On the coast of El Salvador, lies a small rustic beach town of 3,000 locals, known as El Zonte. A surfer’s paradise, the village is frequented by those seeking an authentic and rustic vibe. Like so many Central-American beach towns, the families of El Zonte were hit hard by the COVID-19 pandemic. While other tourist hot-spots continue to struggle as borders remain closed, the people of El Zonte have forged their own path forward, thanks to its newly formed Bitcoin economy.
The Secret Bitcoin Donation
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Sometime in early 2019, an anonymous donor with a fondness for El Zonte discovered a forgotten thumb drive loaded with Bitcoin. He had originally purchased the asset when it was priced at around 5-10 cents, and put it aside for several years. Upon realizing what his holdings were now worth, the donor spent several days attempting to unlock his wallet. After many futile attempts, the donor was finally able to remember his passphrase and retrieve the funds. A believer in using blockchain technology to boost inclusion for the unbanked, he decided to seize this stroke of luck and put the funds to good use by allocating a multi-year six figure donation to El Zonte.
After meeting with several philanthropies in the region, all of which wanted to take the funds and convert them into fiat to cover the community’s immediate needs, the donor partnered with Michael Peterson, a San-Diego native that spends up to 9 months of the year volunteering in El Zonte. Michael was given the opportunity to administer the Bitcoin on one condition – he would not cash it out. Beneficiaries of the digital currency had to learn how to use the Bitcoin itself, creating a Bitcoin economy. This was the birth of the Bitcoin Beach initiative.
Bitcoin Beach set out to create a sustainable Bitcoin ecosystem, where the majority of residents are unbanked and the local businesses don’t meet the requirements that would enable them to accept credit cards.
Michael Peterson developed a proposal for a Bitcoin circular economy which factored in remittances, tourism, public service and small business. Parallel to El Zonte, Bitcoin was also injected into another beach community 3 hours away, Punta Mango. The goal is for Bitcoin adoption to grow in different communities and fill the gaps in over time.
A popular criticism of Bitcoin is the high fees and slow processing speed of the network. Using Bitcoin can be impractical when purchasing a cup of coffee, for example. The Bitcoin Beach initiative addressed this challenge head on.
“Originally, it didn’t make sense for 25 cent transactions, but did for 5 dollars. But when the transaction costs ramped up again, we switched over to the Lightning Network,” says Michael Peterson, Founder of Bitcoin Beach.
The Lightning Network is a second layer payment protocol that operates on top of the Bitcoin network, and enables instantaneous and affordable transactions. The group chose the Australian-based Wallet of Satoshi as its wallet of choice, as it works for both on-chain and off-chain transactions.
What can you buy with Bitcoin in El Zonte?
Currently, you can use the Lightning Network to buy anything from tacos, to hardware supplies to paying your utility bill.
Youth Work Programs: From cleaning the El Zonte River from trash, to fixing the water system damaged by a recent storm, to road repairs and trash removal, the youth of El Zonte contribute to their community in exchange for Bitcoin deposited to their wallets.
Educational Grants: Bitcoin Beach provides educational grants in Bitcoin to students who decide to continue their education to high school and university.
Transportation to School: One of the challenges in El Zonte is that its local school ends after 9th grade. In order to continue their education, students have to commute to a high school in another town. Bitcoin Beach provides students with funds to pay for the bus and to even buy snacks in schools.
Universal Cash Transfers: As borders remain closed and unemployment at an all time high, the COVID-19 pandemic pushed the initiative to create direct Bitcoin transfers to families most in need. Transfers of $35/family are made to 600 families every 3 weeks, which covers 50% of basic needs per household.
Food and Basic Needs: As stores and business became desperate for income during the pandemic, they started to accept Bitcoin. Today, you can use Bitcoin at several grocery stores, three restaurants, barber shop, nail salon and two hardware stores.
Community Construction Projects: Investing in long term infrastructure, Bitcoin Beach designed a system to pay contractors, builders and suppliers for construction projects in Bitcoin.
Utilities: The local water department will accept payments in Bitcoin, with the electric department soon to follow.
It’s All About Education
“As we injected Bitcoin into the community, we also taught local businesses how to accept it and helped educate them on the advantages and drawbacks of accepting Bitcoin…There was a lot of resistance among the adults, [it was] too technical. So we moved on to youth, they picked it up right away. The key is to get them to start transacting right away, then they want to learn more about it, the security of it, and how it works,” described Michael Peterson.
Bitcoin training stations in El Zonte. Residents scan a QR code to receive their deposits.
When COVID-19 hit, the community became more open to learning about Bitcoin out of necessity. To maintain social distancing, Bitcoin Beach set up a Facebook group with ‘how-to’ videos to further its education efforts.
One local that has been working closely with Michael on facilitating the Bitcoin economy is Jorge Valenzuela. Jorge has focused on local youth philanthropy initiatives for several years and oversees all training funded by the initiative, as well as the universal cash transfers during COVID-19.
“It’s great to see youth excited and dreaming about their futures in El Salvador and seeing a path forward here, instead of thinking they need to go to the U.S. They are able to work, help support their families, and go to University…Bitcoin has helped me understand what money really is and has given the resources to impact the lives around me,” says Jorge Valenzuela.
Another local volunteering with the initiative is Roman “Chimbera” Centeno, who after living in Italy for several years, came back to his hometown to find his community using Bitcoin:
“It is amazing what is happening here in El Zonte. We are preparing the kids of the future. They are used to it now – they can check their money on their cell phone, they are excited to save. This financial education is important. We never got that opportunity, and it’s incredible the opportunities children have now. It makes them believe that there is a future in El Salvador. That they don’t have to leave and go somewhere else to succeed…Our kids start dreaming again. They have time to be kids, to swim and to play. Bitcoin gives them freedom. ”
Bitcoin is positioned to disrupt the remittances industry in El Salvador, estimated at about $5 billion annually. Most families in towns like El Zonte do not have bank accounts, and rely on services such as Western Union
WU , which take 5-10% in fees. The closest Western Union is approximately one hour by bus, requiring the recipient of the cash transfer to take the bus back with cash on hand, creating a safety issue.
Blockchain Beach is testing out a new product, the Strike app, which also runs on the Lighting Network, and connects to the recipient’s Bitcoin Wallet and the sender’s bank account, making a transaction from the U.S. to El Salvador fast and cost-effective.
El Zonte also recently got their first Bitcoin ATM powered by Athena Bitcoin. Notably, the town still does not have a regular cash ATM.
So far, the project has not seen any intervention from the government, but the founder hopes to engage the authorities to help and to promote regulatory clarity.
“The president of El Salvador is a big proponent of new technology and we believe he will support the efforts,” says Michael Peterson.
At the time of writing, the price of Bitcoin is $9226.56.