El Salvador has officially become the first country in the world to adopt
Bitcoin as legal tender alongside the dollar.
This makes El Salvador somewhat of an experiment as other countries watch closely to see if the
people of El Salvador will choose Bitcoin over the US dollar – El Salvador’s official currency.
Image Source: © Huebi | Megapixl.com
El Salvadorian President, President Nayib Bukele, says the move will save Salvadorans
living abroad millions of dollars in commissions on money they send home.
The move means that businesses in El Salvador will be required to accept
Bitcoin in exchange for goods and services. Moreover, the government will accept it for
tax payments. Remittances
El Salvador’s Bitcoin adoption means Bitcoin will be in circulation alongside the US dollar,
which is used as the country’s official currency.
The move is seen by some El Salvadorans to be a positive step as it will reduce the cost of
remittances. In 2020, Salvadorans sent home almost US$6 billion from abroad, mostly from
the United States. The sum is equivalent to 23 percent of the country's gross domestic product.
The move to Bitcoin would allow Salvadorans to save US$400 million spent each year in
commissions for remittances. Less Reliance in the US Dollar
El Salvador is one of several Central American nations which use the US dollar.
One of the potential problems of this is if the US dollar strengthens,
it can have a crippling effect of those economies.
Bitcoin, on the other hand, isn’t influenced by local market conditions
nor is it directly influenced by one country’s economy.
Instead, Bitcoin operates on a global scale and its price is impacted by wider economic factors.
However a poll found that not everyone is in support of Bitcoin’s introduction into the local
economy with two-thirds of respondents saying the law should be repealed while more than 70 per cent
said they prefer using U.S. dollars instead Overall Impact on Bitcoin
Supporters of Bitcoin
believe El Salvador’s adoption of the crypto could be a positive move as it will further
raise Bitcoin’s profile and result in better regulation of decentralised finance (DeFi).
If El Salvador’s adoption of Bitcoin runs smoothly, it will likely result in other countries
following suit. More than likely, countries like Panama and Guatemala will follow suit if the El
Salvador move is a success. The reason for this is those countries have a similar reliance on the
US dollar. Moreover, a significant portion of their respective populations work overseas and
send money back home to their families. Thus, they will benefit from the reduction of remittances.
On the other hand, there are some economic experts who believe the Bitcoin
is too unstable to be used as mainstream tender.
Image source: © Ruletkka | Megapixl.com Environmental Concerns
While many of Bitcoin’s supporters are excited by El Salvador’s decision to adopt Bitcoin,
many detractors are concerned about the harmful environmental
impact associated with the mining of Bitcoin.
Earlier this year, Bitcoin’s mining practices came under fire after it was revealed Bitcoin’s
proof-of-work mining uses computer which require vast amounts of electricity.
In March 2021, the Bank of America said the bitcoin industry's global CO2 emissions
had risen to 60 million tons, equal to the last exhaust from about nine million cars.
However, to counter emissions, plans are being made to offer bitcoin mining facilities renewable
energy from the country's volcanoes. Bitcoin’s Price
El Salvador purchased 400 bitcoins with a market value of about US$20 million at current prices.
President Nayib Bukele said via Twitter, that the country plans on buying much more of them
after buying the first batch of 200.
In anticipation of El Salvador‘s bitcoin roll out, the price of bitcoin
climbed to more than US$52,680 on Monday night.
Bitcoin’s price sits at US$52,622.26 as of September 7, 2021.
In any event, El Salvador’s move to adopt Bitcoin as legal tender
is a historic move, not just for Bitcoin, but for the world.