Bitcoin Economy: Village In El Salvador Uses BTC As Money

A village in El Salvador has become a bustling area of Bitcoin activity. Its residents are able to not just buy and sell Bitcoin, but also use it as a means of payment.

El Zonte, with the majority of its people unbanked, does not use cash, and instead, uses Bitcoin in every transaction, thanks to the Bitcoin Beach initiative by Michael Peterson, a California native settled in the village. The initiative aims to create a sustainable Bitcoin ecosystem.

The people of El Zonte can now use Bitcoin to pay for almost anything, from buying food and groceries to paying utility bills. Youth work programs employ young people to fix damaged water systems and repair roads in exchange for Bitcoin. Students who want to continue their high school and college education receive educational grants in Bitcoin. Those who are enrolled in the local school pay for their bus rides, lunch and snacks with Bitcoin, Forbes reported.

The current public health crisis due to COVID-19 has put many people out of jobs in the village, so direct Bitcoin transfers are facilitated to families most in need. Through the initiative, 600 families receive $35 every three weeks to help cover their basic needs in the household.

In every Bitcoin transaction, there is a fee. Because it could prove expensive to spend BTC on small purchases, the village uses the app “Wallet of Satoshi,” which facilitates transactions cheaply through the Lightning Network. The Lightning Network operates on top of the Bitcoin blockchain that collects the small transactions and lumps them together first before putting them on the "main" blockchain. In this way, large fees are avoided by each person as their transactions are grouped together before being broadcasted to the Bitcoin network.

The idea of a Bitcoin-first economy came to Peterson after he was approached by an anonymous person who made a Bitcoin donation to help El Zonte residents, most of whom could not even open a bank account because they don’t meet the requirements to do so.

The transition to a Bitcoin economy was not at first smooth, as the elders in the village found it difficult to understand it. So the team started teaching the youth, who picked Bitcoin up right away and started transacting. The Bitcoin Beach Initiative made every effort to ensure proper education and training were in place so the people understand the cryptocurrency well, Peterson said.

At the moment, the government of El Salvador has not interfered with the Bitcoin Beach project. Peterson believes President Nayib Bukele will support their efforts.