Title: El Salvador Diary: Lightning Is Key to Bitcoin Adoption

Author: Jonathan Martin, CoinDesk

Compiled by: Wu Says Blockchain

This week, while traveling around El Salvador, I met two individuals who are actively working to accelerate Bitcoin adoption and help foreign investors engage in Bitcoin-related businesses.

Currently, the market price of Bitcoin is around $29,500, which makes owning a whole Bitcoin out of reach for most people. However, each Bitcoin can be divided into one hundred million subunits called "satoshis," allowing anyone to exchange small amounts of fiat currency for Bitcoin. Bitcoin investors refer to these smaller investments as "stacking sats." Combined with second-layer (L2) integrations like the Lightning Network, this is seen by many as a way to increase Bitcoin use cases and enhance its role as a medium of exchange in commerce.

I had lunch with a Salvadoran entrepreneur named Edgar Borja, the founder of a company called K1, and spoke with him about the projects he is building. Borja invented an ATM that supports the Lightning Network, which significantly reduces the friction costs of converting fiat to Bitcoin compared to other Bitcoin entry points that use the first-layer (L1) blockchain.

Just as we sat down for lunch, Borja pulled out a small metal box with an LCD touchscreen from his backpack and placed it on the table. He plugged it into the wall and powered it on while explaining the technology it uses. The version of the device he brought only accepts coins and looks like a mini slot machine. He mentioned that K1 also sells another version of the device that can accept dollar bills.

Image Source: CoinDesk

Borja inserted a 5-cent coin into the coin slot, gently tapped the LCD screen a couple of times, and indicated for me to align the QR code from my Lightning Network wallet (called Satoshi) with the built-in camera. Within seconds, the equivalent of 5 cents in satoshis arrived in my wallet. There were no fees for this transaction.

The Lightning Network allows for near-instant transactions, similar to a "bar tab," where people can exchange funds without using the slower underlying L1 Bitcoin network until final settlement. The significant increase in speed and reduction in transaction costs make Bitcoin less cumbersome and more liquid, potentially making it easier for ordinary users to accept as a medium of exchange.

K1 sells its Lightning Network ATMs for $1,200 and charges no ongoing fees thereafter. Business owners can choose whether to charge a usage fee after acquiring the device. The K1 ATM lowers the barrier to entry for converting fiat to Bitcoin and may serve a larger market compared to the more expensive Athena ATM that uses the L1 blockchain.

K1 has sold machines to businesses in 11 countries, including El Salvador, and Borja has the clearest roadmap for driving mass adoption that I have seen.

Bitcoin Business for Enterprises

Before arriving in El Salvador, I reached out to a lawyer named Carlos Miguel Rivas Carrillo, who is the board secretary of the Salvadoran Bitcoin Association (ASOBITCOIN), to learn about the process of starting a business here. The government is actively attracting American entrepreneurs and investors and has created a very friendly business environment. ASOBITCOIN works closely with the government-approved Bitcoin office to help investors obtain project approvals from relevant authorities.

Rivas is well-versed in local Salvadoran laws and regulations and offered to help me establish a company. With the lawyer's assistance, the process takes three to four days and costs between $1,500 and $2,000. There is also a government fee of $300, and the minimum capital requirement is $2,000.

He informed me that Salvadoran banks do not yet support Bitcoin, as they are still integrated with traditional systems like SWIFT. To conduct business transactions using Bitcoin, non-bank service providers accept this digital commodity and issue a bank draft, which can be deposited into a regular bank account. After leaving this meeting, I gained a better understanding of what it means to start a business in El Salvador as a foreigner.

My work experience has primarily been as an entrepreneur; before entering the Wharton School, I founded two successful real estate companies in Austin, Texas. My purpose in coming to El Salvador was to identify gaps in the emerging Bitcoin economy, including the potential for using Bitcoin in real estate and coffee farming. Things we take for granted in the U.S., such as a multiple listing service (MLS) that includes all currently listed properties and recent attractions, do not exist here yet. Similarly, the chain of title for properties is opaque; centralized records are sometimes incorrect; and suing someone for a lien or claim on a property can delay the investment process by up to a year.

Several people, including Rivas, mentioned how blockchain technology could be used to address existing problems and eliminate some of the current inefficiencies in the economy. These inefficiencies could create significant opportunities for brave entrepreneurs.

Bitcoin in Business

Wherever I went, I tried to purchase items using Bitcoin first—whether through my Coinbase wallet or Satoshi wallet. I shopped at a supermarket in my community and attempted to pay with Bitcoin at checkout. The cashier initially indicated that the store accepted Bitcoin and hurried to press buttons on her computer, which looked like it was five years old or more. However, the Bitcoin point-of-sale component of the system was not working. So, I had to pay in cash.

Image Source: CoinDesk

While exploring President Square (one of the latest shopping centers in the country that is not yet fully completed), I attempted to use my Satoshi wallet multiple times. None of the coffee shops had a functioning Bitcoin PoS (point of sale) system, nor did the comic book store I entered. I paid with a credit card twice, while the vendors used handheld BAC Credomatic scanners. These are very common in San Salvador and offer credit or debit options. I was unclear whether these vendors had Bitcoin PoS devices.

To make it easier to use Bitcoin as a medium of exchange, these devices may need to integrate a third component—the Lightning Network—so that vendors can use Bitcoin more intuitively and simply. The barriers to mass adoption exist on both sides of commercial transactions.

After spending over a week in El Salvador, I can see evidence of the infrastructure outlined in President Bukele's vision for Bitcoin. The inherent price volatility of Bitcoin has scared some people away, but this overlooks the volatility that inflation brings to the use of fiat currency. My best estimate is that it will take several more years for people to trust the Bitcoin network as much as they trust the dollar.