El Salvador Plans to Make Bitcoin Legal Tender
At the Bitcoin 2021 conference, Bukele described his bill as a way to “design a country for the future.” On Twitter, he pointed out that if 1% of the world`s bitcoin moved to El Salvador, that would equate to a quarter of the country`s annual economic output. On June 5, El Salvador`s President Nayib Bukele announced at a conference in Miami that the Central American country was in the process of introducing bitcoin as legal tender: a move that would make El Salvador the first country to consider bitcoin as an official national currency. Despite El Salvador`s small size, Bukele`s efforts are an important milestone in the history of monetary policy that has had a significant impact on the global financial system. 70 percent of Salvadorans do not have a bank account, Bukele noted. Given that people can transfer bitcoins to parents and businesses on their smartphones without the need for a bank account, the decision to make bitcoin legal could help realize the “moral imperative” of financial inclusion and “create a space where some of the leading innovators can reshape the future of finance and potentially help billions of people around the world.” On September 7, El Salvador officially adopted Bitcoin as its legal tender, making cryptocurrency an accepted medium of exchange for goods and services. While El Salvador is the smallest country in Central America, the introduction of Bitcoin has impressed some major countries in the region. It wasn`t immediately clear how long Bukele had been working on the Bitcoin plan, but he said Wednesday that he was inspired by a project called Bitcoin Beach, which launched the cryptocurrency last year in a beach town in El Salvador. Another advantage was the no-fee transactions. Outside of Chivo, Bitcoin transactions can incur high fees. When using a Bitcoin ATM, a fee of up to 20% of the transaction amount may be incurred. But with Chivo, there are no fees for transactions, bitcoin to dollar conversions, and chivo ATM withdrawals. The use of Bitcoin will be optional for individuals and will not entail any risk to users, Bukele said, with the government guaranteeing convertibility into dollars at the time of the transaction through a $150 million trust created at the country`s development bank BANDESAL.
El Salvador`s President Nayib Bukele said Saturday that he will send a bill to Congress next week to make bitcoin legal tender in the country. El Salvador is perhaps the smallest country in North America. But if President Bukele`s Bitcoin proposal becomes law, El Salvador could become one of the most important monetary centers in the world. Another crypto entrepreneur, Adam Back of Blockstream, told CNBC that he “plans to contribute to technologies like Liquid” that can speed up Bitcoin transactions like Lightning, “and to satellite infrastructure to make El Salvador a model for the world.” Satellites can help rural Salvadorans connect to the Internet, and thus to the Bitcoin network, in places where terrestrial connectivity is poor. This has led to protests and skepticism among economists and others. As a result, El Salvador`s President Nayib Bukele tweeted in August that companies would not have to accept Bitcoin. Legal tender refers to money – usually coins and banknotes – that must be accepted when it is offered to pay a debt. In a press release, Strike said: “Making Bitcoin legal is a watershed moment that can help countries like El Salvador move from a largely monetary economy to an innovative, inclusive and transparent digital economy where your bank account is your phone.” Mallers described the Salvadoran decision as the “shot that was heard around the world” because it would “provide a way to protect developing countries from potential shocks to fiat currency inflation.” President Bukele said he believes this will encourage cryptocurrency investors to spend more in his country. He even has a plan for El Salvador`s geothermal utility to use energy from the country`s volcanoes to mine Bitcoin.
Aside from Central America, the news could have an impact on the United States, where some proponents are considering the idea that Bitcoin will be legal tender. “The market will now focus on El Salvador`s launch and whether other countries will follow,” said Richard Galvin of crypto fund Digital Asset Capital Management. “This could be a major catalyst for Bitcoin in the next two to three years.” Half of the country`s households downloaded the app when the Bitcoin law went into effect. Since the beginning of 2022, however, very few households have joined the Early Mover. Among the first downloaders, more than 60% have not made a transaction after spending the free Bitcoin that comes with the account, and 20% have not yet spent the bonus. However, a small group of consumers, most of whom are banks, educated, young and male people, are very active in the app. This group was not the intended goal of Bitcoin`s deployment. Nearly 78% of those who knew about the app tried to download it. The most common motivator was the $30 bonus, although respondents also highlighted contactless payment technology at a time when the COVID-19 pandemic was in full swing and the ability to receive referrals. Among the five Salvadorans who knew Chivo but did not download it, the main reason was a preference for using cash.
Others said they didn`t trust the system or Bitcoin, they didn`t own a phone with the internet, or the technology was complicated. In other words, if El Salvador is to become a crypto capital of the world, the entrepreneurs who settle there must help build trust in the country`s legal and economic institutions. Cryptocurrency theoretically provides a fast and inexpensive way to send money across borders without relying on the remittance companies typically used for such transactions. It is not clear what proportion of transfers sent to El Salvador are included in Bitcoin. “The introduction of a native digital currency as legal tender provides El Salvador with the safest, most efficient and globally integrated open payment network in the world,” Mallers added. By law, Bitcoin must be accepted by businesses when it is offered as a means of payment for goods and services. Tax contributions can also be paid in cryptocurrency. The Salvadoran marriage with Bitcoin had been in production for two years. Bitcoin entrepreneur Jack Mallers, who helped build the Lightning Network to enable fast, low-cost bitcoin transactions, worked with Bukele and other Salvadorans to make bitcoin a viable medium of exchange for everyday purchases.
El Salvador, for example, moved from the colon, its previous currency, to the US dollar in 2001. Ecuador, Panama, East Timor and the Federated States of Micronesia also use the dollar as legal tender. “If you don`t understand Bitcoin, it means you`re old. I am 78 years old. I`m old. I don`t understand. I would be very careful with btc. It doesn`t make much sense, and if you`re nervous about the world, gold would be a better place to store value. “In El Salvador, however, there is obvious confusion on the issue. Its original bitcoin law, passed in June 2021, states that “any commercial agent must accept Bitcoin as a means of payment if it is offered to him by the one who buys a good or service.” But despite the above definition, legal tender does not mean that all companies have to accept it as payment for a good or service.
