Michael Peterson, the figure who convinced Bukele to adopt Bitcoin as a currency

The American, originally from San Diego (California), came to El Zonte beach in 2006 as a surfer and then started his business and implemented Bitcoin.

On June 25, Amy Castor, a journalist specializing in cryptocurrencies, published on her blog an article called “Michael Peterson, El Salvador and Bitcoin Beach, which is summarized in the following paragraphs:

“On June 8, El Salvador passed a law to make bitcoin legal tender, in parallel with the dollar. Overnight, President Nayib Bukele became a complete bitcoiner, still embracing the laser eyes of bitcoin on his Twitter profile – he and members of his cabinet too.

Who sold this plan to Bukele? Many think it was Michael Peterson, a 47-year-old white evangelical from San Diego. A surfer, Peterson first came to El Zonte in 2006 to test the waves. He fell in love with the place so much that he bought a house there and now has several cabins that he rents for surfers.

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The same year, Peterson established MissionSake, an institution that gives community aid and support to evangelical missionaries, who in turn give advice for daily life, financial planning and the use of Bitcoin.

Peterson lives there 9 months of the year with his wife and two children, and the rest in San Diego, where he runs a bacon-wrapped food business.

Eventually Peterson started what he calls “a Bitcoin circular economy” in El Zonte and Punta Mango, with some paying others in Bitcoins and back, using a mobile phone payment application.

In the world at large, Bitcoin has failed as a payment system from day one. It’s too volatile, too slow, and finger mistakes mean the money is gone forever. The only ones who use it for payments are criminals and hackers who hijack computer systems for a ransom. In order for people to use his software at El Zonte, Peterson had to gift them Bitcoins.

As he was trying to make his system work, he was making modifications to it, adopting a “wallet” to store Bitcoins that he called Bitcoin Beach Wallet, complemented with a private version of a network called Lightning to make transfers, and cooperating with another version of the same network used in another Bitcoin payments application called Strike.

This has added complication and confusion to the task of moving from one beach to the entire country to make payments, with a system that was not competitive to begin with.

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Peterson says that the Bitcoin Beach app is doing very well. Reports from the place tell a different story. Many El Zonte residents downloaded the app just to convert the given Bitcoin into cash. The case of Zelma Rivas is illustrative of the people who tried to use them.

She started by accepting Bitcoins for the fruits she sells, but now she uses Bitcoins very rarely because her phone barely handles the payments app. When Reuters interviewed her, her phone was not working.

The project is also suffering from other problems. Some of the residents of El Zonte see in the image of the Bitcoin, in the lower right edge, the number 666, which the Apocalypse identifies as the number of the mark of the Beast (the Antichrist), a mark that would be used in the last times to buy and sell, and that it would be used as a sign of obedience to Satan.

Also, these neighbors think that the first part of the cryptocurrency name is a satanic mockery of the name of Christ.

On the other hand, the commissions at Bitcoin ATMs have proven to be very high at the scene. A user received $ 13 when he tried to cash $ 20 into Bitcoins. In addition to a $ 5 charge, the ATM added a 10.5% fee.

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Peterson promotes Bitcoin while glossing over its sad realities, such as that Bitcoin does not work well for payments, that the Lightning Network he uses for transfers cannot be made large enough to handle the entire country, and that El Salvador does not have the infrastructure necessary for this to work by September 7th.

What is Peterson’s master plan? He wants to see Bitcoin adopted by the 6.5 million inhabitants, with El Zonte functioning as the nerve center. Peterson told “Go Full Crypto” that his vision includes erecting a monument to Bitcoin in El Zonte, with a large “B”.

“We want it to be a point of reference where people can come and take selfies,” Peterson said. He just has to convince the neighbors that the “B” is for Bitcoin, not “the Beast.”

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Economist Steve Hanke on Bitcoin Law: “Dark Forces Have Their Eyes On El Salvador”

The prestigious economist considers that it is obvious that those who drafted this law are unaware of economics or finances and he believes that this could cause El Salvador’s economy to collapse. In an interview with El Diario de Hoy, he reiterated that he sees this decision as one of the “stupidities” in the history of the economy.

On the spur of the moment, the government of El Salvador introduced the possible adoption of Bitcoin to the national debate and a very diligent Legislative Assembly made it law two days later, on June 8. Without further discussion and technical consultations, this regulation will force Salvadoran businesses to accept payments in this volatile and unstable currency and the risk of Bitcoin fluctuation will be absorbed with public funds from all.

Beyond Bitcoin fans, who have celebrated the news, prestigious economists and financial institutions warn that this brings serious risks to the country’s economy.

Illustrative image about the cryptocurrency Bitcoin.
Photo EDH / Archive

One of them is Steve Hanke of Johns Hopkins University in Maryland. In his opinion, this decision will go down in history as “stupid”, since it may favor illicit interests, promote money laundering, damage the supply of dollars in the country and hit El Salvador’s reputation in international markets. El Diario de Hoy spoke with him and this is what he said:

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Why stupid?
It is stupid to pretend to fix something that is not broken. You have the best currency and it is stupid to come and add another legal tender. And the stupidity gets worse when you see the details.
We learned about the possibility of adopting Bitcoin as legal tender in El Salvador two days before that made it to Congress and was approved. That was announced at a meeting of Bitcoin evangelists in Miami, not even in San Salvador. Then the legislation was passed at the stroke of midnight and if you read the law, it is clear that it has been written by “amateurs” who do not know anything about currency and finance. Bitcoin is not a currency and they made it a legal tender. It’s another stupidity. Bitcoin is a highly speculative commodity, it does not qualify as a currency.
“Stupid” is a strong word, but in this case I think it’s true.

You talk about how there may be “dark forces” behind this. What do you mean?
We don’t know who is behind this. It did not come out spontaneously, someone is behind this and made the law. The question is who and immediately it can be assumed that they are dark forces. The primary use of Bitcoin is behind the scenes in illegal activities.

Bitcoin is volatile and unstable. How can this affect the average Salvadoran?
You can see the experience of Bitcoin in El Salvador on the beach (El Zonte) and you see that it is not used. By the way, this law is not to adopt a currency, but to force a currency, as it would have been done in a communist country or the Soviet Union.

The law forces merchants to use them. Currency laws generally mandate the payment of debts in a currency, but they do not require businesses to use them in day-to-day transactions. The law of El Salvador is so badly written that it will force you to accept Bitcoin, like it or not, because of its article 7.

Spain, China and Turkey some of the countries with cases of millionaire cryptocurrency scam. Photo Reference / File

If this does not benefit the ordinary person, who can benefit?
Dark or corrupt forces. We must try to identify the dark forces, even if we never quite succeed. But we may identify the corrupt forces. For example, I think there are now only 2 ATMs that convert Bitcoin to dollars. If the law advances, although I think it will not and everything will be a sham, who will provide the thousands of ATMs that are needed? That is where corruption can arise, and there we could identify a dark force.

This will cost millions of dollars to implement. I can speculate that someone close to the president will provide the tellers. And who is going to instruct people in the language and terms to use Bitcoin well. It will surely be someone close to the president.

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Bitcoin has been linked to money laundering cases. Do you see potential for this in El Salvador?
Undoubtedly. Money laundering will be rampant with the adoption of Bitcoin, especially in El Salvador where there are no regulations, it will be like the old west. They will have the Russians, Chinese, Iranians, and if they didn’t have enough gang trouble, now they invite illegal Bitcoin users.

And the greatest threat to a dollarized country and that is one of the reasons why the dark forces have set their eyes on El Salvador. They don’t want Bitcoin, they want dollars. They will come like vacuum cleaners to take all the dollars that El Salvador has in a short time if they place the ATMs.
At worst, these dark forces can suck up much of El Salvador’s dollar supply and the entire economy can collapse. People use dollars and it is what they want to continue using.

A country tied to anti-money laundering treaties, what message does it send if it adopts Bitcoin as a legal tender? What consequences can it bring?
This Bitcoin law will bring great costs to the reputation of El Salvador. If it doesn’t happen last, it will still have damaged its reputation by almost becoming a haven for illicit activities.

Do you think that reputational damage has already passed?
I think the message has already been sent and you can see how it took the World Bank a few seconds to scrap the idea of ​​supporting this project. And I am sure that this can complicate negotiations with the International Monetary Fund (IMF).

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Do you know any official reaction from the IMF or the international financial community?
They have seen it very negative. The Fund has not said anything, but it will. But look what the Monetary Fund said when they dollarized, it was optimistic and they always had positive reports for El Salvador, in contrast to the concerns that this generates.

This leaves many doubts about El Salvador. The government of El Salvador never asked anyone anything, they did not consult before doing so, unlike dollarization, which had a technical plan and was presented by a reputable and highly respected economist in Washington DC.
In this case, we have a lot of Bitcoin evangelists in Miami making an announcement, which has not been approved by the Treasury Department, the World Bank or the IMF. It was promoted by dark forces that we do not know about. Also, whoever did it doesn’t know anything about economics or finance. Just read the law. It’s like a joke.

Conceptual image about the possible relationship between Bitcoin and money laundering. / Photo EDH Archive

The president seeks to attract investment. Do you think serious investors take Bitcoin seriously or just fanatics or “evangelists”?
No. They are not going to replace serious dollar investments. Look what’s going on with the Bitcoin experiment (at El Zonte) that people don’t use. Some people have kept it to speculate, but it is not really used. And it is not used anywhere else in the world either, so why should it be used in El Salvador. Most people don’t even have bank accounts and now you will tell them that they are required to use electronic money.
And this article 7 can force a lot of black market activity. Most people will not want to do this and they will have to establish vigilance to enforce this article. And that is serious in El Salvador where you already have many corruption problems.

Besides not attracting investment, can this scare off those who are already investing?
It could, as there is now a risk that the economy will collapse from the conversion of Bitcoin to dollars. Something that we will call the “Vacuum Hanke Effect”, meaning that anyone is going to want to put down their Bitcoin and get cash. The problem with cryptocurrencies is that they cannot be easily and costlessly converted to real money. I mean dollars, euros, British pounds, Swiss francs. Money that you can take anywhere and pay what you want.

If you could foresee the worst possible scenario for El Salvador by forcing Bitcoin, what would it look like?
This will increase the risk of doing business in El Salvador due to the “Vacuum Cleaner Hanke Effect”. Even if that money does not completely leave the system, only the risk that it passes can increase interest rates and you will lose those mortgage loans with good conditions that El Salvador has. The risk to the economy and the financial system increases greatly if this law is implemented. The only good scenario is that this law will not be implemented in September, and that is a possibility. That would be the best scenario, forget about this and it just fades away.

Do you see potential to change the law or do you think it should be repealed?
The immediate thing that must be done is to eliminate article 7 that forces the adoption of the currency, something that is very strange and that only happened in communist countries. The irony of this is that many of the evangelists call themselves “libertarians” who celebrate the freedom of cryptocurrencies. But Article 7 is typical of a police and authoritarian state. It is clear that the dark forces that wrote this have no idea what they are doing.

In short: Who is Steve Hanke?

POSITION: Professor of Economics at Johns Hopkins University and founder of the Institute of Applied Economics of this institution.

OTHER POSITIONS: He was a member of the council of economic advisers to President Ronald Reagan in the United States. He is director of the Center for Currencies at Risk at the Cato Institute in Washington. He has advised monetary policy in numerous countries and has received seven honorary doctorates. He has chaired important investment funds and has been named one of the most influential personalities.

Some problems of “forced Bitcoinization”

“Hanke vacuum effect”
According to Steve Hanke, those who use Bitcoin for illegal activities do not want this cryptocurrency. Therefore, he sees the risk that they will use El Salvador to extract dollars without regulation and hit the supply of dollars in the country.

No effect on remittances
In the opinion of this economist, Bitcoin is not easily convertible to dollars nor is it free to get the money. Therefore, it does not represent any benefit for those who send or receive remittances. On the contrary, it increases costs, he says.

Confidence in the country will fall
Hanke cautions that not only will Bitcoin fail to attract significant investment, but the hasty and flawed law undermines trust and even damages trading potential with the international monetary fund.

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New York prosecutor’s office vetoes Bitfinex and Tether for fraud

Brock Pierce, co-founder of Tether, the fraudulent cryptocurrency, leads the group of investors who came to the country for Bitcoin

The Attorney General of the State of New York, of the United States, vetoed the operations of Bitfinex and Tether last February after an investigation for fraud.

The Prosecutor’s Office alleged that iFinex, Bitfinex’s parent, and Tether, the issuer of a cryptocurrency considered “stable” (always has the same value in real dollars) lied by ensuring they had liquidity guarantees since in mid-2017 Tether “had no access to banks anywhere in the world ”to support its value.

“Bitfinex and Tether recklessly and illegally covered up massive financial losses to keep their scheme going and protect their accounts. Tether’s allegations that its virtual currency was fully backed by US dollars at all times were a lie, “said prosecutor Letitia James in a note published in international newspapers on February 23 this year.

According to an article published by the newspaper eleconomista.es, what was achieved by the attorney general of New York Letitia James was a “blow to the Bitcoin environment”, since the cryptocurrency Tether, which is used for more than half of the operations with bitcoins , “Manipulated the market during the previous big price hike, in 2017, issuing hundreds of millions of fake dollars without backing whose only use was to buy bitcoins.”

Who is Brock Pierce, the businessman who calls himself a “Bitcoin ambassador” and who visited El Salvador a few days ago?

After demonstrating the illegality and false statements, the New York Prosecutor’s Office imposed a fine of $ 18.5 million on the managers of the Bitfinex platform and the cryptocurrency Tether who also agreed to stop operating in the state and “increase their transparency”, although they have not “Admitted or denied” the allegations of fraud by the authorities, as reported by eleconomista.es of what was disclosed by the Prosecutor’s Office.

The US authorities believe that there are currently 34,000 million “tethers” that are used in the cryptocurrency market, and a good part of the bitcoins in circulation are acquired through this cryptocurrency.

El Salvador in the crosshairs

The case of New York is not isolated from what happens in El Salvador with the recently approved and unconsulted Bitcoin Law and the arrival of a group of “Bitcoin ambassadors, led by Brock Pierce, the co-founder of Tether.

It should be remembered that Pierce was a co-founder of the cryptocurrency Tether along with Reeve Collins and Craig Sellars in 2014 and that same year he was elected as director of the Bitcoin Foundation, an institution that was created to promote the use of Bitcoin around the world.

There is no further information on the meeting that Pierce and the other “investors” had with officials from the Presidential House, other than some tweets from Milena Mayorga, the ambassador of El Salvador in Washington who was at Pierce’s side. “In the delegation that I accompanied, investors came from the states of Washington, New York and Florida. Next week we will have great news from Texas! ” Mayorga tweeted.

Why do four Nobel Laureates in Economics reject the use of Bitcoin?

Will it be a Bukele maneuver?

The renowned journalist and writer Andrés Oppenheimer wonders “if this Salvadoran law (Bitcoin Law) is not another media maneuver by Salvadoran President Nayib Bukele to divert public attention from international criticism of the growing authoritarianism of his government.”

The journalist points out that Bukele’s arguments for adopting cryptocurrency as legal tender “do not hold up.”

“Bukele says that the use of Bitcoin will allow El Salvador to save a lot of money, because Salvadorans living in the United States will be able to send transfers, family remittances for free without paying the high bank commissions they now pay,” Oppenhimer questions, pointing out that a large number of Salvadorans do not even have bank accounts or internet access and with managers they would have to pay a commission.

The analyst harshly points out that what is being noticed is that this decision by Bukele will rather attract drug traffickers and not digital investors.

“Bukele says that the adoption of Bitcoin is going to attract technological investors and that it could turn his country into a technological town, but, I wonder if what he is going to attract will be drug traffickers and other criminal groups who want to take advantage of the anonymity they give transactions in Bitcoin, “says Oppenhimer.

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New York prosecutor’s office vetoes Bitfinex and Tether for fraud

Brock Pierce, co-founder of Tether, the fraudulent cryptocurrency, leads the group of investors who came to the country for Bitcoin

The Attorney General of the State of New York, of the United States, vetoed the operations of Bitfinex and Tether last February after an investigation for fraud.

The Prosecutor’s Office alleged that iFinex, Bitfinex’s parent, and Tether, the issuer of a cryptocurrency considered “stable” (always has the same value in real dollars) lied by ensuring they had liquidity guarantees since in mid-2017 Tether “had no access to banks anywhere in the world ”to support its value.

“Bitfinex and Tether recklessly and illegally covered up massive financial losses to keep their scheme going and protect their accounts. Tether’s allegations that its virtual currency was fully backed by US dollars at all times were a lie, “said prosecutor Letitia James in a note published in international newspapers on February 23 this year.

According to an article published by the newspaper eleconomista.es, what was achieved by the attorney general of New York Letitia James was a “blow to the Bitcoin environment”, since the cryptocurrency Tether, which is used for more than half of the operations with bitcoins , “Manipulated the market during the previous big price spike, in 2017, issuing hundreds of millions of counterfeit dollars without backing whose only use was to buy bitcoins.”

Who is Brock Pierce, the businessman who calls himself a “Bitcoin ambassador” and who visited El Salvador a few days ago?

After demonstrating the illegality and false statements, the New York Prosecutor’s Office imposed a fine of $ 18.5 million on the managers of the Bitfinex platform and the cryptocurrency Tether who also agreed to stop operating in the state and “increase their transparency”, although they have not “Admitted or denied” the allegations of fraud by the authorities, as reported by eleconomista.es of what was disclosed by the Prosecutor’s Office.

The US authorities believe that there are currently 34,000 million “tethers” that are used in the cryptocurrency market, and a good part of the bitcoins in circulation are acquired through this cryptocurrency.

El Salvador in the crosshairs

The case of New York is not isolated from what happens in El Salvador with the recently approved and unconsulted Bitcoin Law and the arrival of a group of “Bitcoin ambassadors, led by Brock Pierce, the co-founder of Tether.

It should be remembered that Pierce was a co-founder of the cryptocurrency Tether along with Reeve Collins and Craig Sellars in 2014 and that same year he was elected as director of the Bitcoin Foundation, an institution that was created to promote the use of Bitcoin around the world.

Regarding the meeting that Pierce and the other “investors” had with officials from the Presidential House, there is no further information, other than some tweets from Milena Mayorga, the ambassador of El Salvador in Washington who was at Pierce’s side. “In the delegation that I accompanied, investors came from the states of Washington, New York and Florida. Next week we will have great news from Texas! ” Mayorga tweeted.

Why do four Nobel Laureates in Economics reject the use of Bitcoin?

Will it be a Bukele maneuver?

The renowned journalist and writer Andrés Oppenheimer wonders “if this Salvadoran law (Bitcoin Law) is not another media maneuver by Salvadoran President Nayib Bukele to divert public attention from international criticism of the growing authoritarianism of his government.”

The journalist points out that Bukele’s arguments for adopting cryptocurrency as legal tender “do not hold up.”

“Bukele says that the use of Bitcoin will allow El Salvador to save a lot of money, because Salvadorans living in the United States will be able to send transfers, family remittances for free without paying the high bank commissions they now pay,” Oppenhimer questions, noting that a large number of Salvadorans do not even have bank accounts or internet access and with managers they would have to pay a commission.

The analyst harshly points out that what is being noticed is that this decision by Bukele will rather attract drug traffickers and not digital investors.

“Bukele says that the adoption of Bitcoin is going to attract technological investors and that it could turn his country into a technological town, but, I wonder if what he is going to attract will be drug traffickers and other criminal groups who want to take advantage of the anonymity they give transactions in Bitcoin, “says Oppenhimer.

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Lawyers warn of possible penalties for Bitcoin

If it does not comply with the FATF recommendations, it could be classified as a “tax haven”.

“If the necessary measures are not adopted to manage the risks of Money Laundering and Against the Financing of Terrorism, the country could be classified, not only by the Financial Action Task Force (FATF), but also by the international community as a jurisdiction vulnerable to money laundering and the financing of terrorism ”, warns Rolando Monroy, a criminal lawyer who headed the financial investigation unit of the Prosecutor’s Office.

But the consequences, according to Monroy, could be greater for El Salvador because “international organizations such as the World Bank, the International Monetary Fund, the IDB, CABEI, base a good part of their conclusions, when granting loans, on the evaluation reports carried out by FATF and regional organizations in the FATF style, in that sense they may condition the approval of credits on compliance with the standards established by FATF ”.

Given the emergence of a series of cryptocurrencies such as Ethereum, Tether, Bitcoin, XPR, the FATF issued a series of recommendations that its member countries should implement, according to Monroy.

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These regulations specify that countries must ensure that “Virtual Asset Service Providers (PSAVs) are subject to adequate AML / CFT regulation and supervision or monitoring.”

The application of these recommendations must be effectively complied with by member countries in order to “mitigate the risks of money laundering and terrorist financing that arise from virtual assets,” it adds.

Another of the regulations proposed by the FATF, according to Monroy, is that “PSAVs must be licensed or registered. This implies that they must be subject to a territorial jurisdiction ”and“ capture the information of the originator and the beneficiary of each operation and keep said information at the disposal of the authorities ”.

The FATF recommended the implementation of customer identification and due diligence policies (normal or extended) and take measures to identify natural or legal persons who carry out PSAV activities without a license and apply the appropriate sanctions.

“If El Salvador does not comply with the parameters established by FATF in terms of risk management associated with virtual asset services, it could perfectly be included in one of the sanction lists,” Monroy warned.

He recalled that the FATF has a system of sanctions, among these are the lists classified in colors to determine the level of risk. Among these the red, black, darkened gray and gray lists. This classification has to do with the level of risk, that is, high risk, uncooperative or more vigilant.

“Any of these designations implies a shadow in the reputation for the country that receives it,” warns Monroy.
A way to commit crimes.

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For her part, the criminal lawyer Marcela Galeas maintains that financial transactions through cryptocurrencies “is a way of taking advantage of anonymity to commit a crime, which opens up the possibilities for other crimes to be configured in addition to money laundering.”

These other crimes include drug trafficking, firearms smuggling, fraud, tax evasion, cyberattacks, evasion of sanctions, child exploitation and human trafficking.

Galeas recalled that the FATF warns that cryptocurrencies and the providers of these services should be the main surveillance targets to prevent money laundering and terrorist financing, according to a statement on February 25.

Galeas recommends that the standards issued by the FATF must be met or otherwise, since El Salvador could be excluded from the member countries of that international body.

“This would be a very delicate situation because the FATF identifies and publishes those countries that do not cooperate in the fight against money laundering and related crimes. The implications that they could have for the country does not necessarily close the door to international loans, ”Galeas said.

He assures that criminal activities with virtual assets have become more common and the country with the adoption of Bitcoin will be no exception.

“These virtual assets are an innovative technology to transfer value globally such as sending payments and reducing commissions,” he said.

In that sense, he believes that “El Salvador could receive a visit from a high-level mission or a letter from the president of the FATF as a form of pressure to prevent money laundering and similar crimes” or “issue a statement in which it would ask to financial institutions that pay attention to commercial relationships and transactions with people, companies or institutions that violate their standards ”.

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Galeas believes that it is important to comply with international standards on the prevention and prosecution of money laundering and terrorist financing should be a priority for governments, since “non-compliance with these (standards or recommendations) would be a red flag that could be detected unusual behaviors of possible activities that could be illegal related to virtual assets ”.

Monroy says that the correct thing to do, before approving the Bitcoin Law as legal tender, should have “issued certain regulations for the use or operation of Virtual Asset Services, rather than making a law tailored to a single operator, since with this the other actors are excluded and the function of managing the risks associated with that activity is not fulfilled ”.

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