El Salvador is the first country in the world to accept bitcoin as legal tender, alongside the US dollar. Is this a real innovation or a regression?
Last June, the Salvador announced that it would become the first country in the world to accept bitcoin as legal tender, a currency that would, in fact, function alongside the US dollar, as the country pursues its goal of digitizing finances with a largely unbanked population.
If this decision has sparked a lively controversy – including quite violent demonstrations – some see it as an absolutely vital step towards digitized finances and a cashless economy. It would therefore be a very big and profound change that is coming.
The aim was to help stabilize the economy of El Salvador. With over $ 4 billion flowing in from overseas each year, the government wanted to allow those foreigners who send money not to be tapped. Using bitcoin is then a viable option as it can be transferred free of charge from one country to another since it has the same value everywhere in the world, although it fluctuates constantly.
When the solution was proposed by President Nayib Bukele, parliament would only have discussed for five hours before accepting this law, with 62 votes in favor of 84. It was then decided to allow 90 days to pass before bitcoin be officially declared legal tender.
This brought us to September 7th. But the reception was ultimately quite mixed. Particularly because of the failure of the government’s mobile application, Chivo, which was unable to support the user load. Apple and Huawei also did not have the said application on their store at the appointed time. A great frustration especially since the President had promised $ 30 of bitcoin to each citizen who downloaded the application.
Prior to this big launch, El Salvador had bought 400 bitcoins, for $ 20 million, which helped propel its value above $ 52,000 for the first time since May. A few hours later, it was down to $ 46,561.74. And when the law took effect in El Salvador, bitcoin plunged again, below $ 43,000. At that time, the government bought back 150 more bitcoins, for $ 7 million.
Is bitcoin the solution?
Digital currencies will become the norm, in the more or less near future, all over the world. 70% of Salvadorans are unbanked, with no access to financial services. Adopting bitcoin would give these people access to these services, which they probably never would have had otherwise.
We must also take into account the current situation in the world and how the pandemic has affected countries which use a lot of cash. By introducing bitcoin, not only do people have access to financial services, but they can also stem the spread of the virus as cash transfers – hand to hand – disappear.
With bitcoin being recognized and traded around the world, tourists can also easily prepare. They don’t have to worry about the exchange rate. And if this idea of adopting bitcoin were to arrive in other countries, El Salvador would remain the first.
For Matt Blom, Director of Sales at EQONEX, “the citizens of El Salvador are now carrying the crypto flag. Using a digital currency to carry out transactions outside the banking system for day-to-day activities is a turning point”.
Could bitcoin be a problem?
Despite the positive possibilities that this new legislation could bring, there is also reason to believe that this law is not necessarily going in the right direction. Before its implementation, El Salvador contacted the World Bank to prepare its country for bitcoin.
The latter rejected the request, out of fear for the climate impacts. Bitcoin, like all crypto, needs the blockchain to function, and that requires consuming a lot of electricity. Bill Gates also told journalist Andrew Ross Sorkin that Bitcoin “uses more energy per transaction than any other method known to mankind”.
Another concern concerns the fact that many Salvadorans do not have a smartphone and therefore cannot access this new application. If the government does not do everything to make the service more accessible, the poor will remain poor and will not be able to benefit from these changes.
Those in favor of this crypto law will say that 200 bitcoin vending machines have been installed in the country, but once the $ 30 gift of bitcoin is spent, for locals who do not have a smartphone to use the application, nothing will have changed.
And this is especially true since, according to statistics from Trading Economics, only 33.8% of the population of El Salvador has access to the Internet, and sometimes not through a reliable connection. It would therefore seem that El Salvador has bypassed an important step in its digitization: to make its idea an accessible idea.
Rachel Maga is a technology journalist currently working at Globe Live Media agency. She has been in the Technology Journalism field for over 5 years now. Her life’s biggest milestone is the inside tour of Tesla Industries, which was gifted to her by the legend Elon Musk himself.