Bitcoin will become legal tender in El Salvador on 7 September 2021. The cryptocurrency can pave new paths for the population in underprivileged regions and amongst unbanked people.
Is Bitcoin on its way to full adoption, well it be treated as currency? While we see that Bitcoin is the currency of the internet, that obviously a next level is reached in El Salvador.
As of September 7 this year Bitcoin will become legal tender in the Latin American country alongside the US dollar. Payments in #Bitcoin must then be accepted by all citizens and businesses as well as merchants, with the government guaranteeing to exchange all receipts into dollars on request. On CoinMarketCap, Bitcoin is already listed as another official currency (legal tender) of the country:
El Salvador’s approach is causing headaches for the regulatory and tax authorities of other states, as Bitcoin can thus formally be considered a foreign currency, which many #CentralBank representatives still reject!
Domestic financial institutions, and large parts of society in El Salvador are already intensively dealing with topics such as “lightning” and “liquid”. These “second layer” solutions – conceptually comparable to #Visa or #ApplePay – are essential to make Bitcoin transactions cheap and frequent in everyday life.
Sustainable energy for mining
Immediately after the announcement of the “legal tender” news by President Nayib Bukele, the initially rather half-hearted suggestion was made to him on Twitter to use the geothermal energy of the volcanoes in the country for Bitcoin mining.
In the meantime, there are already concrete projects in this direction. This shows that the recent discussion about the carbon footprint of mining has changed the search for surplus energy and that, besides the price of energy, the carbon footprint plays a more important role. This alone has made the discarded coal-fired power plants in China that were used for mining until recently less attractive
The idea of releasing mining bonds is being considered to finance the green “volcano mining”. These bonds are not to be issued in the usual way, but on the Liquid Sidechain, a decentralised platform based on the Bitcoin protocol.
Why El Salvador?
One reason is the president, who has become successful through his social media presence. He has a clear majority in Congress, which helps to implement such a historic project in a short time. But there are also sober figures that speak for a special breeding ground for the project. If one applies three criteria – large remittances from abroad (at least 10 % of GDP), low financial inclusion (more than 60 % of the population without a bank account) and no exclusive currency of their own (for example, use of the dollar) – the list of countries that remain is very clear: Haiti, Liberia and El Salvador. While Haiti and Liberia have high inflation rates, inflation in El Salvador actually declined slightly in 2020.
This suggests that the initiated fundamental change in the monetary system is taking place from a situation of relative stability. Why the above criteria (which, incidentally, were also cited by the government in El Salvador) make Bitcoin adoption more attractive in the short and medium term is obvious. Compared to countries that have their own currency, the population of El Salvador has no national pride in this respect and is used to currency conversions. In addition, Bitcoin has great advantages for cross-border payments, especially since anyone can open a bank account on their smartphone without ID or proof of income. This is particularly advantageous in countries where large parts of the population do not have a bank account.
El Salvador is drastically “underbanked” by international standards: Just 30% of the population (15 years and over) have a bank account, which is less than the average in sub-Saharan Africa and seems tiny compared to North America. El Salvador’s experiment, which has already led to similar legislative efforts in other countries in the region, teaches one thing above all: unlike many investors from the US and Europe who are discovering Bitcoin as a new asset class, Bitcoin can pave entirely new paths for the population in less privileged regions.
Source: CoinMarketCap, BörseZeitung (Germany), #CryptoRobby