The Bankification of Bitcoin

Today, El Salvador inaugurated Bitcoin as an official currency for the South American country. Is Bitcoin ready for the job?

From the beginning, Bitcoin has set lofty expectations among crypto enthusiasts for the future of money. Coming online in the wake of the global financial crisis of 2008, the currency promised a peer-to-peer payment system controlled by the people, free from censorship and accessible by anyone with an Internet connection. 

More than a decade later, Jack Mallers, CEO of the Bitcoin payments startup Strike, employed this now-familiar—yet no less fervent—language when he revealed to an audience of thousands at the Bitcoin 2021 conference that Strike would be working in collaboration with the Salvadoran government to enable Bitcoin as a viable currency alternative to fiat. “We’re talking about Bitcoin for countries—and, in particular, the human freedom and financial inclusion that [it] brings,” he said, pacing across the stage. “[This is] one small step for Bitcoin, one giant leap for mankind.”

Later that week, in a Clubhouse hangout of over 20,000 listeners, Salvadoran president Nayib Bukele confirmed his administration’s intent to invest heavily in enabling Bitcoin payments in the country, outlining an ambitious plan for “every restaurant, every barber shop, every bank” to eventually be able to accept Bitcoin. The first step to this plan would take place the very next morning, when the legislative assembly of El Salvador passed the “Bitcoin law”, officially designating Bitcoin as legal tender in the country. Enacted on June 8, the law went into effect on September 7, giving El Salvador merely three months to realize Bukele’s vision.

So, is the future of money here?

In an industry infamous for its larger-than-life personalities and the brash claims they make (case in point, see: “crypto Twitter”), are Mallers and Bukele true visionaries? Could El Salvador really be the first to establish a peer-to-peer, censorship-resistant and widely accessible payment system? 

Unfortunately, it seems these hopes will be disappointed. Though details of El Salvador’s plans come September 7 are scarce, what we do know suggests that Bitcoin payments in the country will be processed primarily through a highly centralized and closely controlled system. At least for the moment, the dream of decentralized finance remains elusive.

Traditionally, financial systems have been defined by centralization. As individuals, we rely on institutions to do everything from store our savings to collect our taxes to validate our currency. During the Covid pandemic, the U.S. government coordinated the release of trillions of dollars in stimulus checks, each deposited directly to American taxpayers’ bank accounts. Centralization demonstrably provides a high degree of control—yet the potential abuse of this control, whether due to hacking or government corruption, remains a constant threat.