Somehow, someway we need to transition away from our unsustainable debt-based fiat financial system. The problem is, how can we break out of our TradFi habits, and incentivize people to make the leap?
For example, would making Bitcoin legal tender stimulate its usage? El Salvador was the first country to experiment with this idea back in 2021, and now we have some results.
El Salvador's Bitcoin Experiment
From personal experience, I can say that Bitcoin adoption in El Salvador has been rather lackluster. Although sometimes smooth, requesting to pay with Bitcoin can often cause a small ordeal, where the employees are searching for the right device, possibly having to charge it, and looking up forgotten passwords.
It's not the workers' fault by any means. The problem is, most locals and foreigners habitually pay by plastic card, despite being in Bitcoin country. I have it on good authority that even some so-called Bitcoiners don't request to pay with Bitcoin, and use cash instead.
We surely can't blame the locals for not using it. First of all, getting Bitcoin from an exchange is a challenge here. Now imagine being non-technical and trying to transfer that Bitcoin to your own self-custody wallet. And once that's done, you then need to move it to the Lightning Network.
Bitcoin Challenges
Moreover, self-custody lightning wallets require three block confirmations before the funds are spendable. Sometimes a Bitcoin confirmation only takes a few seconds, but it can also take over an hour. When you need to make a payment within a few minutes, waiting an hour or two for your funds is not a pleasant experience.
The reality is most people in El Salvador, and internationally for that matter, see Bitcoin as an investment, rather than a currency. The majority see it as something to be kept on an exchange, or in an ETF, while waiting for the price to increase thanks to lower interest rates and quantitative easing (money printing).
The ultimate question here is, will the people ever start using crypto as money, instead of just seeing it as a means to obtain more fiat currency?
How could we make the process of using cryptocurrency easier, while also preserving the important fundamentals of Bitcoin like predictable supply, fair distribution, and permissionless payments?
SoFi And DePIN Tokens
There already exist cryptocurrencies you can accumulate without having to buy them on an exchange, or setup expensive mining equipment.
For example, there are tokens you can earn for participating in social networks (SoFi), as well for providing cellular coverage, solar energy, and mapping data. These tokens power decentralized physical infrastructure networks (DePIN), which are a relatively new concept compared to Bitcoin.
One notable benefit of SoFi and DePIN tokens is that they can be used to directly pay for services. Imagine earning these tokens for your contributions to the network, trading them freely among your family, friends, and business partners, and then also using them to pay your bills.
Although the concept is interesting, there are still several problems with it.
DePIN Token Flaws
A major problem with most DePIN tokens is their uneven initial allocation. Unlike Bitcoin, which was distributed fairly to those who mined coins from the beginning, a large chunk of DePIN token supplies are often allocated to founders, venture capitalists (VCs) and other investors from the outset.
This uneven supply can have a negative impact on governance, token price, and community initiative. For example, If the VCs and founders own 50% of the token supply, the community will expect them to grow the network, rather than take personal initiative. On the other hand, if each community member were to own a portion of the supply proportional to their efforts, they would be more motivated to take action.
Another downside is that oftentimes these DePIN tokens aren't permissionless. Meaning, certain people have the ability to upgrade a smart contract or execute their "freeze authority" to suspend a specific account. In the spirit of censorship-resistance, the team isn't likely to do that voluntarily, but what if they were compelled to by force? This issue can be avoided if the token is native to its own decentralized blockchain, like Akash for example.
Until next time...
In any case, the idea of cryptocurrencies that can be both earned and used for specific services is certainly an interesting one, and could motivate more so-called "normies" to participate in crypto.
So far, Bitcoin legal tender laws have not increased crypto adoption that much. Figuring out how to use exchanges, withdraw to self-custody wallets, and transfer coins to layer 2 networks is a challenge, especially for non-technical people.
SoFi and DePIN tokens have the potential to create circular economies, where tokens are earned for providing a service, traded amongst the people, and used to pay for those services directly. While many DePIN tokens lack the fundamentals that Bitcoin offers, design decisions could be made to make them more equally distributed and censorship-resistant.
If you learned something new from this article, be sure to check out my other posts on crypto and finance here on the Hive blockchain. You can also follow me on InLeo for more frequent updates.
Further Reading
- More Posts About El Salvador
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