I intentionally left out a few side topics in my last blog post about transitioning from Bitcoin to Ethereum to keep it focused. There are a few more serious practical issues with using either Bitcoin or Ethereum to perform one of the more important functions of money (there are several), which is the “unit of account” function.
Using El Salvador as an example, let’s consider two gas stations located in the same part of San Miguel, close enough that drivers can easily choose between them depending on price. Let’s suppose one gas station owner wants to attract new customers who like to pay with Chivo, so they change the signs out front to show the prices in BTC instead of USD like the other owner continues to do.
In both cases, customers can pay in BTC, and the government will even pay a $0.20/gallon subsidy if they agree to do so, which is a common way to get drivers to use a particular credit card or banking app or gas station app here in the US, so it’s funny to me to see the government doing the same thing instead of a company.
Regardless of how the customers pay, I will demonstrate that US dollars are the real unit of account for everyone involved. First, from a practical standpoint, a single BTC is currently trading for over $40,000, so when you buy a tank of gas or a cup of coffee, as a customer you’re not going to want to see 0.00000something. You’re going to want to see the price in dollars, like a normal person, i.e. someone who isn’t a crypto enthusiast.
Update: Now that BTC is so expensive, I realized after originally writing this that you could price goods in “sats” (Satoshis), since they’re about 2,880 sats to the USD right now. But then it’s going to be confusing to people who don’t know if a Satoshi is a different type of money to a Bitcoin, so that’s a whole new thing to explain, along with why there are 100 million Satoshis to a Bitcoin, and how many decimal places that is, and why nobody thought about usability.
So the units are the first problem. More importantly, though, both gas stations are almost certainly going to be buying the same gasoline from the same wholesaler with the same tanker truck delivering it to both stations for the same price. The only differences, if any, are the detergent packages that different brands of gas use to clean the engine (pro tip: look for Top Tier gas, which is guaranteed to meet a certain quality level; in El Salvador, Puma Energy and Texaco are the licensed brands).
So let’s assume that one is a Puma station and the other is Texaco, so the final product has roughly the same quality and the owners have roughly the same wholesale costs. The owners are going to have to pay Puma or Chevron for the detergent bottles (I assume the additives are a liquid?) and the wholesaler for the gasoline, and both of those inputs are going to be priced in US dollars, for the simple reason that their inputs are going to be priced in USD (or some other fiat currency), all the way up the supply chain.
Therefore, the owner who prices their retail products in BTC has a dilemma with only one resolution: they must actually continue to use USD as the unit of account, and then change their advertised prices (in BTC) depending on the “real” price (in dollars), perhaps even multiple times per day if BTC is especially volatile that day. Otherwise they can’t compete with the other gas station in town.
Why not? It’s pretty simple to explain. If BTC is strong relative to USD on a particular day, and the owner doesn’t change the price to a lower one (in BTC) to compensate, then they will immediately lose business to the USD station, because they’ll be too expensive.
If BTC is weak relative to USD on another day, the owner who is advertising in BTC prices has to immediately raise them, or else they will find themselves selling at a loss, which they can’t afford.
Therefore, the owner advertising prices in BTC must continue to use US dollars as their unit of account, and they must adjust prices more frequently than the gas stations that price in USD, due to the much greater volatility (in both directions) of Bitcoin.
For those of you who are saying to yourself right now, “that’s why I HODL forever”, I suggest you teach yourself the basics of cash flow.
One more quick example to show that tourists will also likely continue to prefer USD, as well the establishments that cater to them. Suppose I’ve flown to El Salvador for a vacation and I’ve driven to San Miguel, skipped the gas stations because they’re both more expensive than the ones in San Salvador, go to a coffee shop and I see a crypto bro in line after me who clearly wants to pay with Bitcoin because that was his primary reason for vacationing here rather than somewhere else, which is weird, but let’s imagine.
I get up to the front of the line, order a large black coffee in my bad Spanish, and the total, with VAT, comes to $3.50 US. I open up my wallet and pay with a $5 bill, saying “keep the change” and smile, and the barista smiles back, and I go wait for my drink. Very easy.
Now it’s the crypto bro’s turn. He orders the same drink and gets the same total, but he wants to pay with Bitcoin, so he has to do this awkward QR code scanning dance with the barista, and by the time the transaction has completed, they’re both so flustered that he doesn’t even think to add a tip at all. Naturally he isn’t carrying cash because he doesn’t believe in it.
The difference between the two of us (well, there are probably many differences, but let’s stick to just the payment method) is that my $5.00 bill represents a frictionless exchange that gives the barista a nearly 43% tip and also saves the owner the transaction fees for using electronic payments. That makes me a good tourist.
The other guy has wasted both his own and the barista’s time and hasn’t even tipped anything. That makes him a bad tourist. As a side bonus for paying in cash, if the owner is having trouble paying the bills that month, they might perhaps “forget” to report some of the cash sales and keep the collected VAT for themselves.
As a tourist, I don’t mind if the owners cheat a little bit on their taxes, but perhaps the crypto bro is offended. Then again, he probably doesn’t believe in taxes at all and is eager to end his vacation after discovering at the last minute that the government charges a 13% VAT on everything. Taxes! To the government!