Bitcoin Faces Biggest Test As El Salvador Makes It Official Currency. El Salvador bought 400 bitcoins ahead of the roll-out, with a market value of about $20 million at current prices, and plans to buy “a lot more” of them.
Bitcoin is undergoing the biggest test in its 12-year history as El Salvador becomes the first country to adopt it as a legal tender Tuesday. Both enthusiasts and detractors of cryptocurrencies will monitor the experiment to see if a significant number of people want to transact with Bitcoin when it circulates alongside the U.S. dollar and whether it benefits the violent, impoverished Central American nation.
The country bought 400 bitcoins ahead of the roll-out, with a market value of about $20 million at current prices. The country plans to buy “a lot more” of them, President Nayib Bukele said via Twitter, after buying the first batch of 200.
If the experiment is a success, other countries may follow El Salvador’s lead. Its adoption will get an initial boost from the government’s Bitcoin wallet Chivo, which comes pre-loaded with $30 worth of the currency for users who register with a Salvadoran national ID number.
Businesses will be required to accept Bitcoin in exchange for goods and services, and the government will accept it for tax payments. The plan is the brainchild of El Salvador’s 40-year old president, who says it will draw more people into the financial system and make it cheaper to send remittances.
“This is brave new world stuff,” said Garrick Hileman, head of research for the Miami-based Blockchain.com. “We are in unchartered waters with this launch, but I’m glad to see this experiment happen overall, and I think we’ll learn a lot from it.”
Bitcoin Faces Biggest Test
Bitcoin is undergoing the biggest test in its 12-year history as El Salvador becomes the first country to adopt it as a legal tender Tuesday.
Both enthusiasts and detractors of cryptocurrencies will monitor the experiment to see if a significant number of people want to transact with Bitcoin when it circulates alongside the U.S. dollar and whether it benefits the violent, impoverished Central American nation.
The country bought 400 bitcoins ahead of the roll-out, with a market value of about $20 million at current prices. The country plans to buy “a lot more” of them, President Nayib Bukele said via Twitter, after buying the first batch of 200.
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El Salvador’s dollarized economy relies heavily on remittances sent by migrants abroad, totaling $ 6 billion last year and accounts for around one-fifth of GDP. Bukele says Bitcoin could save Salvadorans $ 400 million a year in fees for these transactions.
While Bukele himself enjoys an approval rating of over 80%, a poll conducted last week by Universidad Centroamericana Jose Simeon Canas of El Salvador found that his bitcoin law is largely unpopular. Two-thirds of those polled said the law should be repealed, while over 70% said they prefer to use the US dollar instead.
Read Elon Musk is still supporting the bitcoin.
The International Monetary Fund has warned of the risks associated with the use of bitcoin, which lost nearly half of its value from April to May. The World Bank declined the Salvadoran government’s request to help the government adopt it, citing environmental and transparency drawbacks. Although they have since cut losses, the bitcoin news also helped spark a sell-off in El Salvador dollar bonds.
Is this a new revolution for cryptocurrency?
A pedestrian opens the door to a Chivo Bitcoin automated teller machine (ATM) booth at Gerardo Barrios Plaza in San Salvador, El Salvador, on Saturday, August 28, 2021. El Salvador began installing Bitcoin ATMs, allowing its citizens to convert the cryptocurrency into U.S. dollars and withdraw it in cash as part of the government’s plan to make the token legal tender.
Mr. Bukele’s administration has installed 200 Bitcoin ATMs around the country that you can use to exchange the cryptocurrency for U.S. dollars. In addition, the Finance Ministry created a $150 million fund at state-run bank Banco de Desarrollo de la Republica de El Salvador, Bandesal, to back the transactions.
The dollar will remain the national currency for public accounting purposes, and merchants who are technologically unable to receive the e-currency will be exempt from the law, the government has said.
Read Elon Musk is creating new cryptocurrency.
El Salvador’s dollarized economy is heavily reliant on remittances sent home by migrants overseas, totaling $6 billion last year and accounting for roughly a fifth of gross domestic product. Mr. Bukele says Bitcoin could save Salvadorans $400 million a year in fees for these transactions.
The Bottom Line
Whereas the Bahamas launched its personal central bank-backed digital foreign money this 12 months, the Sand Dollar and Venezuela have their personal e-money known as the Petro; these are totally different from a decentralized cryptocurrency akin to Bitcoin, whose customers worth its independence from governments and central banks.
Different governments within the area will likely be watching carefully. Final month, Cuba legalized cryptocurrency already getting used on the island, whereas lawmakers in different international locations akin to Panama and Uruguay have proposed related laws.
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Bitcoin’s adoption comes because the nation’s prime courtroom presided over by Bukele allies dominated the final week that the president can run for a second time period. The U.S. criticized the choice and mentioned it damages bilateral relations between the 2 nations.
