 Consensus emerges from the interactions of what I've called in the past the five constituencies of consensus, which includes developers, miners, exchanges, merchants, and wallets, meaning users. And now it's the six constituencies of consensus. Developers, miners, exchanges, merchants, wallets, and the government of El Salvador. Hey, folks. I'm Adam B. Levine, and this is Speaking of Bitcoin. Last month, the nation of El Salvador was surprised when their president, Nayubu Kelly, announced at a Bitcoin conference that his would be the first country in history to make Bitcoin legal tender. Now that the dust has settled, we're going to talk about it. On today's show, we'll dig into the bill itself, some critiques of specific clauses, the role Bitcoin Beach and organization has played, and the intersection with the swiftly growing Lightning Network. We're also going to draw back the lens and look at big picture implications, putting it all in context with the journey so far. As always, I'm joined by the other host of the show, Stephanie Murphy. Hi. And Andreas M. Antonopoulos. Hello. Jonathan is out this week. So this was announced over a weekend in Miami and then passed into law the following week. That's incredible on a couple of fronts, but it's resulted in some critiques as well. Before we talk about that, Stephanie, let's dive into the bill itself. Actually, as legislation goes, I have to say I found this remarkably digestible. It was like a two-page bill, which is like in the United States. I can't even imagine what a two-page bill would look like. Oh yeah, we need a binder full for our legislation. Yeah, exactly. Binders full of legislation. Yeah, I agree. It was pretty easy to read, so we figured we might as well just read it on the show so we can have a basis for talking about it. So here it is. Article one, the purpose of this law is to regulate Bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private, natural or legal persons require carrying out. What is mentioned in the previous paragraph does not hinder the application of the monetary integration law. And the monetary integration law, just for some context there, is the law that turned the US dollar into the official currency of El Salvador. It turned it into legal tender, basically is what it did back in 2001 when they were having undergoing severe inflation within their local currency. So this is saying that Bitcoin doesn't replace that, it doesn't impact that at all. It's happening as an additional thing as opposed to replacing the old system. Alright, article two, the exchange rate between Bitcoin and the United States dollar, subsequently USD, will be freely established by the market. Okay, so it's exchanging at market rates between Bitcoin and USD. Article three, prices may be expressed in Bitcoin. Not must, but may. And may is important there, keep going. Yes. Article four, tax contributions can be paid in Bitcoin, can be paid. Article five, exchanges in Bitcoin will not be subject to capital gains tax, just like any legal tender. Article six, for accounting purposes, the US dollar will be used as the reference currency. So accounting done in USD. So I want to stop us there for a second and just look back at that article three, four, five and six, right? So prices may be expressed in Bitcoin, tax contributions may be paid in Bitcoin, exchange in Bitcoin is not subject to capital gains tax and the US dollar is still a reference. In my view, this is pretty close to an ideal way that you would want to set this up. It removes much of the confusion, removes many of the barriers that are in place, things like capital gains that make it difficult to use this type of thing as a form of money. But at the same time, it's not mandating that you have to. It's saying you have the choice and we're clearing the roadblocks that might make it more complex for you to do that. These are things we complain about the US constantly in terms of just the difficulty of the accounting that comes along with many of these restrictions. Okay, please continue. Right. Yeah. And I agree with that. This is pretty good. But then we get to article seven, which is something that a lot of people quibble with. So, okay, article seven, every economic agent must accept Bitcoin as payment when offered to him by whoever requires a good or service. Now, this is the part that goes beyond and we'll get into that later. Article eight, without prejudice to the actions of the private sector, the state shall provide alternatives that allow the user to carry out transactions in Bitcoin and have automatic and instant convertibility from Bitcoins to US dollars if they wish. Furthermore, the state will promote the necessary training and mechanisms so that the population can access Bitcoin transactions. So, the state is providing instant and automatic convertibility between Bitcoin and USD and also offering training and also the private sector can do that too, but the state is at least going to do that. Article nine, the limitations and operation of the alternatives of automatic and instantaneous conversion from Bitcoin to USD provided by the state will be specified in the regulations issued for this purpose. Article 10, the executive branch will create the necessary institutional structure to apply this law. All right, and then we get to another section called final and transitional provisions. Article 11, the central reserve bank and the superintendency of the financial system shall issue the corresponding regulations within the period mentioned in Article 16 of the law. And in Article 16, it says this decree will take effect 90 days after its publication in the official gazette. So, they've got 90 days for the central bank and the superintendent of the financial system to put forth regulations. Which right now is about two months away. So, when you pass a law, one of the ways that you effectively codify that, right? And this goes way back to a time when like newspapers played a role. If you look at how like federal law is enacted in the United States, there's this thing called the federal register that all legislation has to be published in, which is sort of the way that you get this information out to all the disparate parts that it will then affect. So, that's what they're saying here is that this will take 90 days to go into effect, which is a really, really fast time frame for something like this, incidentally. And what I'm saying is that that time frame from the time we're recording this, we're about two months out from it actually going into effect. Yeah, the time frame is one thing that a lot of people were kind of blindsided by because it is quite fast. Okay, so Article 12. Those who by evident and notorious fact do not have access to the technologies that allow to carry out transactions in Bitcoin are excluded from the obligation expressed in Article 7 of this law. The state will promote the necessary training and mechanisms so that the population can access Bitcoin transactions. Article 13. All obligations in money expressed in USD existing before the effective date of this law may be paid in Bitcoin. Article 14. Before the entry into force of this law, the state will guarantee through the creation of a trust at the Banco de Desarrollo de El Salvador, Bande Sal, the automatic and instantaneous convertibility of Bitcoin to USD necessary for the alternatives provided by the state mentioned in Article 8. So the state is establishing a trust fund at the state bank. That's right, within the central bank for the country. Specifically for the purpose of providing liquidity for convertibility between Bitcoin and USD. Article 15. This law will have a special character in its application concerning other laws that regulate the matter being repealed any provision that contradicts it. This supersedes all other laws about this, right? Exactly. If there's a booby trap somewhere in the law that would make it so that this doesn't work, then at least in theory, this claims to supersede it. Okay, and then the final article, Article 16, again, as we discussed before, says that 90 days after this is actually passed into law and recorded in the register, then this will actually take effect. And that's really the whole bill. 90 days. Clock is ticking. Yeah, clock is definitely ticking on it. So that's the billing question that we're going to be talking about today. This is a translated version, I should mention. The original is obviously in the native language of El Salvador. And so there may be some slight discrepancies in terms of our understanding of it from this translation versus not, but broad strokes here. This is pretty much understood to be the way that the law is going to work. Okay. To start things off, I think we should start with the most controversial part of this law. And it's interesting because it's actually seen something of a division within sort of the typically libertarian crypto Bitcoin community, right? Where typically something like this, you would think people would be very excited about, but some of kind of the most principled libertarians out there have taken issue with some of these clauses. And it's totally worth discussing. So let's do that now. Going back to Article 7. This is kind of the root of many of the concerns about it. Every economic agent must accept Bitcoin as payment when offered to him by whoever requires a good in service. And then if you look later on, some of these other clauses, as we've mentioned, are intended to kind of soften that where they say, well, everybody's required to do it, but if you don't have access to it, right? If you don't have access to the technology necessary to do it, well, then you're exempted from that. So there's a question here around, does this respect the neutrality that many people feel Bitcoin represents? So let's start the conversation there around this idea of neutrality specifically with regards to this type of law. Andres, you want to jump in here? Yeah, I think a lot of people, perhaps rightly so, have an objection to the idea that this is being made mandatory in terms of acceptance. So a specific technological solution to currency is being mandated on behalf of the government. Now, of course, government's mandating what currency must be accepted is nothing new. And that's what governments do. And that's where the fact that a government has introduced Bitcoin into a country runs into some of the ideals of Bitcoin that there should be a voluntary choice by those who want to participate. I understand that concern. Then again, I think many governments have mandated either directly or indirectly against Bitcoin and made it very difficult for someone to exercise that voluntary choice. I really read this particular part of the bill in a very pragmatic way. And I would say, if you're thinking about a country like El Salvador, you're going to have a big chunk of the economy, probably significantly more than 50% is a cash-based informal economy that exists with small family-based businesses, vendors that sell basic goods, whether it's farmers, grocery stores, fishermen, restaurants, road sites, fruit stalls or food stalls, and various other small services and businesses like that. There's going to be a very large informal economy like that. And mandating the use of Bitcoin in that context doesn't make sense from a pragmatic perspective. But as well, you're also going to have very large enterprises, chain stores, gas stations, department stores, large supermarkets, a phone company, gas company, electric company, et cetera, that are going to touch the lives of many people in a run, either by big businesses or government-owned enterprises. And in those cases, they certainly have the means to make this happen. And it's kind of a mockery of the entire adoption of Bitcoin if they don't. So I think it's a very pragmatic approach to this. Anyone who can, should accept it. And anyone who can't doesn't have to, but may also get assistance. Yeah, I mean, that sounds great the way you're describing it. I'm confused about it seems really vague, like the definition of who can't accept it, right? And it would be great if the definition of who can't accept it did include pretty much the entire informal economy, which is the majority of people in the country. And it really only applies to big businesses who have the resources to be able to deal with this technologically. But actually, I think it's kind of important to talk about the history or the precursor to this law, which was that there was a project that has been apparently going on for about four years now, where somebody donated something like 50 bucks worth of Bitcoin to every family, every business in a certain zone. And it was nicknamed like Bitcoin Beach. And I wasn't familiar with that project before, but apparently it's been going on for a while. And most people there have cell phones. They don't really have a lot of high technology on the beach when they're selling stuff on, you know, roadside stands and stuff. But they do have cell phones. And the way that they were accepting Bitcoin there and transacting with the Bitcoin that was sort of seeded into the economy there was through cell phones. And, you know, there were some issues with it. Some people decided to kind of bail out on using Bitcoin because they found it inconvenient. They had problems with the cell phone running out of prepaid credit. It was also like there were fees to convert the Bitcoin into other currency. There was friction there. But overall, there were some benefits to this, which was that, you know, they could not only accept Bitcoin from locals, but also from tourists who came in, just like you said, Andreas, and an interesting experiment, right? Yeah. And I've seen many similar ones in South America that involve that kind of airdrop-slash-seeding of a local economy. And very often you have this generational gap where older people will immediately liquidate it because they don't really believe that it's going to have value in the future and younger people hodl. And in many cases have made pretty good results out of that. I think now Bitcoin Beach, from what I've heard, has a fairly large adoption of the Lightning Network, which may have resolved some of the problems that would occur if you're trying to do on-chain transaction in a very small dollar amount payment environment. And so I don't know if that's improved things. Yeah, right. And I also heard something about problems with internet accessibility there. It's a beach area, the internet coverage can be spotty, and so I have not been to Bitcoin Beach itself, but I have had experience at festivals trying to use Bitcoin in an environment where internet was unreliable, and it was significantly less convenient than just using cash. So the reason I brought this up was because I like what Andreas described, this vision where really this law would only apply to kind of larger businesses who can easily deal with integrating Bitcoin and accepting it for goods and services. But the people who are participating in the informal economy, they really don't have to do anything differently unless they want to. But because this law was kind of born out of Bitcoin Beach, I wonder if that's really the intent of it or is the intent to kind of apply to everyone and to try to really get everyone on board with this. And would people be skeptical of that? Because they're essentially trying to get people onto a digital form of payment. Some people would be skeptical that they're being tracked or something. Absolutely. I would agree. Here's the thing though. I don't know that this was born through Bitcoin Beach. I mean, correlation, certainly. But it seems more to me like a reserve currency central bank play in order to provide some harder assets in the treasury of the country and spur adoption with the hope of that improving the economic statistics of the country rather than getting tiny, tiny retail use. But I don't know. I think it's very clear that this is going to apply to the big businesses, state enterprises, etc. They are going to be forced to comply with this. Now the question is whether they're going to enforce compliance and how far down the ladder they're going to go in terms of enforcing that use of Bitcoin. That we'll see. So to me, I think that this is really about alternatives. That's kind of my read on it in a nutshell, the way that they did it. They're not getting rid of the dollar as really the currency that is used under most circumstances within the nation. I wrote an op-ed shortly after this came out that's called Bitcoin is legal tender. Why El Salvador's plan isn't as crazy as you think. You can read that. It'll be linked in the show notes for this episode. Long and the short of it is that countries like El Salvador choose to basically put their own local currency in a back seat and let the US dollar sort of be the dominant currency that people are using, not because they love the US dollar, but because their own currency has enough problems in terms of people trusting it, in terms of it remaining useful, in terms of it not losing value at very rapid rates sometimes, that outsourcing their monetary policy, outsourcing their currency management to somebody who's more trusted or is less likely to frankly screw things up than well-intentioned local bureaucrats are, which is what tends to happen in these circumstances. My point here is just that there are good reasons why countries around the world do what's called dollarization, where they effectively replace their own currency or supplement their own currency with another option like the US dollar that then can also trade in a legal capacity and have most of the legal protections that go along with it. Now, if you were talking about this 10 years ago or 20 years ago when they were making this decision, that law for them passed back in 2001, then you look around the world and it's like, all right, well, the US dollar is pretty much without question the best option that is available to us. But looking around today, that is not at all the case. Looking around today, again, the US has embarked on this really kind of extended period of incredible experimental monetary policy. And so in a world that doesn't have something like Bitcoin, well, everybody else is doing crazy experimental monetary policy too. So the US dollar still might be preferable because it has reserve status, because it has a long legacy and a long history of being, again, where people go for this sort of dollarization. But in a post-Bitcoin world, especially in a Bitcoin world where, you know, we're now 10 years at what are we, 12 years into this experiment. And that experiment has proven, I think, to a lot of people, myself included, that this thing is more robust and harder to kill than we might have expected if we were talking about this, you know, a year or two after this concept was just introduced. It feels like a long time to us because we've been doing this show since 2013, but it's actually an incredibly short period of time. And I got to tell you, I wasn't expecting to see a move like this until probably another one of our four-year cycles in cryptocurrency. But I think that that's the conversation to really have here is like the arguments behind dollarization are all actually arguments behind using Bitcoin in much the same way. And I think that what they're doing here is they've kind of hedged their bets, right? They're saying, we're not going to get rid of dollars, but we're going to add Bitcoin to the mix and then just kind of see what happens. I would throw in a couple of other ideas into this composition, too, because I think it's an important point you're making here, Adam. What are we comparing this to? If we just take an absolute view and say, is this the best thing that could have happened and then, say, four hours of it or four Bitcoin? In absolute terms, it's very difficult to judge this. We really have to look at this in relative terms. And what are the alternatives that this is competing with? What are the other approaches that El Salvador could or could not have taken? And how would those work out? In addition to dollarization, I think it's important to note that several countries within the broader sphere of the European economic area have the euro, either as their de facto national currency informally or formally, much like El Salvador did many years ago for the US dollar. So the euro also plays that role. I would assume that there are a number of countries in which the Chinese currency also plays that role, and I wouldn't be surprised if countries that have massive infrastructure projects and important trade relationships with China also have Chinese currency very often being used informally in the same way. So it's not just the dollar. Now, the other context to this, I think, is the very obvious direction we're heading with central bank digital currencies, the digital dollar, the digital yuan, the digital euro, and the very strong possibility that many of the central banks will go digital, and the overall digital payment sphere. El Salvador is trying to get some percentage of its population using digital payments with smartphones based on Bitcoin, and as you said, Adam, people will be worried about being tracked. Well, China is already doing that for a billion people with Alipay and other technologies, and in fact, a very, very large number of the payments and the population are now using digital payments, and those are very explicitly surveillance payment mechanisms with absolutely no monetary soundness and very explicitly state controlled at every level. So how does this compare to that? If in the near future many countries are going to go to digital payment systems and many central banks are going to go to central bank digital currencies, is it better to go with one that is neutral or is it better to adopt one that is directly controlled by the state or even controlled by another state? So I think the neutrality point is one that is really, really worth digging into. I've been thinking about this a lot. So drawing it kind of back to the specific topic we're talking about here with regards to El Salvador and the way that they're doing this law. A lot of people, I think, within the crypto space are looking at this law and the couple of areas where it mandates as opposed to provides an option and sort of eliminates uncertainty. I think we're all in agreement that the places that provide options and eliminate uncertainty, I think broadly speaking the crypto community is very supportive of those things. Really where you get into is this question of mandates. One of the arguments that I've heard a number of times from people who I really respect and think that it's a totally valid position for them to have is that Bitcoin is this neutral thing and so the idea that it would be mandated, the idea that someone would be forced to use it is inherently contrary to the ideas and underpinnings of cryptocurrency and specifically of Bitcoin. I think that that can be true on the one hand but that is not actually what's happening here. What neutrality means is that the only real requirement to use something like Bitcoin is that you follow the literal protocol rules. These are largely technical rules in terms of how you communicate with the blockchain, how you get your transactions recorded in the blockchain, all of those things. Those are the actual fundamental rules that make it so you can or can't use Bitcoin and really it's binary. It's not like anybody is approving yes, this is an approved use of the rules. If you don't do it the way that you're required to do it by the protocol, then it just doesn't work, right? Then your transaction never gets confirmed. It never makes it into the thing. That's the neutrality that's sort of is inherent in it is that anyone can use this thing really in any way that they want so long as they respect a couple of very technical rules and those rules aren't even respected by people for the most part. They're respected by the software that you run. Well, hang on a second there. I think you're absolutely right in the broadest sense but I think there's a bit of a wrinkle here that we need to think about more carefully and that came up when we were reading these articles of the law. Can you remind me which article defined Bitcoin? None of them. So then the question is which Bitcoin? And that becomes an interesting question and this is where I will agree absolutely with this neutrality issue which is the danger that I've always seen in this. I've often been asked by people when will governments adopt Bitcoin? And my answer has always been this is not about governments adopting Bitcoin. This is about people adopting Bitcoin whether or not their governments want them to. Now, great. Okay, so El Salvador has come along and adopted this as official government's legal tender and they have these mandates in there for adoption. Let's say the best case scenario, they only apply to the biggest companies maybe when only state enterprises. Great. What happens when there's a fork and El Salvador now has to decide which of the two Bitcoins is Bitcoin? And this is a very real problem and of course it means that then they have to decide their covered entities, the entities that they mandated which of the two forks they follow and that completely messes with Bitcoin neutrality. Now you have legislators making decisions about which of the consensus rules and you Adam said quite rightly, all you need to do is follow the consensus rules but when you have a law that says you have to use Bitcoin and nowhere in that law does it say we define Bitcoin as the one that has this Genesis block or has this Genesis block and a supply cap of 21 million or any of the other consensus rules. Arguably people could show up in El Salvador and say, hi, I have Bitcoin Cash. I have Bitcoin SV and you must accept it and then you have a very interesting conversation with the retailer as to which one is the real Bitcoin which I would just love to be there with a camera for that conversation. Well, it's probably going to happen. Yeah, it's probably going to happen but the point at which this becomes a difficult conversation is when there's a fork, let's say this has happened in July of 2017 and then in August of 2017 the government of El Salvador comes out with the amendment law on the clarification of which Bitcoin is Bitcoin and said actually Bitcoin is this one and had to pick between Bitcoin Cash and Bitcoin. Okay, so I totally get your point and I actually think that it's an excellent nuance to add here but it actually, I think, further emphasizes the point that I want to make which is that Bitcoin as a technology is neutral but the people who use it the people who integrate it the people who write laws about it are neutral and they don't need to be neutral that's actually okay that they're not neutral the purpose of a neutral system isn't that everyone who touches it needs to retain the neutrality from the system the purpose is that people can use it however they want and so to your point, Andreas, I think that if they were to say, well, this is the right Bitcoin or that is the right Bitcoin well, that's okay they have the ability to determine that and if leadership within a country says that this is it or that like the people can choose to agree or not if you want to talk about true neutrality, that's what it is it's that the thing just is what it is and people make of it what they make of it they talk about it how they talk about it it's all kind of in the eye of the beholder and that's what neutrality is in this context, isn't it? Well, to a certain degree, yes it is but one of the things that always attract the need to Bitcoin is that consensus emerges from the interactions of what I've called in the past the five constituencies of consensus which includes developers, miners, exchanges merchants and wallets meaning users and now it's the six constituencies of consensus developers, miners exchanges, merchants, wallets in the government of El Salvador I see your point and we went from one CPU one vote to one CPU one vote plus one ASIC one vote plus one El Salvador in government the problem is here that you've added a layer of represented democracy at the bottom of the consensus layer and it's the same problem I have with exchange traded funds and companies using Bitcoin in their treasury, what it does is it introduces new constituencies of consensus that can either endorse, promote or push forward changes to the protocol but because that's very difficult more likely do the opposite which is attempt to veto changes that we might want so what happens for example when there is a soft fork intended to introduce privacy strong anonymity within the Bitcoin protocol system let's say confidential transactions well now does the government of El Salvador gets to vote on this effectively by controlling the economic activity of potentially millions of people, yes they do and that means that you effectively have as a participant of a user activated soft fork or user veto over a soft fork representative government and then the question is well how representative is it? A lot of the criticism about El Salvador's adoption of Bitcoin is do you really want to be bedfellows with these fellows and that's where I wanted to discuss this in terms of relative benefit because I don't want to be bedfellows with these fellows but we're all on this planet with a bunch of nasty fellows and some of them are delivering surveillance digital payment systems on government controlled coins to a billion people and controlling a chunk of mining and mining pools so it's all about relative good but you know I think this is one of those classic double edge swords there are some good things that come out of this and perhaps they'll make it work perhaps the regulations that come out will shock us and their benevolence and foresight and all of that but I wouldn't count on it because that's not how governments work usually. I mean for me again it comes back to this idea that if we expect governments to be perfect if we expect governments to do the exact Bitcoin thing then we're going to be disappointed right there's like the abstract versus the kind of real life implementation to me that neutrality means that well this is El Salvador's version of it but again once El Salvador does this basically one of two things are going to happen one it's going to go really poorly and then that will probably dissuade other countries who have very similar dynamics in terms of why they would adopt something in this way like Bitcoin and on the other side if it proves to be reasonably successful then we're likely to see a cascade of similar sized nations with similar dynamics that choose to follow it in. Each one of those might look to what El Salvador did and then make their own set of rules that are based around that and so to your point about like well will they veto things I think that that is the concern I think the concern is that you know we've always talked about how Bitcoin like as a protocol as a set of rules is still under development but it is ossifying right it is like turning into stone as time goes on more and more and more to the point where one day will be in a you know IPv4 IPv6 situation where even though there's a better technology that is ready to go and where there's really very few downsides to adopting it there's so much momentum behind the old way of doing things that it's impossible to actually update. I think this just pushes us towards that date faster doesn't it? It does and this is one of those cases where I absolutely hate the fact that I called it my very first talk at the Bitcoin conference in San Jose if you remember Bitcoin neutrality and I talked about how we will face ossification of the protocol and if we don't bake in neutrality early on eventually there will be a lot of competing interests and I believe I coined the term ossification in relation at least to Bitcoin consensus rules in that talk in 2013 my very first talk the one that's famously in front of an empty room. Yeah I remember that was a good conference I didn't want to be right on that one that was a dire warning and I think you might have called it too we may already be ossified we may never be able to introduce things like privacy a strong anonymity like I have wanted to see for a while now but we'll see you know on the other hand taproot activated in six weeks so yeah I was thinking of taproot like I think there's a reason to be hopeful for creative solutions that keep with neutrality maybe this black swan has a couple more squawks in it kaka I guess another thing on the ossification topic and we'll link to that talk in the show notes too if you're a newer listener and have not been with us quite so long because that is indeed a great talk from a very early conference I think that was the first time we met wasn't it? Yeah it was that was the first time we all met yeah I think the fairest thing we can say to all of this is it's way too early to draw any conclusions here I think it's refreshing that this law is simple enough that we can read it on a show and quickly comment on it but the real outcome will be shown through how this is tested by real application in the real world how the various sections are enforced what rulemaking is made around it and whether it's successful or not so it's way too early to draw any conclusions how this might go it's a historic event and the question now remains is it an historic event of historic disaster or is it an historic event of a great outcome that we'll see so I'm going to pull out the quote that I haven't used in a couple of years but this seems applicable my mother likes to say if you can't be a shining example at least be a horrible warning when I look at this situation that's what I see either way the exciting part for me as someone who doesn't have to live under this but who gets to watch it play out is to see that this is something that we've kind of long thought was possible certainly I think it's happening a little sooner than I thought but the potential around it irrespective of whether it goes good or bad this is going to be a real experiment in real life of how this thing works and there's one more element that I want to talk about which is the lightning network because for all of the things that Bitcoin has done that it does very well the standard of living in El Salvador the cost of living there is pretty incompatible with the way the transaction fees work to make transactions on the base layer network today the whole other conversation will have some time about whether that was a good decision because this continues to be a pet peeve for me and something that I'm just not sure that we made good decisions about but just as far as El Salvador is concerned let's talk about lightning for a second you know lightning is a layer two on top of Bitcoin that effectively uses Bitcoin as a settlement layer I'm looking at a story right now about the lightning network that was recently published on CoinDesk and it says that the lightning network recorded its quickest 100 Bitcoin capacity growth after only 5 days, when in the past that's taken anywhere from between 9 to 39 days just in the last few months so we're seeing an exponential ramp in increasing capacity in it on a recent episode we talked about how actually a lot of this growth isn't coming from people who are using lightning itself as a lightning wallet or something like that instead what they're doing is they're using lightning within a third layer application like the Sphinx Chat podcast payment streaming thing that we talked about last time and there's a couple of others of these as well but I mean how big of a deal is lightning to this project in El Salvador do you think that this can happen without that clearly there's involvement but I'd love to get thoughts on that No, you need lightning Adam, people talk a lot about fees for currency exchange to get in and out of Bitcoin well just the fees to send Bitcoin on chain are kind of getting comparable to that you said it was not compatible with the standard of living in El Salvador it's not compatible with my standard of living sometimes in America Come on, it's just a couple of bucks A couple of 20 bucks A couple of 20 bucks, I don't know what kind of fees you're paying you're paying the miners too much well it does automatically because it depends on the day it depends on your speed and this I think is a real issue here this bill is two sided one part of it is a trust fund for the stabilization of the liquidity blah blah blah that's store value, big amounts huge liquidity pools, government run whatever then there's the must accept for goods and services that is straight up medium of exchange that cannot happen not only because of transaction fees but because of confirmation and settlement times the lightning network is not only cheap it's also fast, final and private and that combination of characteristics make it one of the best digital medium of exchange systems to complement Bitcoin store value that have ever existed and I'm very excited about this because this is exactly the kind of application where the lightning networks rise, it's happening whether or not El Salvador adopts it but certainly El Salvador's adoption for medium of exchange cannot happen without lightning. Yeah and it's interesting that you know the government trust fund is a part of this bill to promote interconvertibility between Bitcoin and USD but at the same time like you know the lightning network is greasing the wheels on the other end of actually doing the transactions in Bitcoin and that doesn't require any government at all that's a completely private solution so I mean that's cool I would like to say if I was living in El Salvador and I have the technological means the ability to convert and use Bitcoin without capital gains and with legal clarity would be fantastic but the problem is I don't live in El Salvador and I'm certainly not a typical person who lives in El Salvador I'm much more privileged than that and so I don't know if the end result would be good or not but I do think that there are some El Salvadorians who can really take advantage of those first four or five clauses in the bill to kind of unleash their own ability to adopt Bitcoin individually regardless of what the El Salvadorian government does without any roadblocks and that's quite promising Yeah, I think I agree with that I see the government trust fund as one of the biggest potential points of failure in this whole thing because especially if there's large price fluctuations that actually could really hurt individuals as well if they're using Bitcoin and then there's suddenly a huge price drop and then they've been storing it up for a while and then they need the cash and well they're out of luck but also you know with the government trust fund these fluctuations that would need to happen in order to dry up the trust fund rapidly are not unheard of in Bitcoin Oh, in March of 2020 would have wiped them out and that's if they don't lose the keys Yeah That's the other big issue here because you're talking about a massive centralization of control where this trust fund somewhere they've got to hold these keys and you've got three or four significant problems they might lose the keys so lose access to the funds through a mistake accident bad implementation, whatever they might have the entire government fund stolen so basically the El Salvadoran Bitcoin Fort Knox can be raided from anywhere in the world Yeah, that's a really interesting point they've got a digital Fort Knox there Right and you know it's made of chewing gum wrappers and somewhere can you imagine someone taking the entire central bank postage if they gain access to these keys that could easily happen and then finally are the Bitcoin not going to be there because in terms of corruption and embezzlement I mean, oh my God having access to that like FBI agents in the United States embezzled the fund that was seized from the Silk Road by local government agents that were prosecuting the Silk Road embezzled the funds and went to prison for it can you imagine so that fund is probably one of the biggest honey pots in the hands of a government that has unknown level of skill in key management and I wonder if that's the point like maybe that's a cynical thought but I almost wonder if that's the whole point of this law it presents an opportunity for corruption and embezzlement within the government of El Salvador if they have control over this trust fund and also opportunities to I don't know even just like exchange and ride the price fluctuations in their own favor and who knows but there's always usually special interest behind any kind of law that gets passed and especially when you're dealing with money I guess I'm just skeptical that this is like all about freedom and that's totally valid cynical take yeah I mean the president of El Salvador is seeking asylum in Venezuela with a treasure smuggled up his bum yeah right a ledger would probably be easier than a treasure in terms of shape so I think that that's an excellent point made about that and I think that again this is another thing where we have to wait to see what the actual law because again this is the thing that then creates the law but then the regulations about how it will exactly be enacted that's what's really going to matter that's where the rubber meets the road on something like this and the question will be do they embrace radical transparency because with Bitcoin you can right if you've got other assets stored that's kind of harder to do but Bitcoin by nature of again like when we transfer Bitcoin we're not actually moving Bitcoin we're transferring ownership we're signing ownership to each other right and the Bitcoin always stay in the most transparent place possible it's just a question can we connect the dots between this pile of Bitcoin here and this identity over here I think this is a good time to bring up like I saw in some of the research I was doing about this that this is an unpopular initiative like people don't support this something like 90% of people don't support it well it's happened so fast though I mean that's the thing you have to temper this with is that like for whatever reason the way that the El Salvador system currently exists it is very uniparty in terms of who is in power and basically the president just has a super majority with his power which he seems to exert a lot of control over and they were just able to push this thing through without needing to convince anybody like by fiat exactly like by fiat again like taking that neutral thing but then applying somewhat of an authoritarian or at least a very aggressive form of leadership right in order to make the thing that you want happen well I think that what the public thinks matters a lot you know especially when it's something that affects their life like money you know this is like a big deal and I think that's part of what informs my cynicism about this is that like okay if the people don't support this and don't trust that this is going to be good for them they probably know best because they actually live in El Salvador and they know what it's like and they know more about the government and so you know that makes me kind of like okay what's the real agenda here you know yeah and I bet a lot of El Salvadorians are asking exactly that question what is the real agenda here and that's a very good question to ask I think almost immediately after this past or was discussed we started seeing calls for transparency and how the fund will be managed as well as publishing transparent audits of the keys and the amounts held in the funds and you know to your point Stephanie there is an opportunity for radical transparency I don't know if anybody is going to take that opportunity or if the people are going to demand that and that would be a very interesting twist in this whole saga because Bitcoin offers radical transparency you could get very strong demands for that there's no reason not to do it I'm not holding my breath for it and I agree with you there's no reason not to do it and it would go a long way towards restoring the trust of the public I think but I don't think the government is going to embrace radical transparency unless there's like so much pressure from the public and unfortunately I don't know that the public even feels that they have time or understands that this would be a good thing to push for or is organized for it because this is happening so fast yeah it's clear that the power dynamic here is definitely on the other side so the power dynamic here is of a government that pushed this for really really fast with very little consultation just because they could and if you've grown up in countries where governments tend to behave like that that is not a good sign so I think that this is again a topic that we are going to come back to probably multiple times I don't imagine we're going to talk about it unless some real news breaks before we actually see it go into law but once it goes into law this is definitely going to be one of the most interesting experiments we have to call it an experiment at this point you know that is playing out in the kind of world of cryptocurrency this year we're also likely to see a continued emphasis especially as we go into next year on central bank digital currencies and so again it'll be really interesting to compare and contrast sort of the various experiments with bitcoin adoption on one side which again has challenges around it but ultimately provides a neutral you know relatively better opportunity than something like a central bank digital currency which sort of is like a set that drapes itself in the trappings of cryptocurrency and many of the benefits that it has but actually does away with you know the fixed monetary policy many of the other characteristics that are frankly what make bitcoin valuable in the first place if it is valuable I would be willing to bet that we have quite a few listeners in El Salvador and I would really hope we can hear some comments back from the listeners and we'll continue to follow this Yeah an excellent point Andreas if you want to reach out to us go ahead and send me an email at annum at speakingofbitcoin.show and yeah I mean in the past that's what's happened I remember we talked with Vignesh now known as Medicoven who was a listener back in the day when we were talking about stuff that was going on in India he reached out with some clarifying comments we pulled him on to the show and we had frankly a great and very illuminating conversation with somebody who does have kind of more direct knowledge we'd love it if that would happen here too we don't know anything about it but if you're a regular person who's interested in bitcoin and are actually local to this particular issue reach out and let's talk Yeah I think we've shown that we're very interested in that perspective we had many conversations with people from Venezuela and had people on the show to talk to us about what was happening in Venezuela when bitcoin was a big topic there I think this is another topic that we're going to follow closely So there's definitely more to this conversation to have but that is all for today. Thank you very much for listening to this episode of Speaking of Bitcoin today's episode featured Andreas M. Antonopoulos Stephanie Murphy and myself Adam B. Levin this episode featured music by Jared Rubins and Gertie Beatz and was edited by Jonas if you enjoyed this episode send me an email at adamatspeakingofbitcoin.show or leave us a review on your favorite podcast player and until next time thank you very much for listening