Thousands of Salvadorans have taken to the streets recently to denounce their President, Nayib Bukele, who has called himself the country’s “dictator” on Twitter. Some protesters carried anti-bitcoin signs to express their displeasure with his decision to make the cryptocurrency legal tender this summer, a move he felt would strengthen the economy and lessen its dependence on its primary currency, the U.S. dollar.
Bitcoin’s controversial status in El Salvador is partly due to Blockstream, a Victoria-based company, founded in 2014, that builds products that enable the storage, transaction and mining of the cryptocurrency. Mining is an energy-intensive procedure that uses computing power to solve complex equations and generate cryptocurrency, a process called proof of work.
Blockstream worked with El Salvador’s government to implement the infrastructure that would make it possible to adopt bitcoin and help its citizens mine it. The country has set up a mining operation near volcanoes, using geothermal energy to power its facilities.
“They had no choice but to adopt bitcoin because they’re subservient to the U.S. dollar,” Samson Mow, Blockstream’s chief strategy officer, told The Globe and Mail.
“When the U.S. prints money, there’s a first order benefit to Americans, right? They get infrastructure. But for Salvadorans who are using the dollar as the currency, there’s nothing for them, they just get devalued … so their escape hatch is bitcoin.”
Mr. Mow said other countries are interested, adding that Blockstream has spoken with an adviser to the President of Colombia – although that country’s government has not announced any plans to make bitcoin legal tender.
And he says he believes governments in Canada should get behind the cryptocurrency, too, especially when it comes to mining.
Blockstream has been mining bitcoin in Quebec since 2017. The province offers relatively cheap renewable energy, but its power utility has placed moratoriums on mining in the past and tightly regulates the industry.
According to the Cambridge Bitcoin Electricity Consumption Index, 3 per cent of computing power used for mining is based in Canada, mostly in Quebec. More miners have moved operations to Canada recently, after China, which had dominated the bitcoin mining industry, recently banned the practice. However, Quebec’s regulations have led Blockstream to expand its mining business to the United States, where there is less red tape.
Adam Back, the company’s chief executive officer and a pioneer in the development of bitcoin mining, said Quebec loosening mining regulations would “bring you a lot of investment to Quebec, which is not the wealthiest province.
“There’s a lot of knock-on effect: construction, electrical engineering centre, data centre operators, management staff to operate it … so it’s like the Gold Rush era and you’re sitting on a gold mine and you decide not to mine it for confusing reasons.”
Mr. Mow agrees.
“We could be such a wealthy nation if we decided to mine bitcoin,” he said. “Hopefully Canada will wake up and understand that bitcoin is a revolution – and we need to be at the forefront of that revolution.”
Blockstream has ambitions to help replace the global fiat currency system with an economy built on bitcoin. Adopting it, the company says, would create a modern sort of gold standard, where, ideally, an asset-backed economy mitigates inflation, ensures stability and takes power away from governments with a Keynesian impulse to spend heavily.
Mr. Mow argues “money printing” is the only real lever central banks can pull to intervene in the fiat economy, a blunt-force instrument that he views as unsustainable and destined to create hyperinflation. He is concerned about the effect of heavy public spending during the pandemic and associated inflationary risks. Adopting bitcoin, he says, could mean avoiding a debt crisis or the bouts of hyperinflation that have plagued countries such as Argentina.
Dr. Back wants his company to be successful, but profits are, at least in part, a means to a more important end.
“We are not just trying to succeed at the business, it’s the other way around,” he said. “We’re trying to succeed at the mission, and making money as a business is fuel.”
Shifting the economic paradigm isn’t cheap. Since its founding, Blockstream has raised US$300-million in capital to fund its operations and hit a US$3.2-billion valuation after its last round of funding in August. The company also holds Bitcoin on its balance sheet, and that has paid off: The price of the token has appreciated approximately 10,000 per cent in the past five years.
Dr. Back says the company will still need more money to achieve its goals.
“We might do another raise or an IPO,” he said. “People compare us to SpaceX sometimes because [we build] big projects that need to get done that nobody else seems to be doing.”
Mr. Mow says Canada could play a key role in the bitcoin revolution. He views the country’s regulatory landscape as unfriendly to cryptocurrency exchanges, many of which have opted not to operate in Canada because they’re required to register with provincial and territorial regulators.
While Blockstream is not in the exchange business, Mr. Mow says securities regulators lack a sophisticated knowledge of cryptocurrency. He cited, for example, the Ontario Securities Commission’s decision in September to ban Tether, a cryptocurrency pegged to the U.S. dollar, without offering detailed reasons for the decision.
“There’s a lot of controversy around [Tether], which is manufactured,” Mr. Mow said. “They’re just reading the mainstream press and think: Oh, there’s something bad about this.”
After The Globe spoke with Mr. Mow, Tether was fined US$41-million by a U.S. securities regulator for not having sufficient monetary reserves. The decision came a week after a Bloomberg report that Tether was not fully backed by U.S. dollars, as its senior managers had consistently claimed.
After Tether was fined, Mr. Mow told The Globe that it was “actually a point of clarity” because the regulator made clear that the lack of reserves was an issue in the past – that it did not punish it for its current reserves. He added that another U.S.-pegged stablecoin is being investigated by a U.S. regulator, yet the OSC has not banned it.
“It just makes no sense at all and it feels like the OSC is just lazily reading headlines,” he said.
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