On "Carpe Consensus," hosts Ben Schiller and Danny Nelson take a look at bitcoin adoption alongside Jonathin Martin, bitcoiner and graduate student at The Wharton School. Martin discusses the nature of adoption – by who, in what parts of the country and for what purposes – and explores the complexities of attempting to imbed a new digital currency in a nation.

Check out Jonathan's latest report from El Salvador, "Westerners See El Salvador as a Template for a New Monetary System."

If you liked this episode, listen to Jonathan Martin's previous appearance on "Carpe Consensus" on Spotify or Apple.

“Carpe Consensus” is executive produced by Jared Schwartz and produced and edited by Eleanor Pahl.

Audio Transcript: This transcript has not been edited and may contain errors.

BEN SCHILLER:

Hello, and welcome to "Carpe Consensus." This is a podcast from the CoinDesk Podcast Network and I am Ben Schiller. I'm the features and opinion editor here at CoinDesk and joining me today is Danny Nelson, he is a reporter here. Hello, you over the FTX trial yet?

DANNY NELSON:

Yes. Now more than a week out, I've gotten through most of my inbox. Everything was deleted, nothing was read. And I'm ready to return to civilian life.

BEN SCHILLER:

Good. So if you send Danny an email, just know this, he won't actually read it. So don't bother with that. And are you caught up with sleep as well, you were quite sleep deprived last week.

DANNY NELSON:

Oh, I have getting at least eight hours at night, maybe even more. It's very unnatural for me at this point.

BEN SCHILLER:

Well, you're still a growing boy. So you need to get your sleep.

DANNY NELSON:

Exactly.

BEN SCHILLER:

Good. So we're going to discuss the matter of El Salvador today. That's obviously the first country in the world to accept bitcoin as legal tender and we are joined by Jonathan Martin. He is a graduate student at the Wharton School at the University of Pennsylvania. And he spent a good few weeks and months down there in El Salvador, looking at the experiment from the ground. And we want to check in with him about his takeaways from experience and see what has been learned from from down there. So Jonathan, welcome to the show.

JONATHAN MARTIN:

Thanks so much for having me.

BEN SCHILLER:

So just take us to the beginning. I mean, why did you want to go to El Salvador in the first place?

JONATHAN MARTIN:

Yeah, I am a passionate bitcoiner. And I had this question in my mind: Outside of people who have read the bitcoin standard, or who are have a low time preference for their money, are investing for years or decades in the currency hoping that it goes up in value -- do people actually care about it? Your average person doesn't have a background in fiscal or monetary policy, isn't a business school student, isn't a bitcoiner. I was kind of testing this thesis like, is adoption actually happening on the ground? And is the story being told on Twitter by people promoting some of the policies of Nayib Bukele, is it true? For me it was it was a fun experience immersing myself in the culture in El Salvador. They're very kind, welcoming people. And the short answer is, adoption is still very much in its infancy.

BEN SCHILLER:

So we want to explore that that kind of question here. I mean, is there kind of a mismatch or a disconnect between the kind of Western perception of what is happening there, or what we want it to happen there, and what is actually going on in the ground? And do you think that that thesis is broadly true? I mean, has the bitcoin community sort of imagined something is happening in El Salvador that's maybe not happening? Just talk about that kind of mismatch in perception between the local view of it and the outside view of it.

JONATHAN MARTIN:

Yeah, you know, a big part of bitcoin adoption is President Bukele trying to rebrand the country, right? El Salvador, just talking to some of my classmates here at Wharton when I told them I was going down to the country, they're all like, 'Oh, is it safe?' It's a safe place to go. And, you know, I think one of the most interesting conversations I had was with John Dennehy who started Mi Primer Bitcoin, my first bitcoin, he arrived soon after the law was enacted in 2021, September 2021. And he said adoption was close to zero when he got there, like no one was using bitcoin at all. And now you do see some people here and there trying to implement bitcoin outside of those objects. It's a slow process. And I think it's still going to be decade plus before more people are adopting the currency. And the key to adoption really is education. People understanding what are the benefits of investing in a deflationary currency, something that will go up in value over time versus, you know, fiat that loses its purchasing power over time. Your average person that's hand to mouth, I think something like 70% of El Salvador is unbanked. To them, it's just, 'Can I put food on the table? Can I eat tonight? Can I pay my rent? Can I put gas in my motorcycle?' And for that crowd, I think it still will be a while until they care. For me, it was very interesting to see, when I was successful and using bitcoin at different stores, both in San Salvador and on the beach. It tended to skew younger, tended to be people that teenagers or people in their early 20s that are using bitcoin. So to me, that's a bullish signal. And sure the majority of wealth may be held with people over the age of 65. But over time, as these younger people are digital natives see the benefits of bitcoin. I think that's really what's going to spur adoption in the long run.

DANNY NELSON:

How large is that community of expats? Maybe you'd call them of people who are not from El Salvador but have moved to El Salvador with ideas for companies intentions of building up the infrastructure that would support a bitcoin economy?

JONATHAN MARTIN:

Yeah, I attended a number of bitcoin events. There's groups both in telegram and WhatsApp they can get plugged into, and especially the bitcoin embassy, which is this house in San Salvador, where they help people onboard to get a El Salvador passport, on residency documents tried to help kind of facilitate the movement of Westerners from their home countries into the South American country. So I think that at present, it's a pretty small community, a couple 100 people, mostly on the beach and in the capital city. But towns like Berlin in El Salvador also have growing community. So I think, with time, more people, passionate bitcoiners globally will see it as a destination city, destination country. At present, it's a small community. And I think a lot of people tended to have sort of disagreements with their own government policies. There's a number of Canadians who were caught up in the trucker situation when truckers were being forced to take the vaccine, and have their bank accounts frozen decided to leave their country. So there's a lot of people have sort of political disagreements. And from that lens, it definitely skewed towards people who are kind of more in the margins. Over time, I think as bitcoin integrates more into the economy, and the economy becomes increasingly bitcoin backed, it'll become increasingly interesting to foreign investors and foreign entrepreneurs move down there, if the bitcoin thesis is proven to be true, and it does become this alternative reserve asset, or potentially a global reserve currency with time.

BEN SCHILLER:

So just take us back to the program that Bukele has instituted there. So as well as the law, there's also a distribution of wallets to citizens and an airdrop of bitcoin, to those wallets. I mean, how is that program going? And is it leading to people accessing their wallets and spending their bitcoin?

JONATHAN MARTIN:

Yeah, you know, your average Salvadoran doesn't care. That's my frank assessment. In talking to the CEO of Ditto Banks, this guy named Guillermo Contreras, he said when the wallet program was rolled out, you saw the spike in activity, right, all this can be tracked on-chain. But most of it was people going straight to the first Chivo ATM they could find it taking their $30 in bitcoin and transferring it into fiat. So people need to be slowly integrated into the bitcoin network. And that's kind of Guillermo's whole thrust was trying to find ways to create using, his terminology, a 'Trojan horse,' where people are first given services they don't have, like access to ATMs, a way to save on their phone. And over time, they can certainly be educated on the benefits of saving in Satoshis versus in fiat. So it's gonna be a slow process, I think, most likely way that you'd see hyperbaric organization or more rapid adoption would be increasing weakness in the U.S. dollar. But that's something that it's hard to kind of predict or or, you know, figure out, what's the timeframe when these things will happen. So I think education is the key. John Dennehy has a program with the Ministry of Education to give both teachers and students the same education that he provides with his bitcoin diploma. He has a 10 week program where when you graduate, you get a diploma, which he views as something that's going to be extremely valuable on people's resumes as the bitcoin economy continues to grow. And he's implementing the same sort of thing at schools. Over time, young people will lead to adoption.

BEN SCHILLER:

I mean, this sort of narrative around hard money that bitcoin is a better hedge against inflation than fiat currency. I mean, isn't that sort of somewhat undercut by what we've seen in the bitcoin price as the law was being implemented? That was falling. Doesn't that sort of dissuade people from holding on to their bitcoin, if it's not really hard money in terms of the market price?

JONATHAN MARTIN:

Absolutely. And, you know, I would say myself, as a bitcoin owner, I was always hesitant to use Satoshis, right? I'm someone that thinks that it's going to continue to go up in value and astronomical highs within 15 years or so. But you know, your average person, if you're just looking at the price of bitcoin, of the volatility inherent to the asset, you might ask yourself, why do I want to keep this right when this is something that when the law was introduced, dropped precipitously in value soon after? So it's a great point. I think in the near term, people that are literally hand to mouth, it doesn't really provide a benefit necessarily at present, right. I think we need bitcoin to stop acting like an emerging market currency. You know, it needs to mature, it needs to grow. And this is something that major proponents like Michael Saylor talked about, hopefully this bull market and this cycle is when it grows up and becomes an asset that Wall Street firms invest in. And I think that for your average Salvadoran, they needed a way to save outside of just holding dollar bills. Very few people have access to the banking system. So educating people on the benefits of like, you know, instead of using your paycheck and keeping that money, and knowing the long term that's gonna go up in value, that change in mindset is is more important, I think, than actually teaching people on what is inherent to bitcoin in the bitcoin network. It's a change in mindset of becoming a saver as opposed to someone that is just spending money, that money that they have, as soon as they get it, I think that's really going to be central to adoption. It's more so about financial literacy than it is about bitcoin literacy.

DANNY NELSON:

So Ben, and I think you as well, we've all been in this space, well in the bitcoin space for a while, developing our own philosophies around it. For myself, I think alongside just using bitcoin on the internet and experiencing, let's just say, the power of permissionless money. And then I linked that up with reading the white paper, and I start to just have understand this vision of peer-to-peer electronic cash. How much of a philosophy is being developed in El Salvador that you could notice? Like, are people aware of the philosophical underpinnings of bitcoin? Or is it even relevant to the conversation? Like, do we need a purist point of view for this?

JONATHAN MARTIN:

The short answer is no. People know very little about bitcoin outside of the fact that this new magical internet money. Very few, I think, fully appreciate the problem that bitcoin is solving. Right? You know why it was introduced in 2009. So that, honestly, I didn't know how important is for people to fully understand how the network operates. And the place that was coming from originally from the creator, or creators of bitcoin, Satoshi Nakamoto. I think more so what's important is it needs to work, it needs to be reliable. And there needs to be an ecosystem, both of vendors and have people spend their money, the consumers. That's fluid, right? Because at present, if you walk into Super Selectos, which is a supermarket chain in El Salvador, their point of sale devices don't have bitcoin integrations, right? So the ecosystem is still very small. So it's still very much in the margins, where it's only kind of passionate bitcoiners. Now, a few vendors are using bitcoin, but people still very much prefer dollars, right, especially the major chains. So I think it's going to take time, you know, the story is still being written. I think it's exited the stage of being an experiment. Now, it's sort of we've gone from being an infant to being a toddler in El Salvador, in terms of bitcoin adoption. So it's still a question of, at scale, can an economy function with an asset backing it that's, that can be extremely volatile, right, that can decrease 80% in value in a matter of months. And that is still something that I think the story is still going to unfold.

BEN SCHILLER:

It sounds like there was maybe less adoption and maybe less usage than you thought there might have been. But were there cases during your travels there that you said, 'Well, this is surprising. People are using it. There is a more positive story here.' I mean, can you point to any transactions or incidents like that?

JONATHAN MARTIN:

There was a woman who I befriended, she goes by Sandy Waves on Twitter, and she lives on Bitcoin Beach. And she described how she was introduced to the asset by an expat who was using a bitcoin ATM. And she was like, 'Hey, what is this? Why are people using this?' And, you know, she does not have a background in monetary policy or, you know, but she understands the network extremely deeply, right as a deep understanding of the benefits of having a hard money versus a money that is slowly losing its purchasing power, or rapidly lose losing its purchasing power, like fiat. And I think once you start having people that don't necessarily have that sort of evangelism or more formal education understanding the importance of the network, I think that's when it's sort of a sign that the speed of adoption is increasing, right. And she now serves as one of the kind of the main points of contact for helping expats rental house, get their Salvadoran residency documents, etc. So, you know, to answer your question, I think that Bitcoin Beach and El Tunco you find more expats there they do in San Salvador, right? There tend to be a larger community there. That's where you see more of sort of this circular bitcoin ecosystem developing, right? Versus here and there in San Salvador, you see people using bitcoin, but it's pretty prevalent some of these other places.

DANNY NELSON:

It looks like we might be coming out of crypto winter, I don't know with discussion about the ETF heating up in a lot of other things. Bitcoin's, rallying a lot of other tokens which I'm sure you don't care about are rallying, but to talk about the effect that the prolonged winter may have had, do you think that that turned off people to bitcoin? And how can the coming bull run, if there is one, change that? Are opinions already set in stone?

JONATHAN MARTIN:

Bitcoin has been somewhat politicized in El Salvador, some people refer to it as 'Bukele's Money.' And I think what you're touching upon, you know that he was he's buying sort of near the top. I think they're still in the red on their nation state bitcoin investment. I think this next bull run is when it could become much more widespread, right? People who aren't bitcoiners get excited about it when price is going up. So when number go up, I think that that's can be a catalyst for more of your average Salvadorans to say, 'Hey, maybe this is something that, you know, I should invest in, something that I may want to add to my portfolio.' Speaking more about the people that have funds or, you know, have bank accounts, right. And honestly, one of the biggest hurdles to adoption is the banking system itself. I've talked to some individuals that work in the banking sector, and they indicated that there's a lot of interest among bankers to sell bitcoin OTC. But there's relationships with corresponding banks in the United States on Wall Street, which is kind of hindered or limited, because the banks in the U.S. have been hesitant. It's unclear how long it will take until it's accepted in the U.S. And in a lot of ways when Wall Street catches a cold, the rest of the world sneezes. And 25% of banking revenues and El Salvador remittances, right? So if they were to start selling bitcoin OTC, and damage the relationships, you know, with the U.S., that would be a worst case scenario. So it's led to a lot of hesitation selling bitcoin OTC in El Salvador. But I think once it's more integrated with the economy, once it's easier to buy bitcoin, these products are sold in parallel, there's point of sale devices that debit credit, and also Lightning integrations, just making it easier for the ecosystem lubricated ecosystem. That's when we see more adoption. So at present, there's still some hurdles in place, but the train is moving, you can see the process unfolding. It'll just still probably be a matter of time until bitcoin is more commonplace used by your average citizen.

BEN SCHILLER:

So you mentioned that bitcoin has been politicized, that it's Bukele's money. Does that imply that if Bukele was to lose power, bitcoin might become less important in the economy?

JONATHAN MARTIN:

That's a major question I still have. People that I talk to think that he's easily gonna win the 2024 election and be reelected. He's the most popular leader in South America. His security policies, it's somewhat complicated. Certainly questions about human rights. And it's something that people tend to tiptoe around. It's, you know, the society in El Salvador is definitely bifurcated between the haves and have nots, much more so than the U.S. It's very palpable. If Bukele were to lose it, I don't know if that would help the trajectory the country is currently on with regards to bitcoin, because it is decentralized, right, you know, it's circumvents authorities. That's the whole point of the network, right, the supernatural currency that has this ability to be permissionless and censorship resistant. So the ecosystem is growing, even if they were to outlaw bitcoin, what's keeping people from running a node in their house or having bitcoin on their cell phone? I think the train has already left the station. And as number go up, people get more excited about it. So even if Bukele were not to be reelected, I think El Salvador will continue on trajectory, it just wouldn't be legal tender, it'd be kind of more in the margins than it is currently.

BEN SCHILLER:

I mean, I do find it a little personally strange that we are reliant on a nation state to further bitcoin adoption, just like we're dependent on, you know, mainstream financial institutions to push bitcoin as well. I mean, this is sort of an anathema to the whole idea of bitcoin in the first place, as you say, It's decentralized, and it's supposed to be a ground-up revolution. So it's a simple but strange. I mean, are there other countries in the wings that are looking at El Salvador as a possible model for adopting bitcoin? Do you see any talk of that these days? It seems like there was a conversation around that at a time when they instituted the law, but it doesn't seem like many nation states are now gearing up to follow this course.

JONATHAN MARTIN:

It's a great question. I think it could spread in Central America in Latin America, to other countries. That's one of the goals of Mi Primer Bitcoin is to expand the program from just Salvadoran high schools, to high schools all around Latin America, and grow the ecosystem from the ground up by educating the youth. I heard a really interesting story from an expat from France, who had some other friends who went to the Central African Republic, you know, when they announced that they were adopting bitcoin. And there's some real questions about the legitimacy of that legislation and whether it's just a nation state level pump and dump scheme, right. So in this upcoming bull run, bitcoin is now legal tender, right? It's not just this magical internet money. You know that nerds like myself use online right? Now, you can actually go in a store and do things within El Salvador, even if it's not commonplace yet. And that leads to additional complexity when you have this next wave of fraud, which is inevitable in my mind when it comes to bitcoin, when it's actually a legal tender. So it's gonna be interesting to see how it unfolds over this next, you know, cycle after the halving and April 2024. But the bitcoin story is extremely fascinating in the sense that in 14 years, we went from bitcoin being used, you know, its first use case being for illicit goods on Silk Road, right to now we have Larry Fink going on TV, calling it a monetary asset of global importance, and calling it a flight to safety. So I think with time, Bukele will be proven right. And sure, I may be biased as a bitcoiner. But El Salvador is a tiny economy, you know, their GDP is like 29 billion, Apple's revenues 81 billion, right. So it's inconsequential in the global scene. But with time, I think I'll stop there will be a template for global adoption.

DANNY NELSON:

Well Jonathan, thank you so much for joining us. Always a pleasure to talk to you and hear the latest on what's happening in El Salvador and with your own work on the bitcoin subject.

JONATHAN MARTIN:

Thank you very much for having me.

BEN SCHILLER:

Thank you, Jonathan. So Jonathan Martin, he's a graduate student at the Wharton School. He spent a long summer in El Salvador checking out the adoption scene for bitcoin there, and we've been publishing his pieces on coindesk.com and we will link to them in the show notes. And thank you very much for listening to "Carpe Consensus," and we'll see you next time. Bye.