Over time, scores of countries across the globe have adopted or are making efforts to adopt Bitcoin, the largest cryptocurrency as their legal tender. However, as of today, only El Salvador and Central African Republic have officially adopted the asset, with many others looking to do same soon. In El Salvador, the idea behind the adoption of Bitcoin was first announced by President Nayib Bukele at the Bitcoin 2021 Miami conference. Then, the President disclosed the intention of the country to initiate a bill to make Bitcoin a legal tender in the South American nation. In September 2021, El Salvador officially becomes the first nation to adopt Bitcoin, thereby making the crypto a legal tender in the country. The development consequently paves the way for the usage of the asset in any kinds of transactions within the country.
Unveiling of Bitcoin as a legal tender in El Salvador
At the official unveiling, Bukele described the crypto “as a path to financial freedom.” According to him, the embracement of Bitcoin in El Salvador possesses the capacity to bring about 70% of Salvadorans who lacked bank accounts into the formal economy. Additionally, the President promoted cryptocurrency as faster and cheaper to get remittances from abroad. Bukele believes the potential associated with it can “free the indebted nation from the hold of the traditional global financial system.” The President added that the innovation helps to eliminate the challenges occasioned by credit scores and bank wires inefficiencies. It paves the way for El Salvadorians to transact value at their convenience in a trustless, and permissionless way, he added.
Occasioned by the development, every business in El Salvador now accept Bitcoin for payment. Then, the government initiated a virtual wallet, identified as “Chivo.” The wallet reportedly pays $30 Bitcoin bonus to every residents of El Salvador who download it. Additionally, an enablement to withdraw funds in cash from 200 ATMs and 50 consulting centers across the country was facilitated. More so, the El Salvador authority reported availed a trust, possessing about $150 million dollars in public funds. This, as reported, was done to ease dollar conversion.
Notable reactions to the adoption of Bitcoin in El Salvador
Worth noting that the unveiling of Bitcoin as a legal tender in El Salvador was greeted with mixed reactions. While the Bitcoin community applauds the development, others, particularly financial experts, feel it could trigger greater risk. According to the experts, the volatile nature of cryptocurrencies poses more danger to the fragile El Salvador economy.
For instance, Tatiana Marroquín, a Salvadoran economist condemned the move, insisting that it poses great harm on the economy. According to Marroquín, “it seems that for them El Salvador is just a tool to promote their cryptocurrency. El Salvador isn’t just a means to an end — for us, El Salvador is the end.” Also, Jerry Brito, a notable researcher in Washington expressed worry on how a government could embrace a currency initiated to deter governmental control over money. Similarly, international financial regulators, like IMF also reacted to the adoption of Bitcoin in El Salvador. The regulators believed such adoption tends to prone the country to more cases of money laundering and other forms of financial crime.
Notable benefits of the adoption
Notably, one of the benefits of Bitcoin adoption in El Salvador remains that it avails easy accessibility to its residents. According to findings, over 70% of the country’s population lacks access to traditional banking services. The development thus allows millions of Salvadorans to legally explore bitcoin for storing and transacting value.
Without a doubt, the embracement of Bitcoin in El Salvador has, over time benefited the tourist sector in the country. The development, as discovered, attracted researchers, crypto optimists and tourists willing to pick interest in the distinctive revolution of money through Bitcoin. Occasioned by the friendly regulations, more crypto users tends to settle in the country, thereby expanding its economic prowess. According to findings, tourism in El Salvador recorded a bigger hit in the first half of 2022. It reportedly soared by about 82% owing to 1.1 million tourists flocking into the the country.
Similarly, the development paves the way for foreign crypto institutional investors to troop into the country. For instance, El Salvador also possess robust and consistent energy supply, and this attracted crypto miners to continuously establish their business there. The adoption of Bitcoin in El Salvador also avails economic freedom to its residents. Notably, the crypto allows its users to enjoy financial autonomy, using their funds the way they deem fit.
Failed Promises
It’s over a year since El Salvador announced the adoption of Bitcoin as a legal tender. During the announcement, the President of El Salvador, Nayib Bukele, disclosed plans to build a “Bitcoin City.” Then, the President revealed how he intended to use the proceeds from El Salvador’s investment in Bitcoin. According to Bukele, the Bitcoin City would be powered by a Volcano, with Airport, Residential and Commercial zones. The president as well disclosed how the city would have a central plaza, with its aerial view looking like a Bitcoin symbol. Above all, the President vowed that the Bitcoin City would be a tax shelter for investors and miners.
A year after Nayib Bukele made these fascinating promises, the proposed site for the Bitcoin City looks like a thick Forest. Per emerging reports, there are indications that the sure remains obsolete without any sign of work in progress. The lack of construction activities on the site highlights how Nayib Bukele and El Salvador are struggling to fulfill the promises of their Bitcoin investment. Though, the adoption raised high hopes in the cryptocurrency space about the future of the industry. To some extent, cryptocurrency has fared positively since the adoption of Bitcoin by El Salvador. However, the growth doesn’t come in the form of any adoption. Currently, the Central African Republic is the only country to have followed in the footsteps of El Salvador.
Are the critics right on El Salvador and the dangers of adopting the crypto?
Undoubtedly, El Salvador hasn’t been able to fulfill the promises it made while selling dreams to the crypto space. The words of it’s critics are starting to come into play. Among one of the fierce critics of the decision is the International Monetary Fund (IMF). The IMF opposed the decision, citing the volatility of Bitcoin and its effectiveness in plunging El Salvador into severe debt. Reasonably, IMF’s opposition has some particles of fact, even if it’s against what the crypto space expects. The IMF argued that investing into Bitcoin could affect the finances of the Central American Country.
Indeed, investing about $111,907,000 million into Bitcoin is way too expensive for a country that ranks high among the poorest nations on its continents. When El Salvador acquired its Bitcoins, the price was around $47,000. Now, Bitcoin is trading at $19,000 which reflects a massive loss for El Salvador. Coupled with the harsh inflation the world economy is enduring, El Salvador must go through a difficult phase. The country could have turned to IMF for support. However, its refusal to back out from adopting Bitcoin has strained the relationship between El Salvador and the IMF. The IMF cited financial, economic, and legal concerns regarding the decision. The lender threatened to hold its financial support for El Salvador regarding the adoption. Currently, the relationship between the two has gone beyond repair, and El Salvador is feeling the impact more.
How the adoption is faring
The adoption hasn’t gone as intended for El Salvador because most citizens haven’t complied with it. According to research by the National Bureau of Economic Research (NBER), the citizens of El Salvador have a lackluster attitude towards adopting Bitcoin. The research indicates that as few as 20% of the citizens who downloaded the Chivo app continued to use it after they finished spending the $30 freebie from the government. Nayib Bukele adopted this mechanism to encourage citizens of the country to embrace the adoption.
Similarly, the Chivo app enjoyed massive attention in the first month of its adoption. NBER indicates that there has been a low download of the Chivo app in 2022. So far, there have been no official figures about the app download by the El Salvadorian government. The government encouraged business set-ups to accept payment in Bitcoin, but the research indicates that only 20% have followed suit. Thus, causing business owners to berate the idea because Salvadorians are critical of the adoption. Overall, the adoption of Bitcoin by El Salvador hasn’t gone as planned for Nayib Bukele.
Positive Note and The Future of Bitcoin Adoption
It’s imperative to note that the heat for the adoption of Bitcoin became more intense during the previous Bull market. The call could have gained more global attention if Bitcoin had hit the $100,000 mark this year. As long as Bitcoin is struggling to attain stability, the decision of El Salvador to adopt it might look bad. For the adoption of Bitcoin to advance further, the token market condition must improve. It’ll be safe to contest that the future of Bitcoin is far beyond adoption. Nonetheless, how well El Salvador is faring with it would go a long way in encouraging others to follow suit.
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