Bitcoin in El Salvador

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Legal status of bitcoin
  Legal tender
  Permissive (legal to use bitcoin)
  Contentious (some legal restrictions on usage of bitcoin)
  Contentious (interpretation of old laws, but bitcoin is not prohibited directly)
  Hostile (full or partial prohibition)
  No data

On June 9, 2021, the Legislative Assembly approved a bill for the adoption of Bitcoin. 62 of 84 deputies voted in favor of Bitcoin, making the Central American country the first nation in the world to adopt Bitcoin as legal tender.[1] President of El Salvador Nayib Bukele explained that the new law would make it easier for Salvadorans living abroad to send remittances to their relatives in the country. Also, Bukele described that approximately 70% of the Salvadoran population does not have a bank account, and Bitcoin technology would benefit citizens by sending money from their cell phones without opening a bank account. Moreover, President Bukele communicates with his followers through tweets. Before the Bitcoin adoption bill was approved, Bukele tweeted that "#Bitcoin has a market cap of 680 billion dollars" and "If 1% of it is invested in El Salvador, that would increase our GDP by 25%".[2] Bukele strongly believes the virtual currency would boost the economic strength of the country.

History[edit]

Background[edit]

The colón (SVC) was the official monetary unit of El Salvador from 1892 to 2001, which was substituted by the US dollar. On January 1, 2001, the Legislative Assembly of El Salvador passed the Monetary Integration Act under the administration of former President Francisco Flores, which authorized the free circulation of the United States dollar in El Salvador. The colon is still the legal tender in El Salvador, but it is no longer in circulation. One U.S dollar was equivalent to 8.75 colones.[3] The purpose of dollarizing El Salvador was to achieve financial stability. However, it was almost impossible to establish economic growth due to the high rate of crime and violence that hurt the country internally, which kept foreign and local investors away from contributing to the economy of El Salvador. Also, the currency exchange had many disadvantages on commerce and the Salvadoran population. Dollarization slowed down El Salvador's exports because it could not compete against the undervalued currencies of other developing countries such as China. Besides, the lack of financial literacy harmed the poor population of El Salvador since they did not know how to use the US dollar nor understood its value.[4]

Remittances accounted for 23% of GDP in 2020.[5] They are currently delivered by money transmitters, which operate on an in-person basis.[6]

Adoption[edit]

On June 9, 2021, the Legislative Assembly voted to adopt the Bitcoin Law, that would make the cryptocurrency legal tender in the country.[1] The World Bank rejected a request from the government to assist with the implementation of the law due to transparency concerns and the environmental impact of Bitcoin mining.[7]

The government intends to distribute US$30 in bitcoin to people who sign up to use an electronic wallet called Chivo, at a cost of up to $75 million.[8]

Bitcoin Beach: El Zonte[edit]

A year before El Salvador made Bitcoin its legal tender, El Zonte, a rural village on the coast of El Salvador, adopted Bitcoin as a form of payment. El Zonte has a population of nearly 3,000 inhabitants. At least 500 families use Bitcoin to carry out their transactions. Many residents in El Zonte do not have access to banking services. So, they use Bitcoin for efficiency and speed since they only need a mobile phone and the internet to download the Bitcoin application and start sending money to their recipients. It takes less than two minutes to send and receive money using the Bitcoin app. They also have access to Bitcoin ATMs in commercial areas.[9] Long before El Zonte residents knew about Bitcoin, an anonymous donor found their lost USB stick full of Bitcoins. They had bought the Bitcoins when they had the value of 5 to 10 US cents each, several years passed, while the value of Bitcoin was through the roof. This person decided to donate a six-figure amount to El Zonte each year. This anonymous donor then contacted several philanthropists based in the United States and asked them to donate money to El Zonte, El Salvador. These donors sent someone to El Zonte to manage Bitcoin and create a Bitcoin economy among its residents. This is now known as the Bitcoin Beach initiative. So far, the Bitcoin Beach initiative has been a success. The residents of El Zonte have a great job opportunity since they can receive Bitcoins if they do community services. And Bitcoin Beach provides grants for high school and college students.[10]

Bitcoin mining[edit]

Bitcoin mining uses too much energy from fossil fuels. Bitcoin mining does not pollute the environment but relies heavily on scarce resources.[11] The government of El Salvador plans to use geothermal energy from its volcanoes to produce Bitcoins. On June 9, President Bukele tweeted that geothermal electricity is an extremely cheap, clean, and renewable resource. Also, the geothermal energy from volcanoes is sustainable since it will create 0 energy emissions. Furthermore, President Bukele is already working with the geothermal power company LaGeo in El Salvador.[12]

See also[edit]

References[edit]

  1. ^ a b Ostroff, Caitlin; Pérez, Santiago (June 9, 2021). "El Salvador Becomes First Country to Approve Bitcoin as Legal Tender". The Wall Street Journal. Archived from the original on July 17, 2021. Retrieved August 22, 2021.
  2. ^ "https://twitter.com/nayibbukele/status/1401335885497524226". Twitter. Archived from the original on 2021-08-17. Retrieved 2021-08-17. External link in |title= (help)
  3. ^ "Historic Outline". www.bcr.gob.sv. Archived from the original on 2021-06-08. Retrieved 2021-08-14.
  4. ^ voicesontheborder (2011-06-08). "Ten Years Later- The Impact of Dollarization in El Salvador". Voices on the Border. Archived from the original on 2021-08-06. Retrieved 2021-08-14.
  5. ^ Hawkins, John (June 13, 2021). "Can Bitcoin become a real currency? Here's what's wrong with El Salvador's crypto plan". The Conversation. Archived from the original on August 23, 2021. Retrieved August 23, 2021.
  6. ^ Coker, David (June 9, 2021). "Bitcoin: El Salvador's grand experiment". The Conversation. Archived from the original on August 23, 2021. Retrieved August 23, 2021.
  7. ^ "World Bank rejects El Salvador request for Bitcoin help". BBC News. June 17, 2021. Archived from the original on August 22, 2021. Retrieved August 22, 2021.
  8. ^ Pérez, Santiago; Ostroff, Caitlin (August 26, 2021). "El Salvador Gets Ready for a Risky Bitcoin Experiment". The Wall Street Journal. Retrieved August 26, 2021.
  9. ^ "In a world first, El Salvador makes bitcoin legal tender". Reuters. 2021-06-10. Archived from the original on 2021-08-12. Retrieved 2021-08-14.
  10. ^ Koffman, Tatiana. "This El Salvador Village Adopts Bitcoin As Money". Forbes. Archived from the original on 2021-08-10. Retrieved 2021-08-10.
  11. ^ "Here's how El Salvador's Bitcoin experiment is playing out so far — the good, the bad and the ugly". Business Insider. Archived from the original on 2021-08-14. Retrieved 2021-08-14.
  12. ^ "El Salvador to use energy from volcanoes for bitcoin mining". The Independent. June 10, 2021. ISSN 0951-9467. Archived from the original on August 14, 2021. Retrieved August 14, 2021.