On June 8, El Salvador passed a law to make bitcoin legal tender, alongside the dollar. Salvadorans were blindsided by the decision. Overnight, their president, Nayib Bukele, had turned into a bitcoiner, even adopting the bitcoin laser eyes in his Twitter profile — he and members of his cabinet, too.
Who sold Bukele on the plan? Many believe it was Michael Peterson, a 47-year-old white evangelical from San Diego.
Peterson is behind the Bitcoin Beach project, ground zero for bitcoin in El Salvador. As recently as a few months ago, his voice found its way to Bukele’s ears. Although, to be fair, Bukele has been kicking around the bitcoin idea for several years now.
“We’re trying to push on the president here to actually make El Salvador the first country that adopts bitcoin as an official currency. We haven’t succeeded yet, but I think we have pretty good odds to make that happen,” a baseball-cap-wearing Peterson said in a What Bitcoin Did podcast that aired on April 23.
Peterson has spent the last 18 months aggressively promoting bitcoin to 3,000 residents in the seaside village of El Zonte, where he lives with his family part of the year, and the 500 residents of nearby Punta Mango.
A surfer, Peterson first came to El Zonte in 2006 to check out the waves. The town has long been a draw for surfers. He was so enamored by it, he bought a home there. The home has a guest house you can rent for $160 per night. In 2014, he opened another “mission guest house” in Punta Mango with three bungalows, each currently available for $200 per night.
MissionSake, which Peterson operates with his wife Brittney, offers a range of services, including counseling, life coaching, financial planning — and an annual retreat called “The Gathering.”
The last Gathering was in 2019. There was no Gathering in 2020, and there appears to be no Gathering in the works for this year either, probably because Peterson is preoccupied with his bitcoin experiment.
Peterson and his wife live in El Zonte with their two kids nine months of the year. In the summers, they travel back to San Diego to run their Bacon-A-Fair booth, where they sell bacon-wrapped food items to fairgoers at the San Diego and Orange County Fairs. Both of these fairs were canceled last year.
I suspect life got challenging for Peterson in 2020. El Salvador closed its borders from March 21 to June 14, which meant no visitors to rent out his bungalows to. He left the country in May on an evacuation flight. “We’ve been waiting for it to open back up,” he told Go Full Crypto in a podcast that aired September 22. (I’m not sure when it was recorded.)
When Peterson returned to El Salvador, he set to work on his next project — a “bitcoin circular economy.” The goal was to get all the locals in El Zonte and Punta Mango transacting in bitcoin using a mobile payments app. Bitcoin would “bring people out of poverty,” he promised. It would “change the world.”
Bitcoin has failed as a payment system since day one. It’s too volatile, too slow, and fat-finger mistakes mean your money is gone forever. The only people who use it for payments are criminals and ransomware hackers. Even hard-core bitcoiners now say bitcoin’s main use case is “store of value.” (As we’ll see later, no, the Lightning Network does not solve this.)
‘A labor of love’
Peterson has a B.A. in business from Westmont College, a Christian college in California. He graduated in 1997, according to his LinkedIn profile. He has been following bitcoin since 2012 and started investing in bitcoin in 2017, he said on the Anita Posch podcast.
He assured Posch he is not making any money from the Bitcoin Beach project. “I have a business in the US and that is how I pay my bills. The Bitcoin Beach project is more just a labor of love.”
After El Salvador passed its bitcoin legislation — the law goes into effect 90 days hence — Peterson tweeted: “Laughing as I sit In my RV trailer behind the carnival with my Fair Food stand with my AOL era email account and [social justice warriors] violently insist I am a rich TechoBro that foisted worlds 1st #BTC economy on #ElSalvador instead of crediting Salvadorans who did the work. They must be Racist”
[Update, since I published this story, Peterson changed the Bitcoin Beach Twitter account to “Chivo Beach,” showing his support of the new government wallet, and then back to Bitcoin Beach again.]
Peterson also claims to keep his ministry work separate from the Bitcoin Beach project. In an update to an article on Bitcoin Beach, Forbes wrote:
“Upon further investigation, Bitcoin Beach initiatives have been separated from MissionSake, although the organizations remain closely aligned through their Founder.”
Just how “closely aligned” is a matter of question.
According to Hope House’s website, the charity teaches El Zonte youths computers and “life values.” Apparently, it also teaches classes on bitcoin, and how to use the mobile app for making bitcoin purchases, I’m told by people on the ground.
The Hope House website lists Bitcoin Beach as its “main supporter.” You can also donate money to Hope House directly from the MissionSake website.
As far as monetary policy goes, Peterson follows the Austrian school of economics. “As an economics major, I’m always drawn to the Austrian models. The world concept that most governments and central banks have gone with of just printing more money, that always perplexed me,” he told Go Full Crypto.
Austrian economics supports the claim that a rigid gold standard is the only way to have “sound money” and that central banks and fractional reserve banking will inexorably lead to a collapse in the dollar. Thus, you need to hoard gold — or bitcoin, in this instance — because of its limited supply.
Hoarding bitcoin runs counter to using it for everyday transactions. If a currency goes up in value, people won’t want to spend it. If the price crashes, you’re screwed.
So, who exactly is Peterson pitching bitcoin to in El Zonte?
El Salvador’s most vulnerable
El Salvador has a problem with violence. The country is plagued by gangs, such as MS-13, who make most of their money from extortion. Bukele’s 90% approval rating is partly due to having reduced homicides in the country by 60 percent. He allegedly negotiated with gang leaders, according to El Faro.
Most young people get involved in gangs around the age of 14, said Jose Miguel Cruz, a researcher at Florida International University who has studied street gangs in El Salvador. That’s when young people are most open — or most vulnerable — to new ideas.
Many of the gang members in El Salvador embrace evangelical Christianity as a way to escape violence. “In El Salvador, you join the gang, you join the evangelical church, or you leave El Salvador,” Cruz told NPR. Half of all gang members in El Salvador identify with the evangelical church.
When I spoke with Cruz, he explained that evangelical churches have been sprouting up all over El Salvador, a traditionally Catholic country, for the last three decades. Every time he returns to visit, he sees more of them.
Likely, that is because evangelicals are militant in their recruitment efforts. “They see young people who have problems as a target to convert,” said Cruz. “Let’s say I am a gang member and I am touched by God. Supposedly, I have to recruit other people to join the church.”
Evangelical churches have become so entangled with gang communities in El Salvador that Bukele has been reaching out to pastors for help in negotiating with the gangs, Cruz said.
It is no surprise then that MissionSake’s efforts focus on young people. “Let’s walk with them, believing that they are called to fulfill the purpose that God has for them in the Kingdom. Let’s walk with them to help them change their world. This can be done through discipleship and education,” Peterson says on his website.
Over time, Peterson has established relationships with young Salvadorans, including Jorge Valenzuela. According to MissionSakes’ website, Peterson prayed for Valenzuela until he “accepted Jesus as his Lord and Savior.” Valenzuela went on to become a disciple, converting other Salvadorans to Christianity.
Today, instead of reaching out to youths and getting them to embrace Jesus, the 32-year-old El Zonte local plays an active role in promoting the miracles of bitcoin. “It changed my town,” Valenzuela told Bloomberg.
There are worrying signs that Peterson is employing the same militant tactics to promote bitcoin as he does Christianity.
“The promoters are pleasant but they get angry if you do not join the project,” a source in El Salvador told me. None of the sources I spoke with wanted to reveal their true identities. It’s too dangerous, they say. “This is a place where people disappear,” one told me.
Peterson insists that local Salvadorans run the Bitcoin Beach experiment. However, when reporters from El Faro showed up to meet with Valenzuela at Hope House, they were unable to get anyone there to speak to them.
They were greeted by Hope House’s head of communications, who would not even give them his name. “Man, you are the head of communications and you can’t even tell us your name?,” the reporter said.
“Luis Morales,” the man finally answered. “And that was the strongest information he gave us. Then the gates of Hope House were closed,” El Faro wrote.
Peterson began devoting himself to his Bitcoin Beach project sometime in 2019 after a pile of bitcoin fell in his lap by way of a mysterious donor — or at least, that is what he says. He described how it happened in an interview with Forbes contributor Tatiana Koffman, who wrote:
“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.”
As Peterson tells the story in Go Full Crypto, the donor first gave bitcoin to an organization he is connected with. (He doesn’t say what organization this is.) A few months later, the organization asked if he wanted to meet the donor. He told them, yes. But instead of speaking with the donor directly, he ended up speaking to a “manager” the donor had hired. As it turned out, the donor was a fellow libertarian.
“I could tell from the description of his manager that he probably leaned libertarian, which was in line with my own philosophies and beliefs,” said Peterson. “And some of his concerns about government involvement were in line with some of my own leanings.”
After the meeting, Peterson scribbled out a three-year proposal for “bitcoinizing” El Zonte, which the donor promptly approved. Bitcoin was priced at around $5,000 or $6,000 at the time, he said, which would have been in April or May 2019.
‘A circular economy’
Getting people in El Zonte to actually use bitcoin was another story. Ultimately, it called for giving away free bitcoin.
There are about 500 families in El Zonte. Bitcoin Beach gave each family $50 worth of bitcoin. The project also started paying teens in bitcoin for odd jobs, like picking up trash, lifeguarding, or doing well in their studies. Half of the bitcoiners in El Zonte are youths, according to Bitcoin Magazine.
Bitcoin Beach is also funding El Salvador’s surf team. The surfers get a monthly stipend in bitcoin. On March 19, the day the surf team signed the contract, Katherine Diaz, one of the surfers, was killed in a freak accident.
To raise money, Bitcoin Beach began asking for bitcoin donations on Diaz’s behalf to go toward a surf training center. The biggest donor is Square’s Jack Dorsey, who gave 3 BTC. The bitcoin donation wallet has so far received a total of 4.2 BTC, worth about $160,000.
Peterson wants bitcoiners to see the Salvadoran surf team as theirs. “We don’t have our own country, we don’t have our own borders,” he told Anita Posch. “But we can have a surf team.”
Initially, Bitcoin Beach used the Wallet of Satoshi for on-chain transactions. Transaction fees were too high, so the project shifted to its own Bitcoin Beach Wallet developed by Galoy Money. The wallet uses a private version of the Lightning Network, a second layer solution that works on top of the bitcoin protocol.
Lightning allows for faster payments and lower fees, but it has its own host of issues, including nobody has yet figured out how to make it scale — literally, the whole point of Lightning Network was to scale bitcoin — which is worrisome, given that this is supposed to work for all of El Salvador.
Strike, a second mobile payment app that also uses a private version of Lightning Network, joined the project in January. Strike’s focus is on remittances, allowing Salvadorans living abroad — mostly in the US — to send money back home to their families. In 2019, remittances in El Salvador totaled $5.6 billion, around a fifth of GDP.
How it works: a sender deposits USD in their Strike account. Those dollars are instantly converted into bitcoin, whooshed across the border, and your mom in El Salvador gets not dollars, but tethers, a stablecoin with dubious backing. That changed when the company’s CEO, 27-year-old Jack Mallers abruptly announced the app was no longer going to be using tethers.
Details are scant. Nobody is quite sure how Strike makes any of this possible — probably not even Mallers, I suspect. Add to that, Decrypt just reported that Zap, the parent company of Strike, doesn’t have proper licenses to operate in most US states.
“This is amateur hour, these people have never done a currency reform, they don’t know much about currencies,” Steve Hanke, an economist at Johns Hopkins University, told Decrypt.
There’s another option for Strike users receiving remittances in El Salvador. Peterson told Go Full Crypto, they can opt to receive bitcoin from Strike directly in the Bitcoin Beach Wallet, the Wallet of Satoshi, Blue Wallet, or “a number of the great Lightning wallets out there.”
To be clear, Strike is using a “functionally private” version of the Lightning Network. Per its FAQ, the Strike network only passes transactions for approved entities — not the public Lightning mesh network. In practice, receiving bitcoin from wallets outside the system isn’t working anywhere near as smoothly as Peterson describes.
As for the Bitcoin Beach app, Peterson reports things are going gangbusters. About 40 businesses in El Zonte are using the app, he told the Posch podcast. “It’s definitely the majority of the businesses now in El Zonte that are using bitcoin. [For] some of them, it makes up the majority of their revenue.”
Reports from on the ground tell a different story.
Zulma Rivas started accepting bitcoin for the fruit she sells in El Zonte. She rarely uses bitcoin because her smartphone can barely manage the payments app. When Reuters visited, her phone was broken. She often runs out of data on her cell plan anyway.
Many of the residents in El Zonte downloaded the mobile app just long enough to grab their free bitcoin and cash out, one of the people I spoke with from El Salvador told me.
The project is also suffering from serious problems of perception. Some El Zonte residents see bitcoin as the sign of the beast — a cryptic mark in Revelation that indicates allegiance to Satan —because the word “criptomoneda” (Spanish for cryptocurrency) sounds like it is mocking Christ. “They say that El Zonte has become the place where the beast was born,” the source said. “And some think the ‘999’ on images of the bitcoin coin is actually ‘666,’ the number of the beast.
Cashing out of your bitcoin in El Zonte is easy, the promoters of Bitcoin Beach say. You just need to track down a bitcoin ATM. Up until now, there were only two in the entire country — one in El Zonte and one in nearby El Sunzal. El Salvador ordered 1,000 more and just installed its third at La Gran Vía shopping center.
It turns out bitcoin ATM fees are high, however.
One user got $13 when he tried to cash out $20 worth of bitcoin. In addition to a $5 fee, the Bitcoin ATM added 10.5% to the BTC price.
Peterson admits the system sucks right now but says it will be great in the future. “The [ATM] in El Zonte I believe charges 8% if you want to buy Bitcoin and 3% to sell for cash,” he said via the Bitcoin Beach Twitter account. “This will change under broader rollout.”
In response to an onslaught of criticism, he continued: “Everyone is missing the point — these fees all go to 1% once it gets up to speed and even the 1% not relevant because you don’t need to cash in or out because you use it and get paid in it.”
This is the eternal promise of bitcoin — things will always be better in the future. Meanwhile, many Salvadorans survive on less than $500 a month. They can’t afford to watch their money get siphoned away in transaction fees.
A new bitcoin colony
Peterson’s M.O. is to promote bitcoin while brushing over the facts, such as bitcoin does not work for payments, Lightning Network does not scale, and El Salvador doesn’t have the infrastructure to pull any of this off by Sept. 7, when the new law goes into effect.
The World Bank has already rejected El Salvador’s request for help in setting up bitcoin as legal tender. The irony here is that bitcoin was originally designed to circumvent the traditional banking system.
Almost everything in bitcoin boils down to “number go up.” Since early June, bitcoiners have swarmed El Zonte, buying pupusas with bitcoin and setting up camp. This isn’t the first time bitcoin bros have colonized a poor area and used it as a PR machine. They’ve done the same in Puerto Rico.
Peterson’s master plan? He wants to see bitcoin adopted by El Salvador’s 6.5 million citizens, with El Zonte becoming the hub. Like a cherry on the top, Peterson’s vision, he told Go Full Crypto, includes erecting a bitcoin monument, a big “B” symbol, on El Zonte’s beach. “We want it to be a landmark where people can come and take selfies.”
He’ll just have to remind the locals the “B” stands for bitcoin, not “el bestia.”
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