El Salvador keeps buying the Bitcoin for its strategic reserve. Businesses and citizens can keep using it.
But for getting an IMF loan, IMF (which, to put it mildly, doesn't like Bitcoin) required the end to Bitcoin legal tender status.
Now the businesses are free to accept it or not instead of being required to accept it. That's all. The government plans to keep buying and using it.
Bitcoin tried for 15-20 years to find a use case but now it’s just an asset class like gold and nothing else, it will never be more than that.
The other concept is that it is a good medium of exchange. I think that is not so true because 1) its neither cheap nor easy to buy a lot of things with it 2) a thing that goes up in value is not a good medium of exchange because people don't want to spend it, they want to hoard it.
If you accept that BTC is a reasonable investment, but not a great medium of exchange then what is happening makes sense.
I am not saying that a decentralized token couldn't be a good medium of exchange -- honestly I don't know. But so far BTC is not that.
I don't know if that is good or bad but I have heard smart economists argue both sides.
The IMF wants to feel that El Salvador (a) will likely be able repay the debt, (b) in a currency that is unlikely to devalue too much. For that reason, the debt would probably be in USD or some other prominent world currency (letting the debt be in El Salvador's local currency would risk them printing money to devalue it, threatening (b)).
So the IMF would probably make the debt in USD. In theory, bitcoin can be exchanged for USD, so in theory, El Salvador could exchange some of their bitcoin into USD to pay the IMF back. But what if bitcoin's value drops precipitously? Or if it becomes illiquid?
It seems the IMF thinks bitcoin is hype, so it expects its value to drop to near zero eventually. That would make it very difficult for a country that has large bitcoin reserves (instead of large reserves of a more stable currency) to repay the loan.
Satoshi’s paper assumed that transaction costs would make up for the exponentially declining subsidy, but that hasn’t really happened since it never lived up to his “digital cash” vision.
So... traditional money is good because it forces poor people to spend it? Rich people have no problem converting cash into assets that go up in value and holding onto them converting back at need. It's only poor people that have to hold comparatively high percentage of their assets in something that loses value.
Value oscillating against some golden reference by a factor of 4? Many will likely take that if it means avoiding their own government shenanigans. I saw a currency reform which turned savings to zero. My parents lived through two such devaluations. As did my grandparents. Buying dollars or another hard currency, if found, meant prison. In this setup a permissionless, anonymous store of value, warts and all, is very valuable.
The currency itself can be used independently of its base-layer network, which is intentionally slow and costly (functioning primarily as a settlement layer). This separation is enabled by off-chain or layer 2 systems, such as the Lightning Network or custodial platforms. These solutions retain Bitcoin's monetary benefits - like a predictable money supply, off/on ramping through the base layer - while enabling fast, cheap transactions. The tradeoff is that you must trust an intermediary, but this mirrors the same compromise inherent to digital USD payment systems (Venmo, credit cards, PayPal, etc.).
In fact, USD lacks a true "base layer" altogether. The closest equivalent would be the Federal Reserve Bank’s ledger, but accounts there are restricted to large financial institutions, not individuals.
However, “Bitcoin the currency” and “USD the currency” work perfectly for daily use if you route them through trusted intermediaries (Strike, Cash App, PayPal, etc.). These third parties abstract away the base layer and offer fast, cheap, and reversible transactions.
Whereas USD is ultimately bearer tokens. Yes, those tokens can be optimized away as entries on a balance sheet when held by a large entity. But USD is a token system, not a payment network. Bitcoin is the opposite.
if there is, it’s poorly advertised
does seem like a huge swing and a miss for lightning to only have unstable value units of account going over it
the market clearly wants something else, and has that, on other networks at large volumes
For instance, the euro is legal tender in the eurozone. I can pay a tax bill or a bank loan with 10cent coins, and technically they have to accept that (though note that some countries do have special rules around whether small change is legal tender). However, a merchant is not required to take my wheelbarrow full of 10cent coins in exchange for goods and services; no debt exists before the purchase.
El Salvador was forcing the merchant to take the wheelbarrow.
But why is it necessary for it to survive? Like, I think even cryptocurrency true believers would acknowledge that there are better cryptocurrencies out there if you want a currency; bitcoin seems at this point of largely symbolic value.
I know that's what hardcore Bitcoiners have typically pushed for, but I personally disagree. To me, the most interesting thing about Bitcoin is its predictable and unmanipulatable money supply. The payment network is nice though because it can let you easily and permissionlessly take your Bitcoin wherever you want. Fees are actually not that exorbitant, certainly cheaper than SWIFT transfers. The current average transaction fee is around 1 USD and the first confirmation, which is sufficient for most kind of transactions, takes 10 minutes on average.
> Whereas USD is ultimately bearer tokens. Yes, those tokens can be optimized away as entries on a balance sheet when held by a large entity. But USD is a token system, not a payment network. Bitcoin is the opposite.
USD cash is (paper bills and coins), not digital USD. Bitcoin is a digital bearer token system. As a side note, it wouldn't be very hard to replicate a cash system for Bitcoin, if there was an entity responsible for emitting and redeeming cash for digital Bitcoin (a bit like the US Mint but for Bitcoin).
I’m curious where the communities about this are, or are nowadays
Ergo, the exact reason it’s a horrible currency for the system.
It’s really just the infamous libertarian inability to consider the needs of the system as separate but still important and sometimes in tension with the desires of the individual.
It’s just a particularly goofy one because a deflationary currency very obviously cannot support an economy.
That largely hasn’t happened; transaction fees have dropped as it became a store of value and moved less frequently (and increasingly moved off-chain in tradfi rails).
For money to work as a convenient way for people or companies to settle transactions, long-term inflation or deflation does not matter. If A wants cement and has mangoes, B wants pants and has mangoes and C wants mangoes and can do tooth fillings they just need something universally accepted to convert what they have into. And, a bit later, buy what they want. Most money satisfy this, but usually people want more features.
For money to also be a store of value it should maintain its purchasing power. This allows an individual to, say, pay for an education of a child when the child grows up: I can save in today's money and be fairly confident that when the time comes to pay it will cover the (future) cost. This feature is what people tend to refer to as "digital gold" as gold generally maintains its purchasing power over very long times.
For money to enable governments to stimulate society in different ways, money should be deflationary. Easy long term store of value makes people less responsive to short-term government stimuli. Without deflationary money a government cannot print extra money when it overspends or if not enough players want to lend to that government.
The last two tend to cause eternal strife between individualists (who want small government that does not do things people did not explicitly ask for) and progressivists (who want to push the society along the path they see as the best one).
There are more features of money (highly recommend reading "Broken Money" by Lyn Alden)
Tokenized stocks are coming this year.
When you take out a mortgage on a house its partly because someone took cash they received and deposited it in the bank. If they kept the cash the bank would not have reserves to loan.
Alternatively, if transaction fees stay low, there might be very little incentive to secure the network with hash power and you could end up with fewer and fewer miners controlling the network and a 51% attack becomes quite feasible.
I'm really curious how this will play out over the next 100 years.
The incentive design of Bitcoin assumed that it would be used as cash, so that transaction fees could take over as the main source of revenue for the miners that secure the network. As a “store of value”, it doesn’t generate enough transaction fees to secure the network.