The Salvadorian Tragedy: The Unintended Pitfalls of El Salvador's Bitcoin Adoption.
In the previous video as a reference to our article, we delved into a speculative tale titled "I am a time traveler from the future," envisioning a world where Bitcoin soared to unprecedented heights, rendering traditional currency comparisons obsolete. This narrative also alluded to a sobering incident known as "the tragedy" in an African nation, where Russian hackers exploited vulnerabilities in Bitcoin wallets distributed as cell phones, ultimately leading to a rescue by the North Korean government.
However, our focus now shifts to Central America, specifically El Salvador, as it grapples with the unintended consequences of embracing Bitcoin as legal tender under President Nayib Bukele's leadership. Bukele's initiatives included incentivizing citizens with a $30 airdrop to promote Bitcoin usage. Despite these efforts, a potential tragedy looms as Salvadorians may discover that transaction fees make Bitcoin impractical for everyday use.
The looming crisis is not merely a technological vulnerability or a hack but a systemic flaw within Bitcoin itself. As transaction fees on the Bitcoin blockchain surge, Salvadorians, particularly those unable to afford the escalating costs, may be coerced into resorting to custodial solutions like the Chivo Wallet or the Wallet of Satoshi. These custodian Lightning Network bank accounts, while offering a temporary solution, pose their own set of risks.
The Salvadorian government's decision to entrust private keys to third-party custodians raises potential manipulation or confiscation concerns. In the event of global sanctions, the government could seize control of the genuine Bitcoin sitting on the Chivo account, leaving citizens with a devalued version. Additionally, the absence of private key ownership means that custodians could revoke access, leaving users with what could essentially become "fake" Bitcoin.
As Bitcoin transaction costs surge, Salvadorians relying on custodial services for moving funds face a dilemma. Should on-chain transactions become necessary, the prohibitive fees—potentially surpassing $50—leave citizens with limited alternatives.
The true tragedy may unfold when Salvadorians, eager to adopt Bitcoin, inadvertently find themselves trapped within another layer of banking infrastructure. If political landscapes shift, those reliant on custodial services may discover themselves without an exit strategy. In the aftermath, those affected by custodial practices and exorbitant on-chain fees may demand stringent laws against not only Bitcoin but all cryptocurrencies, failing to distinguish between custodians and the authentic decentralized nature of the real Bitcoin. El Salvador's journey into Bitcoin adoption is a cautionary tale, emphasizing the importance of thoughtful consideration and strategic planning in embracing innovative financial technologies.
Maybe the tragedy is not a phone hack or a vulnerability but Bitcoin itself. Maybe the tragedy won't happen in Africa but instead, it will happen in Central America to El Salvador, thanks to transaction fees and a not foreseen political crisis like sanctions thanks to a government transforming into a dictatorship.