Ask the average North American to explain Bitcoin or decentralized finance and you’ll probably get a blank stare.
Not surprising.
Many benefits of decentralized finance are not well understood or valued by North Americans because of our stable currency and legal system.
Go a little further south into Central America, however, and a different story emerges.
In countries like El Salvador, where poverty, corruption and violence are embedded and the economy is volatile, Bitcoin has emerged as the perfect solution for the small Central American country beset with financial woes.
Years of entrenched corruption, currency debasement, hyperinflation, usury fees, theft and civil unrest are common histories of many Central American countries. But some countries like El Salvador are working to solve these problems.
And that’s where Bitcoin saves the day for many.
El Salvador’s Greatest Export Is…
Because of the poverty level in El Salvador, with most workers living on less than $1.25 per day, people are the country’s greatest export.
El Salvadorian workers are dispersed around the world earning wages in other currencies. Most workers leave their families and homeland to earn a better living and send money home to help their families.
24% of El Salvador’s gross domestic product is derived from remittances.
In many villages, these direct payments to loved ones are the economy.
But the fees to send home that money has proven costly.
Fees Take a Big Chunk From Wages
It is estimated that a staggering $400 million dollars in remittance fees are paid every year by El Salvadorian workers.
Consider what it takes to do an international wire transfer without a bank:
- The worker goes to a check cashing service which charges a percentage of payroll check value.
- Once cashed, the worker must use a transfer service such as Western Union which charges a $45 fee for the transfer.
- Days later when the transfer arrives, a family member must travel to a Western Union office to get the cash.
Over 70% of El Salvadorians are unbanked and have no access to financial services.
Conversely, over 70% of El Salvadorians have mobile phones.
Bitcoin Comes to the Rescue
In 2021, El Salvador made Bitcoin legal tender and convertible into US Dollars.
An overseas worker who is unbanked may still have to use a check cashing service. Many workers in the US simply go to Walmart to both cash their payroll checks and convert a portion into Bitcoin for remittance.
Once the Bitcoin is in the worker’s crypto-wallet, they have access anytime, anywhere and to anybody transfer value through a bureaucracy-free Bitcoin network in a trustless, permissionless and secure way.
The recipient typically receives the Bitcoin via a mobile app and in El Salvador may use the Bitcoin as legal tender for all good and services. The efficiencies for both the worker and their loved ones are meaningful. No more trips to the city to get money, no more exorbitant transfer fees, and poor exchange rates.
The Bonuses of Bitcoin
Bitcoin is the most primitive digital value in the new decentralized finance (DeFi) system.
It solves many entrenched problems for a whole country, like no more:
- corruption in exchange processes
- transfer fees
- dangerous trips to get cash
- debasement of savings or purchasing power
Bitcoin is the value foundation supporting many other transactions in proof of stake, smart contract systems. Decentralized finance proof of stake systems are developing quicker and more affordable ways to use Bitcoin and other valuable digital assets which we will discuss in future blog posts.
Decentralized Finance built on Proof of Stake such as Permissionless, Decentralized, Trustless (via Transparency), Transparent, Programmable and Censorship resistance are all powerful and amazing stuff to think about – stay tuned, more to come.
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