El Salvador and Bitcoin: transparency and monetary sovereignty

Key facts:
  • By self-custodying its bitcoin, El Salvador avoids the risk of freezing and censorship.

  • Anyone can track bitcoins from El Salvador.

Yesterday Nayib Bukele published on X (Twitter) an address that stores “a large portion” of the bitcoin belonging to El Salvador. These almost 6,000 BTC were transferred to a cold wallet that will be kept in a physical safe in Salvadoran territory. This move, revealed in a simple tweet, as if it were a trivial action, is a significant demonstration of transparency and monetary sovereignty.

By presenting one of your Bitcoin addresses to the digital agora, El Salvador becomes the first State in the world to allow a real-time audit of its assets. Any person, from anywhere in the world, can know the movements of funds that are made from that wallet, and investigate their nature and the connections with the entities with whom those movements are made.

Of course, until proof of ownership of those funds is presented (signing a transaction with some demonstration that it belongs to El Salvador, for example), Bukele’s word must be trusted. However, this level of oversight is unprecedented in the world.

No other country on the planet can so reliably show its reserves. In all cases, we must trust the word of treasurers, auditors or central bankers, which has proven to be corruptible throughout history. This is not just the merit of El Salvador or Bukele. No other treasury asset, be it gold, dollars or anything else, allows this degree of traceability without requiring trust in third parties. With this action, El Salvador demonstrates a use case for Bitcoin that until now has been only theoretical: the fight against political corruption.

There was a time, especially between 2016 and 2019, when there was insistence on creating “blockchains” to combat corruption. This has also been defended as an argument in favor of the so-called Central Bank Digital Currencies (CBDC). But creating a private accounting network or with nodes controlled by a few insiders runs the same risk as traditional accounting, that is, “cooking the books”, rewriting accounting entries, modifying data without leaving a record of it.

The solution to this problem was present without the need to reinvent the wheel. Only Bitcoin offers the degree of neutrality, openness and decentralization necessary to guarantee a reliable ledger. to the extent that is needed for a State. Any misappropriation of the funds stored in that wallet will be visible to anyone and will be recorded as evidence forever.

It should be noted, as we said at the beginning, that the address exposed by Bukele only represents “a portion” of the bitcoins they maintain, therefore, only that portion is transparent. However, this represents a step to settle that debt that the president of El Salvador had with his people from the moment he began investing in Bitcoin.

But transparency is not the only highlight of this action. El Salvador is showing off its newly won monetary sovereignty by repatriating its funds in Bitcoin.

Since 2001, the legal tender of El Salvador became the US dollar. With this, it ceded its monetary sovereignty to the North American country, abdicating the authority to establish its own monetary policy, making its national currency obsolete, and resigning itself to receiving inflation exports from the prolific United States banknote printer.

Although no one can modify the monetary policy of Bitcoin, and by participating in the network you agree to submit to the consensus rules (for example, that there will be no more than 21 million BTC), when you have Bitcoin you own your money. Unlike money held in custody by a financial institution, with Bitcoin in self-custody no one can prevent a payment from being made or a transaction from being received (as shown by the massive donations that the El Salvador address is receiving), no one can freeze your money.

By directly holding your funds, El Salvador avoids the risk of freezing accounts, confiscations, censorship of transactions, or even total exclusion from the Western financial system; as has happened to sanctioned countries: Russia, Venezuela and Iran. The truth is that Bukele’s policies have earned him rejection in certain global political spheres, so keeping his bitcoin in the custody of third parties outside of his country was an unnecessary risk to take.

There are still many doubts about El Salvador’s Bitcoins: if that is a portion, how much do they really have? Who signs the transactions? What will happen to the keys once the Bukele administration ends? However, this does not cease to symbolize how El Salvador is once again making history thanks to Bitcoin.

By being pioneers with their reserve proofs, they give a lesson to the rest of the countries in the world about the degree of transparency that Bitcoin offers, that they do not need to create CBDC for a fairer financial system, that they do not need to create new cross-border payment systems to process their transactions, they do not need third parties to guard their money, and they do not have to ask other countries for permission to use it. Once again, Bitcoin is moving forward in its move towards re-architecting global money and finance.

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