On September 7, 2021, El Salvador will be the first country to accept Bitcoin as legal tender. The crypto can be used for all types of transactions in the country, from buying ice cream to paying your taxes. The bold adjustment idea was made clear by President Nayib Bukele when he said he would pass a bill to Congress that will make bitcoin legal tender in the country at the 2021 Bitcoin conference in Miami.
El Salvador bought 400 Bitcoin, valued at around $ 20.9 million, the day before legal tender was officially launched. The government also released the Chivo digital wallet on Tuesday, which allows users to conduct bitcoin transactions after signing up. The reasons for this step are still skeptical for the governments of the world.
According to President Bukele, the use of cryptocurrency will fuel the country’s crippling economy. 70% of the population do not have a bank account and around 23% of the country’s GDP comes from overseas remittances. Bitcoin was adapted to overcome this in order to reduce the need for banks, improve accessibility, and attract investment into the country. However, the country, which abandoned its currency for the US dollar in 2001, was rejected by the World Bank.
This was based on Bitcoin’s lack of transaction transparency and concerns about its market value. The price of a commodity for sale remains the same regardless of the Bitcoin value. This has resulted in a large number of people against the current introduction of the currency.
History of Bitcoin in El Salvador
Bitcoin is nothing entirely new to the Latin American nation. Bukele had already tinkered with the cryptocurrency before taking office in 2019. Due to a lack of banking knowledge in the country, people mainly relied on cash. He also had plans for facilities and bitcoin mines that would add to such an economy in the country. The president himself has had some experience with Bitcoin and assessed its potential benefits.
Although only a very small percentage of the population was familiar with blockchain-based technology, El Zonte, a surfing village on the country’s Pacific coast, has been experimenting with it since 2019. Michael Peterson, an American who used to take a family vacation to the coast in 2006, was the Founder of the so-called Bitcoin Beach… Peterson got involved in community activities and eventually got interested in the economy by opening guest houses along the coast.
The lack of bankable citizens in the nation and the “storage value” of bitcoins prompted Peterson to experiment with bitcoin and the public’s reaction to it. A while after it started, an anonymous American donor became interested in the project and started sowing the village.
Although Peterson had not spoken to the donor personally, they interacted through a manager and shared similar interests to help the village grow. This inspired Peterson to make the village fully “Bitcoin Zone” and promote the various benefits of using cryptocurrencies for purchases.
Bitcoin Beach residents use the Strike app, ATM, and peer-to-peer transactions to move money, and for the most part this seems to be working well.
The state implementation of Bitcoin
The country has partnered with Strike, a payment application developed by Zap Solutions, to develop the bitcoin infrastructure for the country. The government has developed its own application, Chivo, which allows users to easily send, receive, and pay for transactions using Bitcoin.
The application also promised users $ 30 worth of Bitcoin in their wallet to promote their use. However, this was later suspended as the large number of transactions made by the users forced Chivo to go offline due to the server overload. However, the President has promised that this problem will be resolved soon.
Cities that previously did not have banks have been provided with a Bitcoin ATM that they can use to withdraw money in the form of cash using their accounts. Payments have been simplified as most people have a smartphone and sign in only requires government identification and no user bank account is required.
Public opinion on this issue is mixed. Some seem to embrace the technology and think that this is the future of El Salvador, while others are resorting to protests and urging the government to withdraw its decision.
“I prefer to have my hard-earned money with me, it gives me a feeling of satisfaction and security,” says one of the shopkeepers of the change. In fact, any change takes some time to get used to, or rather, it takes time for people to understand its benefits. The same goes for bitcoin.
For some poor Latin Americans, the change has been drastic and people have made small profits from the currency. Payments are simpler and require much less effort compared to traditional means. However, this does not correct the volatile nature of Bitcoin. It’s safe to say that the value is unlikely to ever reach zero, but Tuesday’s massive crash terrified many citizens and worried others.
The Bitcoin Crash and Why It Happened?
As the nation was ready to move ahead with Bitcoin customization, the market had a massive crash on Tuesday morning. decrease the value by 17%. Investors and market analysts may have long predicted this decline based on the president’s tweets expressing his legal tender idea.
A large number of users were making transactions with Chivo, the government-created app, on the day Bitcoin was launched. Several users had converted almost all of their money into Bitcoin to make payments and try out the new system.
The wallet temporarily crashed due to server overload and that was the reason for the decline in Bitcoin value. Several options were made available to the citizens, but the masses had relied on Chivo. The price had fallen from $ 52,457 on the same day to around $ 43,100. The market is now stabilizing at $ 45,935.
Experts say this could potentially happen again as more and more users accept Bitcoin as their daily money. The use of cryptocurrencies as a general means of spending money can lead to the demise of a nation’s economy.
Protests in El Salvador continue while people who like the idea of change have decided to find out more about it. Some have even become self-learning brokers, taking advantage of Bitcoin’s volatility. The current state of affairs can currently only be viewed from an experimental perspective.
Will the introduction of Bitcoin be the downfall of an already economically troubled nation? We’ll have to wait and see. Democracy chose this itself, and it is safe to say that it did some research beforehand. The risks of such an economy are very real, but as its citizens have commented, so are the benefits.
Bitcoin could empower a nation largely dependent on remittances. Citizens are becoming more and more aware of change and this could open up new opportunities for them that could lead to a more developed and stable economy for future El Salvadorans.
When did El Salvador introduce Bitcoin?
The people of El Zonte, El Salvador started adopting Bitcoin in 2018 through the development of Bitcoin Beach.
How much bitcoin did El Salvador buy?
El Salvador has acquired Bitcoin worth around $ 21 million, President Nayib Bukele announced.
Is bitcoin legal tender in El Salvador?
Yes, Bitcoin became legal tender in El Salvador on September 7, 2021, and El Salvador will be the first country to have Bitcoin legal tender.