The world witnessed history when El Salvador announced that the nation would use bitcoin as a legal tender. Despite this monumental feat, will using the cryptocurrency help the country? What are the implications of using cryptocurrency as actual currency, and what problems have they run into?
El Salvador’s Bitcoin Adoption
In Sept. 2021, El Salvador was the first country to use bitcoin as an actual currency. They use the tender with the U.S. Dollar, El Salvador’s currency.
All the fuss of using it arose when President Nayib Bukele tweeted that they will “make history” on Sept. 7, 2021, dubbing it as their #BitcoinDay. On the same day, he sent another tweet that El Salvador has 400 Bitcoin. But eventually, they ended the day having 550 Bitcoin. At that time, 550 equaled 26 million US dollars. But how do El Salvadorans store their bitcoin?
The government-issued digital wallet they use is Chivo Wallet. And as CNBC reported, those who registered on the app on the day of the adoption would get $30 Bitcoin. However, the country faced its first setback when the wallet went down for over a week due to many citizens wanting to claim their free bitcoin. Despite the hiccup, over 2 million El Salvadorans use the app.
You may wonder… Why has El Salvador implemented the digital currency as a legal currency in the first place?
It’s said that only a few of their citizens have bank accounts. And with the implementation and the free $30 Bitcoin upon registration, it gives most of its citizens a chance to use financial services without banking or other institutions.
Considering that many of its citizens work abroad, they can send money seamlessly without the need for a “middle man,” which would reduce transfer fees.
Will Other Countries Also Adopt Cryptocurrency?
El Salvador’s adoption of the cryptocurrency may have had its issues and shortcomings, but being the pilot country to do this, other nations may look to the country to see if it’s worth adopting too.
YouGov, a research and data firm, conducted research in the U.S. They found that 20% of those in the study would like to have bitcoin as an actual currency. However, it should be noted that those who want the cryptocurrency adopted as a legal tender are tech-savvy and know how cryptocurrency works.
However, many nations have considered cryptocurrency legal to use for transactions.
Possible Implications
Even if Bitcoin has become a legal tender in the country, there were citizens protesting its use. The BBC reported that demonstrators against the use of the cryptocurrency say that it would cause inflation and instability. After all, it is infamous for being volatile. Plus, demonstrators went so far as to burn bitcoin machines as well.
The S&P echoed the same sentiment without burning any machines. One major repercussion that the country could face is its IMF deal. Even if they have adopted the cryptocurrency, they are asking for a billion-dollar loan from the IMF. And with the cryptocurrency as a legal tender, it could pose issues, especially on the legality of transactions done, which could reduce “financial integrity.”
Another issue they find with this adoption is trust. Considering there are opposers to its use, it’s unclear if the cryptocurrency will become widespread.
Bitcoin City and Bonds
Considering that many have already embraced the cryptocurrency in the country, there are plans to create a Bitcoin City and issue bitcoin bonds.
Bukele announced at an event that they would build a circular city similar to the shape of bitcoin. The city will be at the base of a volcano and use geothermal energy from there. It will use bitcoin bonds to fund the city. It’s estimated that around 500,000 bitcoins will be used to build the bitcoin-focused city.
