Moving money from point A to point B quickly is the ideal use case for cryptocurrency.
It’s interesting to see that even their example use case results in the transferred Bitcoin being converted back to dollars right away:
> “Wherever you are now, you can send bitcoin to anyone with a Chivo wallet in El Salvador, and in minutes, they have the value and then they can go to one of the ATMs and take it out in cash without a fee,” said Alex Gladstein, chief strategy officer for the Human Rights Foundation.
I suspect this will be the default behavior for Bitcoin remittances: Buy Bitcoin, send it immediately, then other side sells it as quickly as possible to get back to cash. Bitcoin dropped 20% in the span of minutes on the big launch day in El Salvador. I doubt many people are going to want to hodl their remittances in a highly volatile currency.
It’s also interesting that the costs haven’t actually gone to zero for the Bitcoin model, but they have been obscured and shifted to other parties. This says the receiver can withdraw BTC as cash “without a fee” but what does that mean? Is it like those currency exchange stations at the airport that have “zero fee” but they more than make up for it with unfavorable exchange rates? If not, who is paying to operate and maintain the foreign exchange infrastructure, which isn’t free?
Also, they make use of L2 networks for transfers, but at the end of the day those are still rolled up on to the Bitcoin blockchain, which is unbelievably expensive to run due to the energy requirements that register as a significant fraction of humanities energy usage. That energy must be paid for somehow, which is currently a a mix of block rewards (technically, inflationary money printing) and transaction fees, which are at least amortized across L2 transactions. There may be uses for cryptocurrency yet, but I hope this isn’t the end game because it’s still an inefficient mess. Maybe if we can get away from PoW block chains and also wise up and jettison the arbitrary speculative tokens then maybe we can make some progress.
BTC volatility will presumably fall as the market cap grows. One would expect Institutional traders who make money on volatility will continue to move in as it becomes easier to bank on some long-term average price of BTC relative to other currencies.
Something I suspect we often forget about in the world of stable reserve currencies is that the majority of the world can't run floating exchange rates without encountering major volatility. Standard Fiat/Gold backed currencies generally require some large institution to control the currency price either via money supply, foreign currency supply, gold, or government decreed exchange rates. When these institutions fail currencies tend to have rather extreme swings.
> BTC volatility will presumably fall as the market cap grows. One would expect Institutional traders who make money on volatility will continue to move in…
I don’t buy it. Those institutional traders have plenty of access in 2021 and it’s still as volatile as ever. The extreme volatility is what makes them their money and also convinces the casual investor to put money into Bitcoin because they think it might 100X again.
If the volatility stops, so does the crypto party. Big traders don’t want it to stop.
A lot of it has to do with the amount of leverage you're allowed to take on these exchanges. If you have 20:1 leverage, your collateral will automatically be liquidated (or purchased) if the price moves 5% out of your favor. This causes death spirals as more crypto gets dumped (or bought in case of short selling) magnifying the movement.
Crypto needs a strong financial network of derivative products. There need to be instruments to hedge the price risk for short periods. There's no reason you shouldn't be able to cap movements for a fixed time period, limiting the amount you can lose. So if I want to use it as transfer of fiat, I should be able to do so within a reasonable timeframe.
Overcollateralized stablecoins (like DAI) are not volatile and they are in the category of cryptocurrency. So they do change that. The change is slight, but ever-growing.
BTC's price itself has grown much less volatile.
> the volatility spikes in Bitcoin were most extreme in 2011, with subsequent spikes in volatility lessening over time
I just looked at how much it would cost to claim a reward from a smart contract I have money invested in. I would claim $16 and transferring it to my wallet would cost $169. I don't see how this is affordable.
I'm assuming your smart contract is not in Bitcoin, since current BTC transaction fees are under $0.70 per standard transaction for 90% chance of confirmation in 30 minutes or less.[0] A smart contract in BTC might involve larger transactions, or multiple transactions, but probably not the equivalent of 240 standard transactions.
The article is about El Salvador's switch to Bitcoin, so the price of smart contracts in Etherium, or some other system, is beside the point.
> Don't worry, there's a lot of progress being made if you keep up with the industry news.
Sorry to nitpick your comment specifically, but I always hear this in the crypto community "we're making progress!". But no one ever cares to provide specifics. Why is that?
Honestly, it's fucking complex, which doesn't help it's adoption or popularity. I've been throwing away my previous life for nearly a year in reading, watching, and listening to all manner of news, deep dive explanations, technical analysis, price predictions, "fundamentals" definitions, pundit commentary, etc, as well as participating, in non-financially-ruinous-risking ways, in trading, swapping, DeFi, yield farming, lending, (not borrowing).
It's difficult to define what I've learnt, and maybe that's indicative in the opposite way than I'd like.
You have to dip your toe in to check the temperature.
I've known of Bitcoin since it was $1, and was very skeptical of it until I dipped my toe in. Both my feet are wet now though, right up to my knees.
I believe cryptocurrency has a bright future. Bitcoin is the first, Ethereum added something amazing to bitcoin to become a platform for other ecosystems, and now there are smaller competitors that are going to be "the new Ethereum" by being faster and cheaper and more decentralised so the ecosystems can spread wider to cater to more people.
There are a couple of cryptocurrencies that are hoping to be able to soon compete with the transaction speeds and volumes of Visa but with lower fees.
But, admittedly, that kind of performance level is vaporware after 5 years, but work continues and "revelations" always seem to be round the corner:
Cardano smart contracts go live this weekend (I think, unless it's the last testnet release).
Ethereum 2.0 is scheduled for release in December (this will probably make people 'in the know' smirk - so let's say Q1 2022).
Solana is gaining popularity and has the potential for the Visa stats right now, but it's just waiting for the volume to prove it.
Polkadot has its parachain auctions coming up later this month (or next...).
No one said the cost is zero. But L2 solution multiplies the number of transactions done by a significant done. So the cost per transaction is staggeringly low.
At that point why don't they just send Tether or USDT (or another stable coin), why even risk playing with such volatility, can't these stable coins be transferred with few fees as well?
Because Tether and USDT are censorable by their parent companies (ie, these tokens can be blacklisted by the Ethereum Virtual Machine), and they are also tied to the monetary policy of the United States.
It definitely makes sense for them to use Tether/USDT for sure, I agree there. But making Bitcoin a legal currency is also a political and economic statement that goes far beyond simply facilitating digital payments.
El Salvador doesn't have its own currency, it already uses the USD as legal tender, plus their crypto system is backed by USDT.
This has been suggested as one of the many reasons Bukele is so keen on Bitcoin/Chivo: he can't print USD, but having control of the national wallet system gives him countless avenues to manipulate the system.
Moving things to bitcoin with government registered wallets makes tracking a lot easier. Should make basic things like taxes and tariffs easier to enforce. Could possibly do a lot to shrink the under the table grey market in El Salvador.
Of course it could also allow the government to do worse things like backdoor wallets and confiscate crypto.
> Moving things to bitcoin with government registered wallets makes tracking a lot easier. Should make basic things like taxes and tariffs easier to enforce.
There are lots if wallets not registered with the El Salvador government, and it will be impossible for the government to distinguish those that are genuinely foreign from unregistered wallets used by people ot for purposes nominally subject to El Salvador’s laws.
So, no, it won't make tracking any easier, nor wil it make taxes and tariffs easier to enforce generally.
My understanding (and admittedly I haven't read closely) is that this is a move to supporting transaction in BTC using an existing Salvadoran electronic payment system. In that case, it probably does reliably give increased visibility compared to cash payment.
It's already possible to move money between accounts without cryptocurrencies: banks, payments systems (example Paypal), fund transfer services (example Interac). The transactions are reversible in case of a fraud or issues. What you mean is cryptocurrencies offer a way to circumvent the legal ways of moving money around.
Using paypal to send internationally for $50-100 has a $3 fee + 3% + fee associated with exchange rates (PayPal’s exchange rate for personal payments includes a 2.5% to 4.5% margin subtracted from the interbank rate and depending on the receiving currency.) Also there is a few day lag between when you can retrieve the money
So it's pretty expensive.
On top of that, the person has to have a bank account that can be connected with PayPal. The benefit of WesternUnion (and why its a lot more expensive) is that you can just show up somewhere, show them an ID and get cash that was transferred to you. Crypto is closer to that, where you can download an app, go to an ATM and exchange for fiat in a short timeframe
Transferwise (and others like it) have no such issues. When I make a cross border transfer, the funds are immediately available (if I elect to debit my account immediately). This varies by jurisdiction but it proves that cryptocurrencies are not required to have instantaneous transfers.
CNBC loves to frame Bitcoin as evil. The headline is unbelievably disingenuous. Western union losing business to a better system is not bitcoin damaging western union in any way that anyone should be upset about. Just like when tesla comes out with a new car, the headlines don't read "teslas new car could cost ford $3 billion per year".
I looked at it the exact opposite way. To me, the headline was flattering. It shows that Western Union sucks $400MM out of people while providing a service that is easily moved to cryptocurrency. I see it as a declarative win for Bitcoin by showing how it actually saved Salvadorians a lot of money.
Its also common knowledge that Western Union and their ilk have been exploiting and sucking dry people who live on the margins of our financial system. Any article that says they're loosing money to a competitor is fine by me.
Even as someone who hates the crypto hype, I have to say this time the crypto-win is legit.
A better (focusing on positives instead of negatives, but the media feeds off of negativity) headline would be "New Bitcoin wallets could save El Salvadorans $400M a year in Western Union fees"
Seems like it's your bias filter doing that. I read it and my bias filter said "It's going to cost the company that's usually associated with 409/Nigerian scammers because they allow for untracable thefts, and otherwise overcharge migrants to send money back home? Good."
Hmm -- I just read the article, and it seems pretty pro-bitcoin to me ...
"They have to take a bus to go to a physical location
to pick it up, and there are gangs that hang out
around those offices. They know what people are
going there for, and they basically rob them."
And
“Remittances are one area where the status quo
in our legacy financial system is terrible"...
And
... Alex Gladstein, chief strategy officer for the
Human Rights Foundation
“That’s drop-dead stunning. It’s an
incredible humanitarian improvement.”
The story of the article, and the headline, seems to be: old-timey remittances are on the ropes; can't compete.
Likely because while writers typically suggest headlines, its the editors and the higher-ups in the food chain that will often slap their own one on the article.
And you think the 200 Chivo ATMs aren’t going to be criminal hotspots? Not saying that to be critical — solving that problem seems to be key for more countries than just El Salvador, and for electronic remittance beyond Bitcoin.
No, because unlike Western Union people don’t have to take out their whole balance at once. In fact they don’t have to take out anything, because they can use Chivo BTC to pay anywhere.
What they're saying is that if staffed remittance locations have been locations for criminals to hang out and rob people, bitcoin ATMs surely will have the same issue.
Ah. Well as others have pointed out, its likely that people will need to go to atms less often (since they can send directly with their app) and that amounts handled at atms would be substantially lower (because when using the lightning network, there aren't incentives to send one large payment vs a number of small payments). So if that's the worry, bitcoin would probably improve that situation as well.
It did strike me as odd that the headline implied I should be shedding a tear for an entrenched middleman because they will make slightly less money for being an entrenched middleman.
Decentralised systems are always more inefficient. If certain kinds of transactions are currently cheaper, it's due to lack of regulation (lack of competition in many cases is sadly a symptom of regulation). When the inevitable economic crises present themselves (assuming it ever gets used for anything serious), regulators won't stand by and do nothing.
> Coins going up in value just because they are scarce or first movers, is just like Pets.com being valuable because they have a good domain name.
Isn't scarcity baked in to Bitcoin? Any investments made using it will have to return more than the deflation / speculative-hoarding rate, which means useful things won't get funded.
> If certain kinds of transactions are currently cheaper, it's due to lack of regulation
I just can't see any truth in that statement, but admittedly I'm probably looking at it from a different angle to you.
Cryptocurrency cuts out the middleman in a transaction, or at least minimises the cost and 'touch' of a middleman, and that's where the cheaper-ness comes from - no vampiric-squid-encircling-the-globe sized multi-national taking its monopolistic percentage. That's my angle. The behaviour of said percentage-takers over the last century haven't exactly made regulation the saviour of the common citizenry either.
You have to ask yourself, why are those middlemen there at the moment? We have digital trading platforms / banking systems, the technological side of it is not the issue.
It's because regulation says only certain institutions are allowed to perform certain transactions, and have to perform certain checks, etc. I'm not saying there aren't inefficiencies that aren't directly related to regulation, eg. monopolistic behaviours. But that's the side-effect/price you pay for some kind of oversight. There is of course lots of room for improvement in the systems/regulation we have.
When you look at the history of where the regulations came from, it's usually in response to a major crisis. Humans tend to be reactionary, especially the ones in positions of power when they're enacting laws that limit their paymasters.
> The behaviour of said percentage-takers over the last century haven't exactly made regulation the saviour of the common citizenry either.
Look at the most recent major economic crisis of 2008. The main reason it was so devastating was due to rolling back regulation from previous crises, along with "innovative" financial products that regulators had turned a blind eye to. What do you think would have happened to business lending (ie. jobs) and the stock market (ie. people's pensions) if there had been zero regulation and no ability to inject liquidity into the system?
> Look at the most recent major economic crisis of 2008. The main reason it was so devastating was due to rolling back regulation from previous crises, along with "innovative" financial products that had no oversight. What do you think would have happened to business lending (ie. jobs) and the stock market (ie. people's pensions) if there had been zero regulation and no ability to inject liquidity into the system?
I totally agree.
I am also, however, 100% skeptical as to the motivations of those pushing to regulate cryptocurrency because of the combination of facts that cryptocurrency is a threat to the encumbent financial institutions and the deregulation that caused the GFC was due to the lobbying of said encumbent financial institutions.
Basically, I think the system is corrupt from top to bottom and so their motivations are protection of status quo as opposed to protection of Joe Street-Level.
The total lack of understanding of how cryptocurrencies work, as evidenced by the infrastructure bill, shows they don't care about understanding it, they care about suppressing it. That's the message they're sending.
Yes, it should be regulated, there are too many scams in the space, and that gives the space a bad reputation but, damn, put some research time in before, how does that phrase go...:
Better to remain silent and thought a fool than to speak and remove all doubt.
> no vampiric-squid-encircling-the-globe sized multi-national taking its monopolistic percentage
What do you think about the Gigawatts of energy + transaction fees that are going to miners? Because your hyperbolic statement is what I think of the miners in the cryptocurrency world.
They do nothing but buy up critical parts (GPUs, ASICs, etc. etc.), use up rare resources (energy / coal / etc. etc.) and then are paid to do so (mining rewards, transaction fees), without offering much innovation on their own.
Doubling the number of miners in the world for the BTC network won't improve the speed of the network, nor would it improve the rewards. All it would do, is double the energy usage.
I'm entirely supportive of Ethereum moving to Proof of Stake and think that Bitcoins Proof of Work is what may eventually kill it if it's not modified somehow.
I'm a tree hugging hippie and the energy use of bitcoin bothers me very little, as it's a barely a blip on the radar in comparison to numerous other human activities that have been going on for multiple decades and that no one mentions alongside BITCOIN ENERGY USE!!! for comparison because they're pushing an agenda.
I'm annoyed about the GPU thing, but that's capitalism; that's the market doing it's thing. Not sure how else to argue that point. It's probably also exacerbated by COVID messing up supply chains.
In a functioning market, any middleman has competitors and its "vampiric profits" should quickly converge towards marginal costs.
Regulation, compliance and customer support actually cost money, and by cutting most or all of it out, crypto based services are obviously cheaper.
A better criticism of regulation would be that, depending on how it's enforced, it can serve to create regulatory motes for incumbents and hinder mentioned competition.
Crypto doesn't solve this – it just sidesteps the problem, and that isn't feasible in the long term.
Bitcoin was created for the very reason that US finance was, indeed, not a functioning market and was unlikely to be a functioning market in the foreseeable future.
Theoretically, I can't argue your points. Practically, however, in the world that produces the news articles I read, the theory remains entirely ... theoretical.
The point of crypto is to sidestep the way finance markets work in practice. Regulatory capture, paid-for ratings, revolving door appointments between finance companies and government, all sidestepped, by design, by bitcoin and various other cryptocurrencies.
But, yes, cryptocurrency is an immature alternative market, so the myriad potential opportunities to deflower its purity are many a long year from being discovered and exploited.
> Regulatory capture, paid-for ratings, revolving door appointments between finance companies and government
This is a very valid concern to have about traditional finance.
I'm just not convinced that the same structures won't emerge in DeFi sooner rather than later, and that in the regulatory vacuum in between a lot of retail investors will be left holding bags.
The, hah, theory with DeFi is that the 'code is law' ideology and decentralised governance acts as defacto regulation.
Uniswap's dropping of a number of coins / tokens fairly recently proved that a decentralised exchange that supposedly had decentralised governance could still be controlled by a central entity.
DeFi is so young, however, that there just hasn't been the time to run through enough scenarios to see how well, or poorly, it works.
It doesn't help that there have been so many rug-pulls and scams because so many people are blinded by dollar signs they can't see an elephant sized flashing neon sign saying "we will steal whatever isn't nailed down". This is what needs regulation, somehow...
Regulating against greed and / or stupidity is one of those eternal problems: If humans could do it, they wouldn't need to.
The conundrum of DeFi is the lack of a centralised entity to either have a trustworthy reputation or take to court. Uniswap being a counter-example.
My approach is to move slowly and diversify to minimise risk.
Re-reading what I just wrote, I think I just repeated your last paragraph in a whole lot more words.
>But, yes, cryptocurrency is an immature alternative market, so the myriad potential opportunities to deflower its purity are many a long year from being discovered and exploited.
Strange, the vast majority of complementary currencies simply work and have no existential crisis. Nobody dreams of a day when they live up to their full potential. People simply use them. Even stranger, the vast majority of cryptocurrencies are not designed to be complementary currencies and are subsequently never used for that purpose.
> Cryptocurrency cuts out the middleman in a transaction
How are you going to do ANY crypto transaction without a middleman? Will you wait months and burn insane amount of electricity to finally mine the block yourself? Of will you submit your transaction somewhere and pay the fee?
I have free next-day transfers, pay $1,2 for instant transfer up to $1200 - and those are bank transfers, with all the security of it, not some shady apps. This is in highly regulated market. What are commissions on bitcoin transfers again?
There are more words after the comma. There will be quibbling about the definition of "middleman".
Yes, bank transferral of money for basic things can often be free and very fast these days, but it wasn't when bitcoin was created, and cryptocurrency does more than just that nowadays too.
Both areas are constantly evolving, so comparisons are a bit fraught with bias.
I've already had many of these arguments in my own head, and it's only been with research (education, the universal silver bullet) and experience that I've been able to find trustworthy answers, so I try to share how I got 'from there to here'.
It's also taken me far too many years to learn that ridicule and dismissal are not paths towards persuasion. Not that I've permanently learnt that lesson though.
> Decentralised systems are always more inefficient.
Decentralized systems are always more efficient.
Suppose you have something a hundred million people want. It's on one server. The server is in Virginia. If a million of the people who want it are in Japan, it has to traverse the ocean a million times. If a million more are in the UK, etc.
Compare this with something like BitTorrent. The million people are in the UK, the first one gets it over the ocean. From then on, people in the UK can get it from other people in the UK. Either because the client chooses peers with lower latency, or because closer networks are just faster and so when you're receiving from 100 peers at once, the closer ones will send faster and the download will finish from them before you've sucked too much data through the thinner pipe across the pond.
Even centralized companies build decentralized systems internally. Because it's the only way to build a reliable system and it's the only thing that scales.
The hardest part about decentralized systems is paying for the initial implementation. Somebody has to write the code. But in a true decentralized system, they can't sit in the center and suck out a percentage, because there is no center.
So that's how the evolution of systems goes. The first system is centralized, because when it's small the disadvantages of centralization are small, and as it grows the creators retain control of it for a while.
Then the disadvantages of large centralized systems start to manifest. Single point of failure, monopoly power, censorship etc. So people start building a decentralized alternative. At first it's terrible, because it's people working on it in their spare time. Eventually it gets better and takes over. And then nobody ever worries about it anymore, because it's there, and it's reliable and efficient and it works, and it just fades into the background because nobody pays attention to things that are working. Like TCP/IP, or Wi-Fi, or the global market for wheat.
For centralized vs decentralized, comparison should be CDN vs P2P. CDN is centralized but distributed. P2P isn't efficient as like CDN because it uses uplink from user, and possibly need transit from other ISP user. Top CDN's edge is located on ISP. But P2P is still useful tech.
Modern P2P networks already prefer closer peers. This also happens naturally because closer peers generally have fewer bottlenecks between them, so if you connect to many random peers, the ones that are e.g. on your LAN will intrinsically end up doing most of the sending.
This is often more efficient than a CDN because a CDN won't have a box on your LAN even if there are multiple peers there.
And a CDN is only efficient to begin with if there are already multiple peers on the same ISP's network. If you're the only person on the ISP's network who wants some particular content then it has to come over a transit link just for you anyway. If you're not, you can get it from the other close peer(s) in a P2P network and not use the transit link.
Lack of regulation is not an accurate way to describe what goes on in one of the most highly regulated industries. Rather what I think you mean is the lack of a specific regulation that limits the price of various services. In actuality, it's regulatory capture that keeps competition at bay and keeps prices high. We actually need to remove specific malicious regulations in order to solve the problem of competition in the banking and money transfer industry.
> Decentralised systems are always more inefficient.
A centralized system like Western Union is very efficient, unfortunately the owner of that system keeps the excess efficiency (fees) for themselves..from the perspective of the user it's not efficient.
Decentralised systems are always more inefficient.
Quite the statement, anything to back it up with?
Is it more efficient that your centralized system can at any moment be seized by the state, and turned over to a bureaucrat to run in the name of nationalization?
It does exist, just hasn't reached some corners of the world. Neobanks are a great example. I had great experience with TransferWise (renamed recently to Wise). Transfers, checking accounts, wire transfers are several times less expensive than with traditional banks. Works like a charm.
> Check cashing, wire transfer, western union style money transfer are all overpriced because competition doesn't really exist.
And competition doesn't exist, because in many parts of the world in order to transfer/manage large sums of money you need to have political influence (read -> bribes) to operate at scale. This is the "hush hush" secret of any money transfer service that operates worldwide, and why you don't see many people try to enter the space.
Source - friend ran a P&L at WU in a high risk area.
> Coins going up in value just because they are scarce or first movers, is just like Pets.com being valuable because they have a good domain name.
Not true. Pets.com goes up in value because it has utility: i.e. tangible business/economic value associated with marketing and driving customers to your business.
Yeah I like ALCX, I am yield farming their token at the moment.
Given how hard it is to really be safe from hack & rug risk in this space I've generally only put large portions of my portfolio into highly trusted projects like AAVE, uni, sushi etc
> Providing better financial services at lower costs.
How can anything than runs a blockchain offer a service at a lower cost? It can't. The only competitive advantage that crypto has over the financial sector is that crypto is by and large operating with disregard for financial regulations. Let's see how long it's gonna last.
Regulation has worked pretty well so far to ensure the 99% don't get screwed over by the hedge fund managers at JP Morgan and Goldman Sachs, and that a big stick is wielded when rules are broken.
/s
Cryptocurrency, namely bitcoin, has lasted 13 years and only looks to be getting stronger and more widely adopted.
Bitcoin's theory, based on its white paper, is that Blockchain offers to remove the middleman, or at least decentralise the middleman. Maybe it won't lower the cost, but it will hopefully spread those costs over a larger group of participants.
It very much can, because these protocols can do the same things the traditional equivalents can (trading, lending, etc.) fully-automated with smart contracts.
When you don't have to pay a ton of salaries to push paper around, you can make things extremely efficient. And like OP said, a lot of the prices for financial services are artificially high due to lack of competition as it is.
> “A lot of the prices for financial services are artificially high due to lack of competition as it is.”
But this is completely independent of any cryptocurrency solutions.
Look at retail stock trading. We now have zero-fee trading, but it’s not because some wonderful blockchain thing happened — new competitors like Robinhood made it the standard across the industry. It wasn’t a technological problem.
Some high-cost services in the USA that seem like technological problems are actually due to insufficient regulation. For example, wire transfers can cost $25 here, whereas they’re free and instant in Europe+UK. This is not because Europe has a magic blockchain — it’s simply the result of EU-level regulation that forced banks to interoperate. (Apparently the Fed is finally doing something similar now, decades late.)
The problems that exist can be solved by markets and regulation. The technology layer of cryptocurrencies is a useless substrate and primarily serves to reenact financial scams from the 20th century.
It is hard to look at the state of today's financial services and say everything is optimal: even in the EU, most of the regulation you mention (free wire transfers, low-fee credit cards) was a reaction to egregious inefficiencies that a more dynamic and competitive industry would have squashed by itself, without the need for a years-long process of regulation and legislation.
There is absolutely a place for disruptive technical experiments like cryptocurrency in a small part of the system, and to have good regulation of the rest of the financial system. It seems to me that the current balance is doing exactly that. Why are people dogmatically assured that technical advances in payments can only be driven by governments, when technical advances in virtually every other IT-adjacent industry have not worked like this?
> "There is absolutely a place for disruptive technical experiments like cryptocurrency in a small part of the system, and to have good regulation of the rest of the financial system. It seems to me that the current balance is doing exactly that."
Sure, I agree in principle. But the crypto science experiment is out of hand. It's providing negligible actual value to the system while consuming more energy than a mid-size European nation. This is an egregious failure.
If Bitcoin and Ethereum mining were shut down today, nobody would lose access to any necessary financial service, and we (mankind) would be at least 1% closer to the fossil fuel reduction goals we absolutely must meet. Seems like a no-brainer in the current state of emergency. There are many other things we need to do, but it's distressing that we're not even able to stop this novel waste that didn't exist ten years ago.
I agree with you that proof of work is a disaster. The problem is that mining is probably the last part of modern cryptocurrency network that will go away following a full-on regulatory onslaught.
What will instead crash first are the newer and less-resilient networks that don't use proof of work: proof-of-authority systems like Cosmos/Polygon, centralized systems like Binance Smart Chain, all the scalable rollup servers. Ongoing transitions like Ethereum's move to proof of stake might also be disrupted. Even if a regulatory approach was ultimately successful in shutting down proof-of-work mining, I think it would take years. Those years could be better spent by devising and encouraging more efficient consensus technologies, like the ones already being launched today.
Nobody suggests that technical advances should be driven by governments. Technical advances are spurred by the prospect of extraordinary profits in competitive markets, and competition is only fair when the same rules apply to every market participant. So regulations need to apply to everyone. Are you arguing that we should give an unfair advantage to some participants over others or to some inefficient technology? Just because you personally have invested in it? This is the very definition of corruption.
The counter-argument is that DeFi allows for different, better regulation. The blockchain isn't going to take public money to bail itself out and give itself fat bonuses off the backs of the public, unlike some participants who, let's not forget, did so perfectly legally.
There needs to be some way for the public at large to show preference for regulatory regimes. Voting isn't as effective as it used to be; which smart contracts I interact with seems like a decent alternative.
> "DeFi allows for different, better regulation. The blockchain isn't going to take public money to bail itself out and give itself fat bonuses"
The stakeholders who control the blockchain will give themselves every crypto holder's money if their interests are threatened in any way. Has everyone forgotten about the 2016 Ethereum DAO scandal?
Are you referring to the time someone stole a bunch of money without violating the terms of a smart contract and most of a community moved to a fork where the theft was reversed?
If so, I remember it quite vividly - not sure how it supports your claim though. Ethereum classic is still around, and a decent number of purists still use it. I don't share their convictions, but I'm glad they have the option.
”… stole a bunch of money without violating the terms of a smart contract”
— so, didn’t steal the money? Or are you admitting a smart contract isn’t any kind of contract at all?
Glad “the community” stepped up to prevent smart contracts from being credible. Though I’m not sure why this community is a preferable regulator to the ones we have for actual money. Since cryptoinvestments are also bound by real-world law, you now have two regulators: the real one and the “community” that transfers cryptomoney to itself when it wants.
They used the contract in a way no one who wrote or entered into it intended. When a contract isn't serving the people bound to it there's typically the option to rewrite it when all parties agree.
The only party that disagreed was the Eth classic community, and they still have a coin and codebase with contracts credible by your unusually high standards. The only thing they lost was investor sentiment. If those standards prove to be advantageous for a group to operate under, they'll gain ground over time. That's the beauty of crypto - people can decide the protocols and community they prefer in real time, and vote with their money accordingly.
We are talking about regulation. Regulation is a set of rules concerning capital requirements, consumer protection, etc. that apply to all market participants. Even if such a set of rules could be implemented as a "smart contract" (a computer program), a smart contract only has authority over the specific assets it controls. It's powerless to enforce a regulatory regime. So, to say that a regulatory regime can be replaced with smart contracts is basically a crackpot idea.
Seriously, you need to think about this more carefully.
You're basically arguing that everybody should make their own rules, and disregard everybody else's rules, which is kind of antithetical to the whole concept of civilisation...
I'm arguing that people should have a say in the rules they live under. That's kind of fundamental to the whole concept of democracy.
A regional entity can't really have full control over its monetary system unless it's a 'nobody goes in or out' fortress like North Korea. In which case, it's of course difficult to have a democracy in anything but name! So to talk about the rules of local politics as if they can contain the monetary system through which they trade with others doesn't seem to me like the product of careful thought either. The US was sort of in that position because it was the global hegemon, but that should hardly be thought of as the historical norm.
As far as I can tell market regulations can either
1 - apply to all market participants
2 - apply to some market participants but not others
3 - have no regulations at all
I say that regulations should apply to conventional finance and crypto, because anything else would be giving an unfair advantage to some market participants, so I'm arguing for 1.
The crypto bros are saying that they don't want financial regulations to apply to them, because they don't want to, but they still want regulations to apply to conventional finance, so they are arguing for 2.
What is your position exactly? Because sometimes it seems that you want 3, but it's hard to tell from your confused rhetoric.
A gradual transition from human actors as middlemen (who need regulation because they have self-interest) to disinterested algorithms which are self-regulating.
So a self-driving car should not be bound by the traffic code because it has no self-interest but human drivers should be bound by it? Why should having or not having self-interest make any difference as to whether the rules apply to you?
If all self-driving cars are hardcoded to never break the speed limit there's no reason to have radar traps. Self driving cars already have codes that they follow, which the public can oversee the same way they oversee traffic codes now.
For that matter if self-driving cars became able to respond faster than a human, there'd be no need for the old speed limits at all. A car would probably know its hardware much better than a human and know what it's individual fastest safe speed would be. Universal speed limits would only be necessary while there are human and AI drivers on the same roads. Which is why, as I said, a phased change-over would be best.
Because 1) the question was not "if it's safer", 2) "safer" doesn't mean "safe", and 3) safety isn't the only concern. For example, a self-driving car could be programmed to drive aggressively, not stopping at red lights, not giving way, etc. and this would be unfair to other road users, even if it was completely safe. Everybody who has a degree of intellegence understands this. You simply lack the intellectual stature to have this conversation, sorry.
> these protocols can do the same things the traditional equivalents can (trading, lending, etc.) fully-automated with smart contracts.
This very much remains to be seen. Much of the complexity of finance (and the value being provided) arises from the need to quantify risks of many different kinds.
Not nearly all of that information is available on-chain, and for many scenarios I can't imagine it ever will be.
A "smart contract" is nothing new, it's simply a computer program, and computer programs are already widely used in the financial sector. So that cannot be it.
A smart contract is much more than "simply a computer program". It's a computer program which is intimately linked to a distributed ledger such that the output of the program directly determines who is allowed to make use of the assets. The "distributed" part is important since it means that you're not dependent on particular party to enforce the contract—the entire distributed system does that.
Yes, we already know that. The point is everything that can be automated with a smart contract can also be automated with a computer program in conventional finance. Therefore "smart contracts" do not provide a competitive advantage, contrary to what the other poster suggested.
There's a lot of overhead in the traditional finance system which leads to gatekeeping by those interested parties. I'd rather pay some crypto fees "to the system" than pay fees that ultimately end up in the pockets of overcompensated executives at a middle-man rent-seeking org.
Eliminating Western Union’s vice grip on international remittance seems like a good thing to me.
But to ask the obvious question: why does El Salvador need Bitcoin to do it? It’s not clear to me that the settlement system laid out in TFA necessitates a cryptocurrency scheme, since it all boils down to a locally denominated network of ATMs. Is there some technical reason for this that I’m missing? Without one, it feels like burning tires to accomplish a financial task that any non-failed state (certainly one that can roll out apps and ATMs) should be able to accomplish with ordinary means.
How do you send money from the US to El Salvador without Bitcoin or WU? That's the whole point of remittance; I'm not sure how a network of ATMs local to El Salvador will help people send money internationally to the country.
It seems Wise (nee TransferWise) doesn't ('yet') support SVC, but assuming you don't actually specifically care about El Salvador, it does support quite a range of not particularly major currencies, and that'd be my answer.
Wise (and competitors, no affiliation just can't recall other names at the moment) are popular/standard in Europe, but as far as I can tell not so much in North America. I don't know why; as far as I can tell it's supported (certainly the currencies are) and allowed?
Of course if you have cash you want sent it's no good, but I'm not sure how many legitimate use cases there are (where you can't deposit in a bank current account first) for that these days.
As I said in your quotation, it was because I assumed your actual question was more general, that El Salvador is just the subject here, but for the purposes of your question it's just standing in for 'some other country with another [perhaps minor] currency', and so Wise not currently supporting SVC specifically would be rather arbitrary.
If you do actually want to send money to an SVC denominated account in ES, then no, it doesn't help you (beyond 'you could sign up to be notified'...), sorry for bothering you with it?
My question is a lot more general than just sending money to El Salvador, you are right. But if your reply does not satisfy the specific problem constraints of sending money to El Salvador, then it can't be a solution to my more general question of how to send money internationally regardless of whether or not your counter-party has access to the correct kind of banking services (or none at all).
> It seems Wise (nee TransferWise) doesn't ('yet') support SVC, but assuming you don't actually specifically care about El Salvador, it does support quite a range of not particularly major currencies, and that'd be my answer.
We don't support SVC in El Salvador either. The USD has been our main currency since 2001.
Oh OK, sorry, I just got that from typing 'el sal' into the currency/country select. I have no idea how (if) it handles secondary country users of a currency if you see what I mean, given that currency conversion is only part of it - perhaps the 'main' feature is the international transfer, making it look like a local transfer/payment (by being one each end).
You do exactly what Chivo does, except without using Bitcoin for clearing and settlement. You instead use a bank, or, because this is an entire country we’re talking about, use the national bank or carve out a special rule for financial remittance for your app.
[Transfer]Wise is typically cheaper than bank to bank, they (the banks) charge relatively heavily (at least for normal retail current accounts) for IBAN/BIC/et al. transfers.
But yes it is possible, and as easy as entering some different/extra numbers compared to intranational sort code/account number transfers.
That relies on banks in the sending country participating too, or El Salvador opening it's own banks in those countries doesn't it? How do they get sending banks to participate in these cheap/free international transfers?
Sorry, that was perhaps unclear, that 'they' referred to the banks, in the case of bank-bank.
Bank-bank requires that the bank at both ends supports sending/receiving to/from (as applicable) IBAN or similar yes. In the UK in practice that means 'mainstream' banks do and 'challenger' banks don't. (Monzo for example prefers to solve the problem by integrating Wise a bit into its own app.)
Wise avoids it by charging you (like paying for any other product/service) or having you transfer to its account in your country, and then sending the payment to the destination bank from its account in the same country as that, so it becomes two local transfers, one in each country.
I'm being sarcastic. Bitcoin in an amazing solution that allows people working in the west to send money home direct and takes this trash company out of the equation.
So basically your solution is to give everyone in El Salvador a bank account and for the government to subsidize their remittance fees. Because if you're using banks, someone is paying fees. Someone from the US still has pay a fee to wire money from their bank to some endpoint in El Salvador.
The banks are literally the problem that Bitcoin solves, not the solution. Banks = fees and censorship.
They're talking about monetary inflation, not price inflation.
El Salvador uses the USD, so if the federal reserve bank of the US prints money it devalues their currency as well. Not a good position to be in as a sovereign nation.
They could use a variety of ways to solve their problem, but want to:
1) Be independent of a peg on a currency controlled by another state
2) Attract investment from the wealthy crypto crowd
3) Appeal to younger voters through a visionary approach
We shall see if they succeed. I suspect we are in for a train wreck, but am hoping it works in their favor.
Because the technical implementation already exists with the highest security guarantees in the world. If they were to build their own WU, they could mess it up or get hacked, most likely by whomever they paid to make or operate it. Also, in the long run, they are betting on wider adoption and interoperability through lightning.
> Because the technical implementation already exists with the highest security guarantees in the world.
This is a tired observation, but I'll trot it out again: I don't care how "secure" my financial settlement layer is if it allows me to flush my net worth down the drain with a single typo. My threat model includes my ability to feed, clothe, and house myself, all of which are contingent on my ability to claw back transactions that are fraudulent or incorrect. Blockchain solutions offer me no relief.
I think it's a pretty smart move, considering this company has been (dare I say) stealing about 10% off of 25% of the GDP of the whole country for years. Good for them, I hope they succeed and become an example for a lot of others who are in the same boat.
The actual take on remittances has been falling for 20 years.
Western Union struggles to maintain a "premium" price now due to competition.
The actual take on an average transaction from USA to El Salvador is way lower because El Salvador uses USD. So the only way to make money is on the Fee. (no foreign exchange revenue)
If you send $50, yes the take is high because there is a bottom to the price. But the average sender sends $200..$300 and cost, as a percentage, drops rapidly with the amount sent.
Many people thought bitcoin would destroy the remittance industry 10 years ago. It did not. People need money they can spend not bits in an exchange. Solve that last mile like Kenya did and maybe...
I don't think bitcoin can handle the transaction volume for the global remittance industry on the person to person scale for "money in minutes" service. It's a better fit for bulk transfers to pay the agents in foreign countries.
Yes but beyond transaction speed there is the fact that people need/want the money immediately in a form that they can spend.
These are not wealthy people. The remittance is for real goods.
The last mile with money is "can I buy stuff now".
Some African countries are moving fast in this area with mobile wallets but it has been slow generally. Maybe this decade...
> Why does another company not come in to steal 9% to 24% of the GDP of the whole country?
It's less than that.
$ 400 million commissions / $ 24 640 million GDP x 100 = 1.66% of GDP.
I am not familiar with how revenue is shared between the remitting companies, but part of those commissions are set to offset the costs of operating the remittance network in El Salvador. Operating offices, armored trucks, complaiace, bank staff wages and security expenses.
Interesting. Is there any reading material available for how this monopoly is maintained? Are the country’s leaders being paid a cut for allowing WU to be the only money transmitter or something like that?
People gloss over what goes into money transfer. There is substantial risk, verification of identity of recipient, etc. With Bitcoin the services are simply not offered, so it's not really comparable. You get irreversible money transfer to an bitcoin address nothing more and nothing less. Western Union's services go well beyond that.
Not true anymore. Moneygram and Ria Envia have been growing very fast to Latin America and there are numerous smaller firms stealing market share in the digital send space.
One of the first real functional uses of Bitcoin in my family was as a way to send money to my nieces when they were in college. We used Coinbase accounts and moved money faster and cheaper than either the USPS or any money order company. We often made money on the transfers and never paid/lost more than the cost of a money order.
FYI you didn't really use bitcoin, you used coinbase, a service. You may have seen the accounting denominated in bitcoin, but what you actually did was move coinbase balances around, this never actually had to be finalized on the bitcoin network, only on coinbase's books.
So the argument would be because bitcoin is useful for money transfer or some other activity I need to buy some even though I don't need to do the activity to preserve my purchasing power against others who are finding uses for bitcoin and driving adoptation? I personally have no use for bitcoin but am I essentially forced to buy some as a hedge against other economic actors gaining from holding bitcoin, or am I able to ignore it at no economic loss to myself.
> I personally have no use for bitcoin but am I essentially forced to buy some as a hedge against other economic actors gaining from holding bitcoin, or am I able to ignore it at no economic loss to myself.
This situation exists all the time with all asset classes, not just Bitcoin.
No, you don't have to buy it. Even in the impossible event that bitcoin became very successful, your net worth and income should remain unaffected by the price of bitcoin.
I've used Bitcoin for many real world debt settlements and payments as well. This has never been a concern for me or anyone of my counter-parties. In fact, some of them even started asking me to only pay them back in Bitcoin because it's a lot easier to use and doesn't have cash limits like Venmo and other services.
Why would you think Im making stuff up? I've been on the crypto train for a while now, I'm trying to eventually go only crypto one day but it's pretty hard. When you need to help your poor parents pay for medical appointments and car repairs, the venmo limit of $1000 or whatever gets really old really fast.
Because these personal anecdotes that always pop up in crypto discussions always sound fake. Do you really want to go into this? For example, you say you settled many real world debts with crypto. What kind of debts?
Paying parents for medical bills/car payments, Buying my brother's old computers and other electronics, Building websites for my friend in Argentina and accepting crypto as payments, Splitting airbnbs with groups of friends, plenty of other examples but I'm not going to give you an itemized list of all my transactions.
Buying a $5000 car for my parents in particular was a nightmare because they needed the money quickly and the banking options I was looking at were either too slow or had cash limits or had fees. So I just sent it in Bitcoin, they cashed it out the same day on Coinbase and it was smooth and easy.
Receiving money from my friend in Argentina is obviously difficult when they dont have a USD bank account, so we just use crypto.
My brother and I are both crypto enthusiasts and we are comfortable settling our debts in crypto because it's so easy and we both prefer to keep our assets in crypto than USD.
If you think these anecdotes are hard to believe, you need to broaden your horizon in life. I'm not even that weird a person.
There's probably some selection bias at play there. The last time I used crypto for anything but hodling was to buy the starting seeds for the cannabis company I co-founded. I felt so much like a cyberpunk character!
Stories about use cases for crypto do sound unusually romantic or risky, but that's probably because sectors underserved by the banking system tend to be viewed as romantic or risky.
I've got friends in many different continents because I have worked for several international companies in my career. Sorry that you can't wrap your head around the idea of someone needing to transfer money internationally, but that is something I need to do sometimes.
Me too! I haven't used crypto for that yet. But for small value transfers <$100, me and my friends have sometimes exchanged Amazon Gift Cards with each other.
I'm really only interested in talking about crypto, but that's because I'm really 100% about that life. I am for sure biased on this subject, but everything I've said is the truth. There is literally zero incentive for me to waste my time lying on the internet to try to pump my internet money. I cannot influence a multibilion dollar cryptocurrency market with a single HN account.
I do a similar thing myself to exchange currencies. My broker will let me buy a stock in Canadian dollars on the Toronto stock market, and then sell it a few days later in US dollars on the US stock market. And vice versa.
Many Canadian companies trade on both. Shopify is another that you may be more familiar with (though I don’t use that one).
You take some volatility risk over those few days, but on average, you save a lot on fees and make a bit of money over those days. Over enough transactions, even the volatility averages out.
If you really need to minimize that risk then you coordinate the exchange on SMS or something. Intra-exchange transfers are instant. The risk is really low almost all of the time.
Bitcoin valuation "crashed" -$4k USD (I think that's about 8-10%?) just two days ago on the 7th (and within the span of 4 hours, check the charts); if you had created your transfer that morning and they received it the next day to "cash out" to USD, you would have lost a lot of the valuation of your transfer.
> But the delay is after the bitcoins are converted to fiat (...)
If you're trying to discuss aspects of the transaction then either you focus specifically on the crypto-to-crypto part of the transaction, or the fiat-to-fiat. The crypto-to-crypto part of the transaction is arguably fast but you are forced to address Bitcoin's volatility, which makes it unsuited as a store of value. The fiat-to-fiat aspect of the transaction on the other hand is arguably slower than simple bank transactions, and often with higher cost.
Every crypto proponent is doing a colossal disservice to crypto by portraying a romanticized and intensely rose-tainted view of crypto. In truth you're just setting up everyone around you to be disappointed. Between magical schemes where crypto transactions are magically instant and cost-free and pretending that crypto is not highly volatile (see the last Bitcoin 50% crash a couple months ago, or yesterday's flash crash) you're unwittingly pulling a bait-and-switch and in the process turning everyone away from it.
If it takes the converting entity 24 hours to perform KYC checks (& perform whatever other settlements they need to do to convert), do they give you the conversion rate at the time you asked for it or at the time they did the conversion? Or do you get the worst of the two?
yeah and it "pumped" +$3k USD 2 days before that. If you have created your transfer before it and they "cashed out" after it they would have gained valuation of the transfer.
You completely ignored the the part where OP said they often made money in REAL LIFE and injected your own hypothetical of how they could lose money if they chose to buy, send, and sell their assets at a very specific worst case scenario point in time...
Has nothing to do with "real life". They could either win money, or lose money, that's how volatile bitcoin is. The fact they got lucky and transferred in moments where they made money, doesn't make it a better "real life" scenario. Just makes it a lucky scenario, anecdata that might have been the complete opposite.
But if he was making money on average (which he said he did), then bayesian logic would imply that the average outcome would be to make money. So it's not luck, it's the average outcome.
The "unlucky" and unusual event in this case is losing money on Bitcoin based on the prior evidence.
Think you’re looking for Bitcoin Lightning? From what I understand it’s another chain that collects and confirms transactions quickly and cheaply, then puts them on the main blockchain in batches.
No, it uses Bitcoin transactions that are updated interactively between participants. Transactions are signed with your private keys and can always be settled on blockchain.
idk why this is downvoted, this is the correct answer. What the OP mentioned is called Rollups, which is the popular solution on Ethereum and other smart contract chains, not Bitcoin.
So the Lightning system uses the Bitcoin wallet to mutually sign transactions? And what’s the protection against me spending the Bitcoin on the main blockchain before the Lightning transaction is registered? I can understand that can’t double spend BTC on the Lightning network, but how does it stop from double spending between chains?
Lightning channels are addresses owned by multiple parties where you pass around signed transactions that could be settled on chain at any time, but you choose not to because there is no need to.
When you want to settle everything, instead of submitting all the built up transactions, you can just make a single tx instead settling the final balance.
It would be like if you sent me a $5 check every day of the month, and at the end of the month I agreed to tear them all up if you just wrote me a check for $150 instead. The analogy is still poor cause a check can bounce, but theres no good way to cheat in this system.
This is all educational and I appreciate it (genuinely!) but is there any indication such solutions are actually used in this government sponsored usages?
> “They have to take a bus to go to a physical location to pick it up, and there are gangs that hang out around those offices. They know what people are going there for, and they basically rob them
> go to any of the 200 new Chivo ATMs the government has rolled out and withdraw U.S. dollars from his virtual wallet.
Hmm, sounds like this particular problem isn't exactly solved
The reliance on this "Chivos" platform seems like a big potential issue
"Chivo" is not a platform, it's a wallet like any other wallet, using the same technology as any other wallet. If you don't like Chivo, you can transfer your Bitcoins to any other wallet that supports Bitcoin.
International bank transfers as well. Most of the time they are uber slow, depending on the country could take multiple days. Until banks start to seriously address this problem even Bitcoin would beat them effortlessly.
I'm starting to wonder if Bitcoin's extremely high fees are a feature and not a bug, at least for national governments. Sure, you can spend $10 to send $5 with your non-custodial wallet... or, you can just let your friendly government institution hang on to those Bitcoins for you, and then your transactions are free.
I suspect that's what's happening here. This is a state-backed HODL play that puts deposits into the government's hands.
Bukele himself is not formally educated beyond high school, and has no background in finance, which would be needed for an initiative as large as this. Additionally, the US State Department has some of his close colleagues on a list of corrupt officials [0].
I wonder what protections are in place that would prevent Bukele from pulling the rug and boarding a private jet with nothing but a seed phrase.
I'm not an economist, but I'm curious as to what may happen to the local banking system if all the remittances, (23% of the GDP), no longer enter the bank's accounts in dollars (or cash). And instead remains in crypto.
The answer depends on how many individuals had bank accounts to begin with. I suspect folks relying on remittances may not have been major account holders. Businesses will continue using the banking system, so those banks servicing them will be fine.
I am confused and ignorant. If someone in Salvador receives a BTC and then they sell it how do the dollars actually get into El Salvador? Does a party transfer the dollars into my local bank account without any fee?
You say the state already has the dollars, but it will need more as BTC flows into the country.
Does the state handle the conversion - ie I sell my BTC to the state and it imports the dollars? This is the part I don’t understand is what part brings in new dollars at a lower cost than Western Union.
How El Salvador keeps it's physical cash in flow with a foreign mint is an interesting question but it is somewhat decoupled. Unless people are hoarding US dollars, the banks are getting them back as later deposits so the amount of physical dollars has very little to do with incoming and outgoing digital payments.
By the way, when El Salvador imports products from USA it most likely doesn't pay with cash so the net transfer of physical currency might be very close to zero.
How do they do electronic payments? Regular bank wire transfers. The fees are merely unattractive for small amounts. Western Union is a service for the unbanked.
$25 for an international bank transfer sounds really expensive. I probably pay something like that too if I wanted to do it physically, but it’s $5 online and free within the EU.
If both ends of the transaction have bank accounts, and the sending end has internet banking (should be pretty universal even for expats in the EU at least, unsure about North America and elsewhere) then using Western Union seems like a complete ripoff.
In El Salvador banks transfers within the same bank are free, and transfers between banks are free or cost less than USD 1. Depending on which network is used, they are instant or take less than an hour. One network is 24/7 and the other one works in banking hours.
Remittances, like Western Union, just take a few minutes but have higher fees. Especially for smaller amounts.
International bank transfers cost between USD 11 up to USD 40. Both the sender and receiver pay. They are only worth for larger amounts, for example between El Salvador and the U.S, if the transfers are done before noon and during a working day, they usually arrive on the same day.
Depositing U.S. checks in El Salvador banks is free or cost less than USD 5. This is very slow though, and may up to 30 working days to clear. It may be faster now, but it depends on the bank.
That's something most of us forget. I was wondering why you wouldn't just do a bank transfer, it's cheap and everyone have a bank account, but that's because I happen to live in a country where the EU ensures that I'm not paying insane fees and where you legally must have a bank account.
Personally I'm still not sure that Bitcoins and Western Union should be part of the solution. It seems "simple" for a country to just cap feed and ensure that everyone have access to banks.
This happens everywhere. When I was 20 I went to a UK university as an exchange student and tried to open a bank account (needed for some reason I can’t remember). I expected that to cost zero and not come with any strings attached but the bank person started talking about minimum deposits and yearly fees just to open a standard account.
In El Salvador simplified bank accounts require no minimum deposit, can send and receive instant bank transfers to other banks, and some allow the account holder to receive a remittance from the US just by typing remittance ID and amount.
No need to go to the bank either. They can be opened from a website or app with a selfie and a picture of both sides of the ID card.
There are "simplified bank" accounts that are very easy to open in El Salvador. They are basically open to anyone and charge few fees. They can even be opened using and app, a photo of the ID card and a selfie.
It is also possible to receive a remittance from family using the app by filling a form with two textboxes: 1. MTCN/Remittance code and 2. Remittance amount.
Those who are under 18 cannot access this service though.
The salvadorans living in the U.S., even if they didn't enter the U.S. legally, usually have bank accounts too.
Not sure if there is a receiving end fee, I don’t think so, but again my fee for iban/BIC (formerly swift) is $0 within EU/SEPA and $5 otherwise. So I expect to be able to transfer to El Salvador for $5 if I read the prices table correctly.
We do have the similarly named SIPA for transfers between the SICA countries (Central America and Dominican Republic) Unfortunately SIPA is not that widespread. It costs about $7.
I predict lots of these legacy money transfer services will adapt Jacks model (ie. use Bitcoin network / LN and just worry about controlling the end-points).
This is somewhat analogous to how originally we used PTSN copper-lines to host DSL signals to connect to internet...then eventually we inverted it and artificial "dial-tones" were played over native digital lines.
As much as I'm a skeptic of cryptocurrencies I do think this is one aspect of them that makes sense. Having a blockchain ledger in place of creaky old bank databases that often are tied together with even more creaky legacy applications written in mostly unused languages like COBOL is a better solution. It just clears the clutter away with some simple protocols on top of the blockchain ledger platform. Although this doesn't guarantee we won't clutter up that program space in the future at least it'll make it less fragile.
This is the best point I've heard about crypto in the real world.
I've never really thought about it that way, but it does make sense as a standardized transport API first, and everything else second.
Sure, everyone does (things) using Bitcoin. But in order to do those things, they have to speak Bitcoin (simplifying). And once everyone speaks Bitcoin, new products can be created that target Bitcoin, that wouldn't have been feasible if everyone were using 100+ different bespoke systems.
And from its network antecedents in PTSN -> packetized layered transport in data / voice, that seems optimistic about enabling innovation.
If you were going to design a standardised protocol for transactions, I wouldn't start from bitcoin, which makes all the wrong choices around identity, authority, anonymity, where to place the load, how to verify transactions etc etc.
Open banking is a much better approach to federated banking.
It would make a lot more sense if such a standardized API could exist without intentionally burning an increasing amount of computing resources. Unfortunately it would appear that if this sort of thing is the way things are going, we're stuck with Bitcoin and its appalling wastage.
Frankly, it's becoming increasingly depressing have to watch as technology is continually employed to make the world worse, usually for the benefit of making some people rich.
You are right to be a skeptic of cryptocurrencies. All of them are garbage. Focus just on bitcoin, because it aims to solve the exact problem you have identified in the most secure, decentralized way possible. Any cryptocurrency that tries to bolt more onto its base layer will always sacrifice some level of decentralization which is where a lot of problems get introduced.
cryptocurrency and bitcoin are not categorically the same.
I agree, it also forces interoperability. Regardless of what you think about bitcoin the asset, if it decouples the sender and receiver’s payment technology it might all be worth it.
Cryptocurrency discussions aside, $25 for a remittance sounds way off. As an example, I can transfer the maximum permitted $5,000AUD via Western Union from Australia to El Salvador which costs $12AUD in transfer fees.
That's still expensive. Online inter-bank transfers across countries costs me $0 and I don't recall paying my bank for this service, ever.
When I look at WU for sending that amount to El Salvador from Sweden it's closes to $250. Are you sure it's only 12 AUD? There's a hefty fee baked into the exchange rate.
Agreed. The article even gives different fee examples at different points.
I’m all for lowering fees and increasing competition, but this article seems to be exaggerating the wire transfer fees while ignoring the costs of the Bitcoin option (exchange rate fees on both ends, etc)
Is it strange to think this is a hopeless venture instituted by a terrible, corrupt government, but to also be rooting for it to succeed? If I lived in El Salvador, I would be protesting this as a risky waste of time while enthusiastically participating in it.
Even if you believe in crypto - why Bitcoin and not a stablecoin? I'm also not sure why people are comparing Bitcoin to Western Union. Western Union is way more than just sending money.
Because stablecoins have a security vulnerability, they're pegged to assets who's value can be manipulated by a third party. I'd imagine there are many motivations to El Salvador diversifying their currency market, remittances might be one, but shelter from Fed monetary policy is a strong additional benefit.
Also, stablecoins that are pegged algorithmically rather than by 1:1 hard asset backing will eventually lose peg. How long that takes on average depends on the design of the system. Look at Nubits and then look at MakerDAO to see different examples of algorithmically pegged stablecoins.
But it would be worse if they used a centralized currency. It's an additional risk. Those risks add up. And el Salvadorians can individually opt out of the government app whenever they want to. It's a lot harder to opt out of a currency you've decided to make legal tender 2 years in. Also stable coins are exactly what they don't want - they're trying to insulate themselves from rampant inflation and instability risk of the dollar.
> they're trying to insulate themselves from rampant inflation and instability risk of the dollar.
So instead of controlling their own monetary policy by issuing their own currency, they are now at the mercy of the US federal reserve and a coterie of Chinese cryptomining syndicates.
They were already at the mercy of the US federal reserve. Now they're less so.
And you're misinformed about the influence of chinese mining syndicates. Miners have almost no influence on the structure or stability of the currencies they mine.
You might want to think through the logistics of having a person or a group of el Salvadorian government officials living in every foreign country in the world handing out cash to people. What you're talking about is recreating an international banking network. That's not exactly easy peasy
This reminds me of something back in high school, here in El Salvador, one of my classmates had his parents living in the United States. His mom had given him a U.S. debit card which he could use to withdraw money from the local ATMs.
OK, so person a deposits cash, person b in another country withdraws cash. Eventually bank location a will have an excess of cash and bank location b will have a shortage of cash. How do you square that?
Now think about the fact that 25% of el Salvador's GDP is remittances from the US. Country wide, banks have a shortage of cash deposits every Friday. Bank location a will need to eventually ship that cash to bank location b, and maintain a channel to keep the money flowing.
It's not that simple, if it were that simple that's how banks would do it. There are logistics involved.
U.S. banks usually require foreigners to visit a branch for opening an account. For Salvadorans getting a US tourist visa is a complicated and expensive process.
About half of the applicants get denied. And the application costs about the half of a monthly minimum wage. Salvadorans who depend on income sent by a US relative would have even less chances to get a visa approval.
Currencies like nano are cheaper, not "more efficient". They're the bargain bin of cryptocurrency. Nanos design has no breaks and then people are surprised when it has enormous problems like spam attacks.
It’s interesting to see that even their example use case results in the transferred Bitcoin being converted back to dollars right away:
> “Wherever you are now, you can send bitcoin to anyone with a Chivo wallet in El Salvador, and in minutes, they have the value and then they can go to one of the ATMs and take it out in cash without a fee,” said Alex Gladstein, chief strategy officer for the Human Rights Foundation.
I suspect this will be the default behavior for Bitcoin remittances: Buy Bitcoin, send it immediately, then other side sells it as quickly as possible to get back to cash. Bitcoin dropped 20% in the span of minutes on the big launch day in El Salvador. I doubt many people are going to want to hodl their remittances in a highly volatile currency.
It’s also interesting that the costs haven’t actually gone to zero for the Bitcoin model, but they have been obscured and shifted to other parties. This says the receiver can withdraw BTC as cash “without a fee” but what does that mean? Is it like those currency exchange stations at the airport that have “zero fee” but they more than make up for it with unfavorable exchange rates? If not, who is paying to operate and maintain the foreign exchange infrastructure, which isn’t free?
Also, they make use of L2 networks for transfers, but at the end of the day those are still rolled up on to the Bitcoin blockchain, which is unbelievably expensive to run due to the energy requirements that register as a significant fraction of humanities energy usage. That energy must be paid for somehow, which is currently a a mix of block rewards (technically, inflationary money printing) and transaction fees, which are at least amortized across L2 transactions. There may be uses for cryptocurrency yet, but I hope this isn’t the end game because it’s still an inefficient mess. Maybe if we can get away from PoW block chains and also wise up and jettison the arbitrary speculative tokens then maybe we can make some progress.