Bitcoin legal tender bill passes in early June…

The best available option for escaping tribute to the gangs, and the product of a conviction that bitcoin trends upward over the long run

In early June, El Salvador passed a bill adopting bitcoin as legal tender. The press, however, played down its significance, citing the fact that El Salvador is a small country that wields no influence in the international community. What received prominent coverage instead was that President Nayib Bukele's request to the World Bank for financing to build out the infrastructure needed to activate bitcoin as legal tender had been rejected, and that the International Monetary Fund (IMF) had voiced concerns that using bitcoin as legal tender could trigger a range of conflicts, including legal problems.

Early bitcoiners believed that bitcoin had been invented for the sake of societies where the majority of the population has no access to financial services, such as sub-Saharan Africa, Southeast Asia, and Latin America. In that sense, the adoption of bitcoin as legal tender by El Salvador, where 70 percent of adults have no bank account, can be called a historic triumph, coming 12 years after bitcoin's invention. Yet even bitcoiners tend to think that making a price-volatile bitcoin into legal tender is premature. El Salvador, however, finds itself in very particular circumstances. President Bukele's abrupt move needs to be understood in light of these special conditions.

Why adopt it as legal tender despite the price instability?

El Salvador is a society far from normal, the product of a long civil war followed by the rise of organized crime. The civil war was patched up 30 years ago, but the price of peace was a dysfunctional government. Enemies who had brutally hunted and killed one another found themselves working in the same government. Twenty percent of the police force was allotted to veterans of the right-wing military, and another 20 percent to former left-wing guerrillas. With the indelible residue of a long and cruel war still in place, achieving any common task was hard to expect from the outset.

While the government languished in impotence, it was the violent gangs that rapidly expanded their reach. Hardened in the back alleys and prisons of the United States and then deported to El Salvador, they flourished like predators turned loose on a plain with no natural enemies. MS-13 and Barrio 18 are the leading examples. Even in the American underworld — a mature ecosystem of multinational crime syndicates — the mafia is said to have been unwilling to cross paths with them, because they hack their opponents to pieces with a long blade called a machete.

The two major parties that had driven El Salvador into the vortex of civil war brought the gangs even into the electoral arena. Since it was the gangs that ruled the streets, this was to some extent unavoidable. If citizens from a gang's own territory crossed into a rival organization's turf and came back, the gang would treat it as espionage and kill them. Even if only one in ten is killed, the reach of the resulting terror is immense. To push the party they had allied with, the gangs were able to block outright any participation by citizens in their districts in the opposing party's campaign.

There were also cases in which a party cut a backroom deal with the gangs, took power, and then changed its stance and waged a war on crime. When that happened, a gang boss locked up in prison issued an order to halt bus service. A bus driver who defied the order was killed. Buses were even set on fire with passengers still aboard. The government pursued a peace agreement with the bosses behind the scenes. Though it was never a formal accord, the government moved the bosses to a more comfortable prison where they could communicate with the outside world at will. In return for the backroom deal, the gangs dramatically lowered the murder rate. The gangs learned the art of political bargaining, and whenever they wanted to extract something, they raised the murder rate to strike at the government.

As the statistic that 60,000 people are gang members in a country of 6 million suggests, the influence of the gangs has penetrated deep into society. Schools in particular are the seedbed where they find and harden new members. A child who joins a gang at a young age is treated differently by peers. Correspondingly, abused children from broken homes are more likely to join a gang in order to become an object of fear among their peers and so protect their self-esteem. No one can approach a girl a gang member has marked out. Because escaping is nearly impossible once you have joined, anyone entangled with a gang has only one option left: to flee to the United States.

To cross the border illegally, you need the help of specialists known as coyotes. About a third of the money paid at that point is kicked up to the gangs. It is a system in which people flee the country because the gangs torment them, and the gangs then extort part of the fee for that escape. Remittances sent home to families in El Salvador by those who have migrated to the United States exceed 20 percent of gross domestic product (GDP), and the gangs' claws reach here as well. A member planted in each village already knows which families have relatives who have crossed into the United States, and all he has to do is notify them of the tribute owed.

If bitcoin becomes legal tender, families in the United States can send money as bitcoin. President Bukele said that the roughly two million migrant workers and their families would be able to save on remittance fees. Even so, there is no escaping the gangs' relentless extortion. The gangs use the most primitive instrument of all — naming a specific target and threatening to kill — so they are not an adversary who can be outwitted by anything as clever as a tax-avoidance technique.

President Bukele accumulated political capital through mayoralties in the cities of the capital region. In his thirties, he is fluent in communicating on social network services (SNS) and likes to set off events that put him at the center of attention. He won enough popular support to break the two-party structure and be elected president, but because of COVID-19, economic growth entered a decline after his term began in 2019. Yet his approval ratings actually rose thanks to the drastic measures he took to rescue the population amid the COVID-19 paralysis. He responds head-on even to press reports that he cut a backroom deal with the gangs to lower the murder rate — for instance, by circulating photographs of imprisoned gang members stacked on top of one another, stripped naked. At a time when the whole world was sensitive to physical contact because of the COVID-19 pandemic, media around the globe were appalled by those photos. Bitcoin as legal tender, too, may be a political ploy to divert attention at a moment when the real economic indicators are failing to keep up with the public's expectations. Thanks to it, he has at least succeeded in drawing the attention not only of his own country but of the world's media.

A difficult gamble resting on a conviction in the upward trend

However political the event may be, it would have been a hard gamble to take unless the president himself were convinced that bitcoin trends upward over the long run. If the bitcoin left on your mobile phone after you spend some of it rises in price, you come to expect that your wealth may be greater tomorrow than it is today. If the trend is upward, that is what one will experience on average. A small positive stimulus with a low threshold, easily obtained, may be a decisive prescription for El Salvador's young people. What the president is after in the short term may be to lay out before their eyes — as a visual event they can even brag about on social media — the otherwise stale virtue of enduring today for the sake of a better value tomorrow.

Contrary to what people commonly assume, a hard line consisting solely of measures like the war on crime is not the source of his popularity. During his time as mayor, he delivered a message to young people: invest today for the sake of the future. He gave scholarships to those who achieved a certain score, or created projects resembling public jobs so that young people could complete a set task each day and become intoxicated with a sense of accomplishment. This was because he diagnosed the root cause of schoolchildren joining the gangs as the absence of hope for the future.

On top of that, he is a politician who understands better than anyone that, in place of the lurid deviance the gangs offer, what is needed is a stimulus that helps the future while being exciting right now. The idea is that even a short-term sense of achievement will, if it ultimately turns young people's gaze toward the future, reduce the number of youths drawn into the gangs. He even gave the party he led in founding outside the two-party bloc a name that captures this unconventional thinking: New Ideas (Nuevas Ideas).

What the young men who serve as the gangs' lowest-level foot soldiers and habitually commit violence have in common is that they do not think about the future. Because they believe they have no future, they kill easily and, without a second thought, accept the risk of being killed themselves. For El Salvador's youth to be swept up in the investment fever for bitcoin and cryptocurrency, as Korea's youth have been, may mean something very different from what it means in the Korean context. In Korea it may be read as get-rich-quick opportunism, but for El Salvador's young people it could become an occasion to cultivate the capacity to imagine a better future through the thrill of investing, instead of through drugs and violence.

Because bitcoin will trend upward over the long run, I expect President Bukele's experiment to yield positive effects among the average young person as well.

Oh Tae-min, author of "Bitcoin Was Strong" and "The Genealogy of Bitcoin Wisdom"