoin is freedom uh and yet people are being coerced into using it um that's what that's what the law said if you're capable of doing it you're required to accept it even if you don't want to um in a recent survey 92 percent of people in el salvador said that they did not agree with the rule making acceptance of bitcoin mandatory and 93 said they did not want to have their salaries paid in bitcoin uh 85 said that they were not interested in

receiving even remittances in bitcoin so if the people don't want it that's gonna be a challenge it's gonna be an uphill battle um so there's been commentary about tether as we all know tether is uh unclear kind of what's what's backing it um and so to call a u.s sorry a tether balance in strike your mobile bank account or u.s dollars or synthetic digital dollars is a little bit disingenuous on the part of strike and in particular you can't withdraw usdt you can't withdraw tether as physical dollars from

an atm it has to go back to bitcoin and back to dollars and so there's more hops and more fees being paid there um again strike claims that they're removing tether from the equation that would be nice um yeah another hot take suggesting that rather than setting up a new financial system um that kind of robbery is hard so let's convert everything to some weird coin and take all the us dollars out and run um and so this is suggesting this is why they're going to issue a stable coin so that might happen this has been done this has quote been done by corrupt governments all over the world so this is kind of not a new move there's a lot of risk with the trust fund right it depends a lot upon balance of payments if you have a scenario where there's a

lot of bitcoin flowing into the country and not flowing out and then on top of that so so the trust fund is paying out dollars all the time and on top of that the price of bitcoin falls which as we know it tends to do it could very quickly run out of money and then what happens do they top it up with more money you know that the whole government reserves is on the order of a couple billion dollars they don't have unlimited funds to do this so it's sort of an economic recipe for disaster uh then there's the kind of risks and challenges associated with lightning itself so again it's a little bit disingenuous for strike to say that there are no intermediaries in the equation because actually they're running their own lightning nodes their own lightning channels and it's not open you can't actually open a

channel and talk to them and they'll explain you know infrastructurally it's very difficult to do that right now [Music] lightning partners charge fees for channeling payments so basically saying no fees no intermediaries is not completely true i kind of understand this as an engineer i get that sometimes you need to spin up your own infrastructure hopefully again lightning will develop quickly and that won't be necessary in the future again i wish i had time to go through this thread this is a really great reddit thread that breaks down and it's actually from three years ago but uh it still illustrates a lot of the kind of technical challenges facing lightning we talked about the centralization factor um kind of capital inefficiency a big issue is like routing transactions

there's the protocol doesn't have any way to make the overall topology of the network discoverable so every wallet is responsible on its own for discovering the entire network which often requires things like gossiping all the transactions the entire network so everyone knows which channels are open and who's listening where which is a privacy issue so there's a lot of technical challenges associated with lightning still um read this thread if you're interested in more going back to tether right so this is this is the data that was shared recently on on what's backing tether um this is an interpretation of that data that i pulled off of twitter i think it's interesting so you know they claim that about half of it is in this quote-unquote commercial paper

uh and and this analyst is saying that probably means crypto backed loans and a lot of this is circular it's like it's tethered backed by crypto and kryptos backed by tether so it's a bit of a house of cards scenario um you know tether yeah you can see here 20 20 billion with a b right 20 billion dollars worth of commercial paper which is short-term debt issued by companies um there was a lot of reaction in the financial markets when this data was released you know folks like jp morgan who are very active in the commercial paper market looked at this and said we've never heard of tether before we've never seen them as a counterparty something kind of fishy is going on um maybe i don't know so a lot of criticism of the tether component here uh so to bring it home

you know i think this is kind of my take right i think that buchelle is facing a very interesting choice right so um you can get the nature of the choice from the meme here i think that we're all in alignment that the kind of end goal here is i mean obviously kind of economic sovereignty um financial stability for the people of el salvador and other developing countries of course democracy we don't want to sacrifice democracy in the process so it's very easy to kind of criticize what's going on in el salvador um from where we stand from where we sit you know in in you know relatively democratic countries

with i have to say relative a lot given the state of the world but relatively functional democracies you know relatively functional financial markets relative to a place like el salvador um and we are not dealing with the levels of corruption and crime and poverty violence inequality that that they are in el salvador um and i actually you know think that sometimes it takes a very strong leader to get things done and to get things unstuck and make changes that need to happen um at the same time i think that we as a community the kind of broader crypto community should not be endlessly patient right we should be very very clear about our values about what we stand for that we care about democracy um we should sort of give buchelli give el salvador give

strike the benefit of the doubt and tentatively support this work and trust but verify right so we need to see progress on um important kpis like accountability transparency etc and there hasn't been a lot of that in this process so far hopefully that's clear from the presentation um i think that it was only a matter of time before this quote-unquote crypto land grab happened on the part of small nation states uh folks like balaji srinivasan have written a lot about about this about the role that bitcoin can play on the kind of geopolitical stage especially for small marginalized countries um so it's not surprising i guess that it's happening now um and yeah i think it's interesting to ask

how do we take our values things that we value like privacy and self-sovereignty um and like make it clear that we want to see these things play out on a global stage right because it's easy for those of us in a conference like this to kind of sit in these rooms and talk with each other about these cool technologies and the toys we're building and defy and things like that but like this is real okay this is like actually happening this is affecting millions of people in the world today so if we're gonna build a new world order and it seems pretty clear that that's the direction we're going um we need to clearly articulate those values and i think this is a great opportunity to do that by supporting projects like this trust but verify um cautiously optimistic

um okay i have three minutes so i'm gonna wrap up so what sort of things could we potentially contribute to a project like this how could we make it better uh this is all being done by a centralized for-profit company strike you know lots of respect to strike they're doing important ground-breaking work but what would it look like if we wrapped a protocol around it right what would it look like if we cut out the middleman entirely and we gave the users of the system a stake in the system an essay and an enrolling government governance that's the first ethereal take on this that i think would be really awesome to explore and this is kind of something i'm looking into number two you've seen this before uh lots of hops here like i don't get like all this whole chunk here in the middle

right like bitcoin bitcoin bitcoin bitcoin bitcoin like can we just like cut this all out completely and can we like truly make this really truly instant and really truly fee-free um i don't know that's a hard problem right and there's like regulatory issues and on-ransom off-ramps are hard but that's an angle that i want to take here and finally this is not a reference to sushi swap we love sushi swap this is a reference to roll-ups uh can we do better than lightning network right so we have more powerful tools in the ethereum ecosystem we have things like roll-ups that are much more capital efficient um rather than having to kind of lock up all this capital in these like one-to-one point-to-point channels could we envision what this would look like in like a roll-up ecosystem i think that'd be really really interesting uh also removes like the routing issues

that that you're facing in lightning um i have no idea what they feel la mode de france is this is just the first slide that came up when i was looking for defy so i thought it was kind of appropriate um what sort of additional products and services could we offer on a platform like this if it were if it was a protocol if it was decentralized i think of remittances as kind of the trojan horse right so it's the way to onboard people it's an immediate need it's a low-hanging fruit it's a way to get funds crypto funds flowing into an ecosystem like el salvador but from there it's pretty clear that in addition to stable coins maybe we need micro insurance policies maybe we need lending we're really good at that you may have noticed in the ethereum defy ecosystem can we use a less scammy stablecoin what

if we added ubi to it right ubi so that's about all i've got thank you for listening um i'm helping spin up a i'm gonna call it a working group called the crypto dictator's watch it's on telegram hopefully i'm not blocking that qr code scan it join um we're going to be doing like calls and workshops on a lot of these topics that i've been mentioning uh really excited to have more contributors uh this is really important groundwork that's being laid i'm very optimistic about the path forward i'm skeptically optimistic about el salvador and strike so let's see where it all goes thank you very much for listening i'll go back to that in a second i'm happy to take a couple questions i

just i don't want to stand in between anyone in happy hour or dinner or whatever but feel free if you have questions oh how many people have applied for the bitcoin visa or i guess that's i guess it is a visa yeah permanent residency i have no idea i don't think it's actually launched yet because again this whole law goes into effect in september so i think the number is probably zero um it's interesting right i mean it's interesting that it's denominated in bitcoin if bitcoin crashes you know can you get permanent residency for five figures instead of six figures i mean that's kind of that would be very

rare like it's not rare at all that a developing country would offer an investment like a permanent residency in exchange for investment there's these schemes exist all over the world but doing it in bitcoin is quite interesting yeah so we'll keep our eye on that yeah we'll do we'll do a v2 of this talk next year and i joined the group amazing welcome any other questions so uh if you have a currency that appreciates like doubles your exports are going to crash right so um yeah so if your exports are denominated in a local currency and your local currency doubles relative to your trading partners then all else being equal it's going to become twice as expensive so correct your exports will drop yes yes so if they really

if bitcoin was really like accepted in in salvador it would kill their experts so i'm just wondering if uh if they're sorry i want to make sure i understand that's only if they're denominating their exports in bitcoin right no no that's that's if it becomes a currency of the land right because if you are paying everything like you're paying your suppliers in bitcoin your exports have to be priced in bitcoin right you can you can convert them on the fly but they have to be naturally priced so i'm just wondering um like uh is this do do they even want to become really bitcoinized or do they just want to do the payments and you know just convert everything to dollars in the end

do you have any idea i think this is like the key question i think this is the i'm asking the same question right is buchelle and his administration and his brothers and everyone involved in this are they doing this because so so one good answer to this question is as a country that's dollarized they are they have given up their sovereignty over monetary policy right you can't issue new currency you can't mint or burn if you're using someone else's currency so they have some more control or it's not really more control no one controls the monetary policy of bitcoin but at least they're able to decouple from the monetary policy of the united states so it's pretty clear that

there's a net benefit there and this goes back to i mentioned before um people like balaji who have talked a lot about you know small countries the benefits of them adopting bitcoin i think that's like a big benefit um a way to kind of stand out but but yeah like in the long term are they going to huddle that bitcoin in the trust fund are they going to somehow convert that back to us dollars i don't know the answer to that question like are they are they really truly long-term invested in the success of bitcoin or is it more just opportunistic good question so regarding you showed all these steps right and you said that many of them are because of regulations and things like that so

i'm wondering if if you're if you have such complete power you can pass any laws why don't they simplify yes this one why why don't they simplify the regula banking regulations so this would be eliminating two steps or something yeah i i think that they're trying to do that right so in particular the the use of tether rather than dollars here that is a regulatory issue in el salvador and that is either being worked on or it's already been solved supposedly but that doesn't remove any hops here right that just means that i guess it does yeah i guess i guess bitcoin lands here bitcoin gets turned into us dollars and that us dollars could be withdrawn maybe at a regular atm as us dollars so it removes kind of one one step one transfer

um also i should mention these bitcoin atms charge very high fees as well they charge you know three five maybe ten percent fees quite quite high it's just it's not a very liquid i i guess it's just that the the supply is very low right so they're kind of they can do monopolistic pricing maybe if there's more bitcoin atms they'll charge lower fees um yeah i again i think that like i'm i'm a software developer so i tend to think of things in terms of optimization and like collapsing and like this looks like one subroutine to me like all the kind of crypto crypto crypto crypto crypto crypto like why couldn't you just collapse this down to one i think it would take a more sophisticated analysis to understand what regulatory changes would be needed to do that and that's

exactly what we're going to do in this working group so you should join going once going twice all right let's go have a drink thank you guys so much you