We had very interesting news this week: El Salvador decided to approve the use of BTC as currency in the country. It is a small country but the implications related to this are huge. Right after this announcement, we hear that India is studying the possibility, and Texas (?). Yes, Texas.
How practical is this though?
What is the reason for El Salvador to do this? They say it is because it will be easier for people who are from El Salvador but live in the US, to transfer money to their families in El Salvador. Is that true? Does that make sense? I’m not so sure.
These are the points that made me think about this:
- What is the cost to transfer money from the US to El Salvador?
- Will people in El Salvador actually use BTC to buy stuff?
The cost to transfer money
Ok. We all know that it is expensive to send money from the US to El Salvador (or anywhere abroad) using the traditional means (banks, wire transfers, even Western Union). If someone sends US$1,000, they could have that turned into $800 once it gets to the bank account of the people there. At least, once the money is there, they can simply spend it since the US$ is accepted as currency there too.
We also have to analyze more modern ways to transfer money in todays world. There are companies that claim they will send money from one country to another at costs much lower than what the usual banks do. I took some time to study two of them:
- The first one has something like “market makers” in both countries. So they actually don’t transfer the money from one place to the other. They just match buyers and sellers on both sides of the deal and charge a service fee for doing that. Quite smart, I’d say. Does that work in situations where the flow of one currency from A to B is much higher than the flow from B to A (and I guess that would be the situation in El Salvador — US$ flowing into there and not out)? I’m sure they would find a way to make it work but that would have some cost.
- The second one got me surprised. They actually say, in there website, that they use Ripple’s infrastructure to move the money around! When you want to transfer money from the A to B, they get your US$ and convert them to XRP, then they send the XRP to B (and this is fast and cheap) where they convert it back to whatever currency is there. Why wouldn’t El Salvador use this solution instead of making BTC an official currency for the country? Let’s study this from a macro perspective: if I assume that the volume of US$ coming to El Salvador should be much bigger than the volume of US$ leaving the country, at some moment the banks will not have more currency for the XRP this company is bringing. Somebody will have to actually bring US$ over and that will have a cost and, since banks will never lose money so… who will pay for this?
Having written this, I realize and understand why it makes sense to have a crypto being used as currency in El Salvador. Another question though: why BTC? This brings me to my second point.
Will people actually use BTC to buy stuff in El Salvador?
I need to step back a little in order to present my ideas here. I have a strong opinion that people will not want to use BTC to buy stuff anywhere (not only in El Salvador). And why do I think like this?
Because even though BTC was created to be currency, it actually became an investment asset: and it’s price varies a lot from one day to the next! In my opinion, there are at least 3 reasons why people will not want to use BTC as currency:
BTC’s value varies a lot
A person goes to the supermarket to buy food and wants to pay using the BTC in his wallet. In the cashier, he has to pay US$100.00 or 0.0025 BTC (I rounded BTC to US$40,000 — to make the math easier). On the next day, everyones friend — Elon Musk — decides to say that BTC is good again and that Tesla will accept BTC as payment once more. What happens? BTC jumps to US$50,000. The simple mortal, that used 0.0025 BTC for his groceries is now very upset because if he waited one more day, he would have spent 0.002 BTC. That’s 20% less. But hey… this could have gone the other way too…
That’s the reason why I like the so called stable coins: USDT, USDC and others. At least they still represent US$1.00 (or anything very close to that). For the normal person, I think it would make much more sense if, instead of receiving BTC, he received USDT or USDC. So here is my question: why BTC?
BTC is slow
Let’s continue with that same person that went to the supermarket. When he gets to the cashier, how long will he wait there until the 0.0025 BTC are actually transferred from his wallet to the supermarket’s wallet? We know it will not be seconds. It will be more like minutes and, let’s be honest — if it took 1 minute to confirm the transaction, people would give up already and use the credit card or pay in cash. By the way, we know it takes much more than 1 minute to get a transaction confirmed on the BTC chain.
I’ve seen some opportunistic solutions jumping in very quickly to say they will use Lightning Network to solve this problem. Yeah right! And compromise decentralization?! Security?
I ask again: why BTC?
The real cost of using BTC
Now we just have to be reminded of how many times one will have to pay fees when using BTC to buy anything. Just for the sake of the example, let’s assume that the cost of any transaction in the BTC chain is US$ 20.00. Here is how I see things happening:
- Transaction 1: The person who works in the US buys US$1,000 worth of BTC. Pays US$20 in fees.
- Transaction 2: The person in the US transfers US$980 (what’s left) to his family in El Salvador. The transfer is the second transaction so — another US$20. Now we have US$960.
- Transaction 3: in the groceries: US$100 plus another US$20 in fees. We still have US$840.
- Transactions 4 to 10: let’s assume these are 7 transactions of US$100 each. Total cost: US$840. The money is gone.
- Total money actually used (not to pay fees): 8 transactions of US$100 each — US$800.
The US$1,000 we started with became US$800. But it would be the same if we had simply wired the money the traditional way!
It is actually worse! Because the more transactions you make, the more fees you pay.
One remark: the values I’m using here are probably incorrect and the world is not as bad as I’m painting it here. I used these numbers because they are round number and because they demonstrate what I want to show: the real cost of using bitcoin. Once again: why BTC?
BTC is a strong brand
I think this is the reason why. Look, the first time I took the time to study and understand bitcoin, I was amazed: “what an interesting solution”, “the guy who invented this was such a visionary”. Well, yes! I still think like that. But the more I think about it, the more I realize that BTC was really a pilot project, a proof-of-concept… that grew much bigger than anyone could ever imagine. Today, however, I don’t think it is practical. Sorry… I don’t even think it is good (but this is not why I’m writing this article).
Why not use stable coins instead?
I can’t write much about this because, truth be said, stable coins are backed by the US$ and you know what that means (money being printed, inflation, what is its real value). From a practical point of view, however, USDT and USDC seem to make much more sense as “real / useable money” than BTC. That’s all I will allow myself to say about this.
The stable coins I just mentioned have the exact same problem that BTC has, regarding the “cheap and fast” discussion: transaction cost is based on gas fees (ETH chain fees) and your transaction takes forever to get confirmed.
Stable coins are easier to use (from a psychological point of view) but are just as non-practical as bitcoin.
What a huge opportunity for Tixl!
Those who know Tixl and know me already knew this is where this article was going…
Those who don’t know Tixl, know this: Tixl solves the “cheap and fast” problem. All you have to do is get your crypto into the Autobahn Network and that is as simple as transferring your BTC into a Tixl Wallet. Transaction costs are low. In the early days (today), it is said to be zero. But that will change. Let’s assume a 0.2% cost per transaction (because this is the value that the team charges for the use of another product they developed). That means that US$ 998 of the US$ 1,000 will be actually used!
Everybody would, of course, need to use wallets that are connected to the Autobahn and the only wallet that does that today, is the Tixl Wallet. But do you think that Trust wallet wouldn’t develop a connection of their wallet to the Autobahn if they saw and understood what’s going on here? If the supermarket, the coffee shop, the car dealer, everybody in El Salvador had a “Tixl Wallet” (I’m writing it like this because that is the only way I found to represent a wallet that is connected to the Autobahn and that was not necessarily developed by the Tixl team), then the BTC could be used as actual money, since transactions would be confirmed in seconds and a very low cost.
I think that my line of thought already addressed the biggest problem. Now there is the problem that BTC is seen as an investment asset and that its value moves up and down too much in very short periods of time. My “solution” to this would be to use a ERC 20 stable coin instead of BTC. Does the Autobahn Network support ERC20 transactions?
YES! It is not yet live but this is something that is about to happen. The Tixl Wallet we (some people / investors in the Tixl community) tested transfers ERC20 coins in seconds and zero cost! Yes, it was a test version and they haven’t launched the Mainnet yet. And that’s why you should invest in $TXL and hold what you have. I’m not saying that it will appreciate 10x as soon as Mainnet is launched. That could happen but, in cases like this, it is more likely that people take time to understand how great this solution is. But when people notice, it will spread really fast.
We need to tell those guys in El Salvador that, whatever crypto they want to adopt, Tixl has the right payment network solution for them, from an infrastructure point of view.
The world is changing… fast! What country will be the next? India? They will also need Tixl!
A small remark: when Tixl was initially launched, it was clear the token was supposed to be a currency. And the $TXL token would be the only one that would travel freely by the Autobahn (paying no fees at all). We don’t think of $TXL as money, but it will still be the only token to use the Autobahn and pay no fees. Imagine if El Salvador decided to use $TXL as an official currency…
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If you think what I wrote makes sense and are planning to buy TXL because of this, contact me. I can help you: