For the first time, we see the acceptance of cryptocurrency by the entire country
El Salvador became the first country to officially adopt Bitcoin as legal tender, on an equal level with the dollar, which has dominated the country’s economy for the past two decades. President Nayib Bukele believes that Bitcoin has the potential to solve one of the most difficult economic problems in El Salvador. The volume of money that citizens send from abroad represents up to a fifth of the country’s GDP. The problem is high transaction fees, and in addition, up to 70% of the population does not have access to a bank account. Bitcoin should solve these problems without the need for banks.
Each citizen received $ 30 in Bitcoin, which they can use as they want to. Companies are required by law to accept Bitcoin payments and may convert them into dollars immediately upon receipt of payment. In recent days, we have been following various reports on the operation of the new system and it seems that, except for minor bugs, it works without any problems. People are sharing a post about how they pay in Bitcoin, for example, at McDonald’s.
Let’s look at the negatives associated with this type of adoption of Bitcoin
It is certainly important to say that not all the people of El Salvador are enthusiastic about these steps. The wave of criticism comes mainly from the ranks of business entities, as not everyone wants to accept cryptocurrencies. However, this problem is relatively easy to solve, since companies that do not want to keep cryptocurrencies can convert all of them to dollars. Some residents are equally dissatisfied and their main criticism is the complexity of the system (especially among the elderly) as well as fears of high volatility.
A part of the cryptocurrency community also had a negative opinion on the topic, claiming that the message of cryptocurrencies is mainly freedom and that enforcing payments in cryptocurrencies is as bad as banning them. However, the possibility of an immediate conversion back to USD and the “forced” adoption of Bitcoin only on the part of companies offer the ordinary citizen quite enough level of freedom. It can be assumed that many of them will eventually understand the benefits Bitcoin offers them and learn to use the new system.
In particular, state officials are talking about huge savings on the fees that residents pay to send money to their territory (for example, through services such as Western Union). It could be up to 400 million dollars a year, and the speed of transactions is certainly a significant benefit. By comparison, when sending an amount via Bitcoin Lightning Network, the fees are close to zero and the transaction is processed almost immediately.
The government is also trying to attract foreign investors and capital
The latest news is that, according to the president’s legal adviser, the government will reportedly exempt investors from paying capital gains taxes and Bitcoin income taxes. Javier Argueta also said that they are trying to attract foreign investors through these tax breaks.
Javier Argueta, Legal Adviser to President
According to the released information, the El Salvador government will actively monitor BTC transactions on their Chivo e-wallet and focus on fighting the potentially illegal use of cryptocurrencies. To this end, they allegedly implemented a series of anti-money laundering measures into the system, which were recommended to them by various international institutions. It is money laundering, drug trafficking and terrorist financing that are the biggest risks from an international perspective. However, El Salvador has already stated that the country is watching the situation, there is nothing to worry about.
Best verification of correctness of this step will be time
It must be said that El Salvador, by accepting Bitcoin as legal tender, went to unexplored waters. Such fundamental changes are always best reviewed by time and by the users themselves. The government could certainly have set up some parts of the process better, but at the end of the day – El Salvador is doing something groundbreaking, and of course, it cannot be done without various mistakes and criticism.
The people of El Salvador will no doubt be able to save a lot of money, and some of them who do not have access to a bank account will finally be able to manage their own funds. There is also speculation that the country’s actions could soon be followed by others, and there is talk of Latin America and the Caribbean in particular.