The current situation of El Salvador's Bitcoin City: a coexistence of regulatory innovation and popularization challenges.

How is the progress of El Salvador's Bitcoin City?

As the price of Bitcoin approaches $100,000, El Salvador's Bitcoin City plan has garnered widespread attention. As the world's first country to adopt Bitcoin as legal tender, El Salvador occupies a unique position in the global cryptocurrency space.

Looking back at 2021, the global monetary environment was complex and ever-changing. The pandemic led to a surge in debt, with global debt reaching $27.5 trillion. Against this backdrop, El Salvador's President Bukele made a bold decision: to incorporate Bitcoin into the country's sovereign monetary system. The Congress passed this bill with an overwhelming majority, making El Salvador the first country in the world to grant legal status to cryptocurrency. Bukele also plans to build a "Bitcoin City" where Bitcoin will be the settlement currency, and launched an electronic wallet named Chivo to promote its use.

This decision has caused a sensation worldwide. The International Monetary Fund, central banks from various countries, and individuals in the cryptocurrency industry are all paying attention to this small country in the Americas, hoping to draw the conclusions they desire from this social experiment.

In the beginning, tourists flocked to El Salvador, bringing new crowds. But problems soon arose: the high volatility of cryptocurrencies, security risks of electronic wallets, and slow transactions triggered public dissatisfaction. A year later, only 20% of locals continued to use the Chivo wallet.

In November 2022, the crypto market was hit hard, with Bitcoin falling to $16,000. However, during this time, the Bitcoin office of El Salvador was established, a move that seemed inconsistent with market conditions, casting a shadow over El Salvador's Bitcoin plans. Subsequently, the concept of Bitcoin City gradually faded from public view.

A typical case is that the El Salvador government once planned to issue the world's first sovereign blockchain bond "Volcano Bond", expecting to raise $1 billion. However, the issuance time has been postponed repeatedly, from 2022 to 2023, and then to 2024, and it has not yet been realized.

However, with the market rebounding and regulatory easing, the price of Bitcoin has approached $100,000, and the global attitude has also changed significantly. Several countries are beginning to consider incorporating Bitcoin into their national reserves. Aside from the United States, Switzerland has passed legislation to include Bitcoin as part of its national bank reserve assets, and Bhutan's Bitcoin holdings even exceed 30% of its GDP. Legislators in Venezuela, Poland, Argentina, and Germany have also proposed related initiatives.

El Salvador seems to have transformed from a country considered unrealistic to an innovation pioneer. According to data, since March 16 of this year, El Salvador has adhered to a strategy of purchasing 1 Bitcoin daily. As of the time of writing, its Bitcoin holdings have reached 5940.77 coins, with a market value of nearly 579 million dollars. The concept of Bitcoin City is also beginning to show actual value. In August of this year, a Turkish holding company announced an investment of 1.62 billion dollars in two ports in El Salvador, one of which is located in "Bitcoin City." In terms of public education, El Salvador is also actively promoting, planning to implement Bitcoin salaries for national civil servants and launching a Bitcoin certification program to provide relevant training for 80,000 civil servants.

Nevertheless, the public's attitude remains conservative. According to the latest survey from Francisco Gavidia University in El Salvador, only 7.5% of respondents indicated that they use cryptocurrencies for transactions, 92% admitted they have not used cryptocurrencies, and only 1.3% believe that Bitcoin is the main direction for the country's future development.

From the data, El Salvador's Bitcoin vision still has a long way to go. Despite strong support from the president, the Bitcoin held by El Salvador accounts for only 1.5% of its GDP. Since 2022, the country's cryptocurrency remittances have continued to decline, from $84.8 million to $57.4 million. According to data from the Central Bank of El Salvador, only 1.1% of all remittances involved cryptocurrency during the period from January to August 2024. In April of this year, a tokenized debt project aimed at supporting the construction of the Hilton hotel in El Salvador failed to raise the minimum operating capital of $500,000, reflecting the limitations of the Bitcoin effect in El Salvador. In response, the president had to admit, "Bitcoin has not yet reached the level of widespread adoption we expected."

Nevertheless, since the announcement of Bitcoin as a sovereign currency, El Salvador's fate has been closely tied to Bitcoin. The brand of "Bitcoin City" has been established, and El Salvador's Bitcoin journey continues. Currently, the country is planning to create a new capital market around Bitcoin and is preparing to launch more supportive policies. The effects have already begun to show, as recently, a trading platform conducted the first public offering of tokenized U.S. Treasury bonds under El Salvador's legal framework.

Bitcoin is nearing $100,000, how is El Salvador's Bitcoin City coming along?

In response to these developments, Juan Carlos Reyes, the chairman of El Salvador's highest cryptocurrency regulatory body, the National Digital Assets Commission, was interviewed to discuss the current state and future of digital assets in El Salvador.

Reyes stated that El Salvador is ahead of most countries in regulating cryptocurrencies. As the first country to adopt Bitcoin as legal tender, El Salvador has become a hub for numerous crypto companies.

"From a macro perspective, most people may not understand our work in El Salvador; they can only see the local aspects," Reyes said in an interview. "Even foreign companies that are regulated locally but do not have a full office established here do not understand the advanced nature of El Salvador's regulations and the rapid development of the industry."

Reyes pointed out that the president's initiative drives national institutions to work towards addressing new technologies and their impacts. Therefore, El Salvador avoided granting cryptocurrency regulatory authority to traditional financial regulators and instead established the National Digital Assets Commission (CNAD) to develop a dedicated regulatory framework for cryptocurrencies.

"There is a method of inductive reasoning: when I see a bird that walks like a duck, swims like a duck, and quacks like a duck, I call it a duck. But in the context of assets, digital assets are completely different from traditional financial instruments," Reyes explained.

This is also the reason why CNAD, led by computer science expert Reyes, immediately adopted a technology-oriented approach to regulate cryptocurrencies in September 2023. From the feedback of crypto companies that obtained the Digital Asset Service Provider (DASP) license in El Salvador, the results have been very significant.

Nick Cowan, the Group CEO of the tokenization solutions company VLRM, stated: "We had no idea that CNAD was not only knowledgeable and meticulous in their work but also proficient in technology."

Victor Solomon, a partner at the Salvadoran tokenization consulting firm Tokenization Expert, shares the same view. "We don't want to overly praise El Salvador, but their ability to quickly grasp the core issues in reviewing our application is surprising. We don't need to explain our technological foundation – they already understand the complexities of tokenization and compliance measures. Reyes understands the real challenges businesses face, from fundraising to regulatory compliance, which makes him not only a head of regulatory agency but also a business advocate positively impacting the Salvadoran economy."

Reyes was born in El Salvador and moved to Canada during his childhood to escape the civil war. He holds multiple bachelor's degrees in computer science, mathematics, and physics, as well as a master's degree in management from Harvard University. He pursued a PhD in philosophy at the People's Friendship University of Russia but was unable to complete his studies due to the pandemic and the war in Ukraine.

His career experience is diverse, including 15 years leading a consulting firm, developing business opportunities for indigenous peoples, and even opening a bar in his beachfront villa. Since 2013, he has been a supporter of Bitcoin and in 2021 decided to return to El Salvador to participate in the nationalization process of cryptocurrency.

CNAD has 35 independent employees, and Reyes requires everyone to be proficient in the underlying technology of cryptocurrencies. Currently, 20 employees are pursuing a graduate program in cryptocurrency at CEMA University in Argentina.

"We have the most educated and comprehensive team in the world when it comes to cryptocurrency asset regulation," Reyes said proudly. "If someone doesn't know how to trade Bitcoin, including my driver, they might not be able to work here."

This elite team has impressed companies seeking operating licenses in El Salvador. Cowan praised Reyes as a technical expert, stating that the regulatory process in El Salvador is faster and more efficient compared to other jurisdictions.

For Reyes, the cryptocurrency knowledge reserve of CNAD means it can adhere to the principle of "trust but verify," checking the blockchain every time it interacts with a new company applying for a license.

Reyes uses the analogy of electric cars to explain why cryptocurrencies need dedicated regulatory bodies. "If you buy an electric car and it breaks down, you take it to a mechanic with 20 years of experience, but when he opens the hood, he won't find an engine; he'll only see a battery, and he won't know how to handle it."

This is also the different feeling that cryptocurrency and traditional financial assets give Reyes. At first glance, they seem similar, but upon deeper study, they are completely different. This is also one of the reasons why progress in implementing regulatory frameworks for digital assets is slow globally.

However, El Salvador is a small country with a GDP of only $35 billion, ranking 17th in Latin America and 103rd globally. The country does not have its own currency, nor does it have strong financial institutions, and it lacks a ready-made developer ecosystem. Yet, it is precisely these factors that give El Salvador an advantage in regulating cryptocurrencies, as it can "start from scratch."

Returning to the analogy of electric vehicles, El Salvador can focus directly on repairing the batteries and motors without having to transform the existing infrastructure into a garage that can repair Teslas.

"In other countries, many new technologies are created by rational individuals who try to promote the development of the crypto ecosystem, but they do not consider that the technology could be misused as a money laundering tool," Reyes said. "Regulators find it difficult to grasp the balance of regulatory tightness."

"We can make CNAD the sole entry point for all digital assets in this country, and any entity that has not been authorized by the committee is illegal."

In addition, financial institutions in Western countries are the creators of existing rules, and overturning the impacts of existing regulations will be more extensive and severe than in Latin American countries. "Traditional finance has lobby groups that have been combating crypto, such as implementing 'Guillotine Action 2.0' (referring to U.S. regulatory agencies limiting crypto companies' access to banking services). They will do everything possible to prevent this industry from thriving," Reyes had a Canadian bank account frozen for engaging in cryptocurrency activities. "But countries like El Salvador, if they can act quickly and seize the opportunities brought by cryptocurrencies, will benefit greatly."

So, what kind of regulatory environment does El Salvador want to create?

Reyes stated that, in terms of financial instruments, Bitcoin "is already sufficient", but besides that, CNAD has an open attitude towards technology. Most of the companies regulated by the agency operate on Ethereum. The sizes of the regulated companies vary greatly: there are globally recognized enterprises as well as local small businesses in El Salvador starting from $2,000.

Consumer safety and financial security are of paramount importance. For example, requiring exchanges to use multi-signature wallets to prevent similar incidents to FTX from happening again, or mandating that a company's private blockchain adheres to specific security standards. Customer identity verification is also a mandatory requirement.

"It is important to emphasize that our country has suffered from gang intimidation for many years. Therefore, we place great importance on financial transparency, anti-money laundering, and counter-terrorism financing, which have been strongly incorporated into regulation." Reyes believes that if a crypto company is regulated in El Salvador, it can obtain a license anywhere in the world.

Reyes is particularly focused on real-world assets (

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SybilAttackVictimvip
· 6h ago
bull! El Salvador is going to da moon!
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BearMarketGardenervip
· 6h ago
How is his country doing now?
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NewDAOdreamervip
· 6h ago
The coin has reached 100,000 again. Let's enter a position first!
View OriginalReply0
ForkLibertarianvip
· 6h ago
Bu Zongxiong Qi, let's see who still dares to look down on El Salvador.
View OriginalReply0
BrokenDAOvip
· 6h ago
But another governance experiment has entered the scene, and this trap that Bukele is playing has been tried a long time ago.
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AirDropMissedvip
· 6h ago
btc10w is not a dream, just look at El Salvador to know.
View OriginalReply0
BearWhisperGodvip
· 7h ago
It might just be a fly on a meat bun~
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