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El Salvador’s adoption decision Bitcoin (BTC) As legal tender it was polarizing. Cryptocurrency enthusiasts celebrated the shift as a decisive step toward mass adoption, while economists dismissed the idea and mourned the Salvadoran people.
Since becoming the first country in the world to officially adopt Bitcoin, the Salvadoran government is more committed than ever to its blockchain-based future. Regardless of the volatility in the cryptocurrency market, Chairman Nep Bokil’s resolve remains unchanged.
Even after the FTX crash, when digital currency seemed to be gone forever (again), Bukele’s government doubled down and announced that it would buy one bitcoin a day. Despite the government’s confidence, the Salvadoran public’s use and adoption of bitcoin remains low.
With the creation of Bitcoin City lagging behind and the Bitcoin price still far from all-time highs, is time running out to see Neb Bokel?
Pioneers of legal tenders
After the bill was proposed on June 5 at the Bitcoin Conference in Miami, El Salvador officially adopted Bitcoin as legal tender on September 7, 2021. At the time, BTC was trading at around $50,000, and market sentiment has never been higher.
Long before the Bitcoin Act came into effect, pockets of Salvadoran society were using the digital asset as a currency of exchange. The local economy in El Zonte, a coastal fishing village, has been dealing in BTC for years.
Even during his tenure as mayor San SalvadorThe nation’s capital, Najib Bukele, has expressed interest in national adoption of Bitcoin.
While many companies accepted Bitcoin prior to the announcement, its status as legal tender means that operators must accept BTC as payment.
Why did President Najib adopt Bitcoin agent?
In many respects, the Central American country is a perfect example of why Bitcoin was created in the first place. According to Niep Buckel, 70% of El Salvadorans do not have a bank account and live and work in the informal economy.
However, mobile Internet usage in the country is widespread, with over 9.94 million active mobile connections in early 2023. This figure represents about 156% of the total population and indicates that the number one mobile financial service, such as A Bitcoin wallet, it will be far more intuitive than traditional central banks.
around 25% Of El Salvador’s GDP comes from remittance payments. This means that a large part of the wealth within the country comes from external payments. Transfer fees are usually high, and sometimes very expensive 30-50% of the conversion value.
Like many Central American countries, El Salvador uses the US dollar as its national currency. In 2001, the government of El Salvador began to de-circulate its former currency, the El Salvadoran colon, and replace it with the US dollar as the more stable and safer national currency.
Twenty years later, the Salvadoran government wanted to move away from its dependence on the US dollar and its loss of value due to inflation.
What are the risks of using bitcoin as legal tender?
The use of bitcoin as legal currency has raised many concerns among the Salvadoran public. There are concerns that the cryptocurrency network is being used for fraud and money laundering. The Salvadoran government says bitcoin has the opposite effect; The transparency of the blockchain means that tracking funds is easier than ever.
The International Monetary Fund has urged El Salvador to do so reversed her decision On the use of bitcoin as legal currency. They argue that cryptocurrency is highly volatile and poses a risk to the country’s financial stability and consumer protection.
If the price of bitcoin drops significantly, there is a high risk that the El Salvadoran government will default on its loans and be unable to repay its lenders.
Bitcoin City
With a vision of turning El Salvador into a cryptocurrency utopia, Nayib Bukele has promised to build a Bitcoin city on the side of a volcano. The proposed city is expected to be built on the Gulf of Fonseca on the country’s southern coast.
Geothermal energy extracted from the Conchagua volcano will be used to power Bitcoin Mining operations. In addition, Bukele envisions a digital asset tax haven with no income tax or capital gains tax. This is expected to attract wealth and investment to El Salvador.
To fund the construction of Bitcoin City, the Salvadoran government will begin issuing Bitcoin bonds. The first issuance for ten years is known as the “Volcano Bond” and is valued at approximately $1 billion. Half of the money raised is invested in Bitcoin, and the rest is invested in the development of Bitcoin City.
Is Bitcoin Bet Paid in El Salvador?
From an investment point of view, El Salvador’s BTC holdings are still at a loss. according to bloombergEl Salvador has approximately 2,546 BTC purchased on a cost basis of approximately $108 million. For these holdings to break even, the price of one bitcoin would have to be $42,419.
From a social perspective, it is difficult to measure the success of Bukele’s move. As an incentive during the initial launch, the Salvadoran government gave every citizen $30 in BTC. Everyone who downloaded Chivo Wallet, El Salvador’s national wallet, was eligible. However, according to Reuters, usage rates are just indicative 20% of users They have continued to use the app since claiming the sign-up bonus.
A recent study by university From Central America it was found that 77% of respondents believe Bukele’s Bitcoin experiment has failed. The perceived security appears to be a major hurdle, as not many citizens understand and trust Bitcoin.
Despite the negative sentiments from the residents, Neb Bokil remains committed to the future. The latest news from the country states that the Salvadoran government has paid off debts of more than $800 million.
Bukele was happy about that Shouted Hundreds of major media articles suggesting he will default on the loan.
Ultimately, it is still too early to say whether Bitcoin adoption will be a successful endeavor for the nation. The ruling is likely to be directly related to the price of bitcoin rather than to its effectiveness as a network.
Legal Bitcoin Bid: Who’s Next?
While El Salvador leads the way in terms of Bitcoin adoption, it is not the only country eyeing the digital horizon. Other Latin American countries such as Paraguay and Panama have shown interest in bitcoin and have progressive laws around mining and taxation.
When Paraguay proposed a bill to make Bitcoin legal tender in June 2021, things looked positive for cryptocurrency enthusiasts in Paraguay. The South American country has a reputation as a major destination for bitcoin mining.
On the contrary, Panama has passed a bill that aims to make the nation more Currency friendly. While Bitcoin is not yet legal tender, profits from cryptocurrency-related endeavors are not subject to capital gains tax.
on the flip side
- The Bitcoin blockchain is far from perfect. Even with upgrades like the Lightning Network, it’s still relatively slow and expensive. Recent gas highs from Ordinal NFTs And BRC-20 has congested the network and pushed transaction fees to all-time highs, proving that Bitcoin still has some scalability issues.
Why is this important
While the recognition of Bitcoin as a legal currency is undoubtedly a step towards mass adoption, El Salvador’s experience will have huge ramifications for how digital assets are perceived. If the price of Bitcoin falls and El Salvador becomes insolvent, it is doubtful that another country would want to adopt BTC.
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