El Salvador has become the first country to adopt Bitcoin as legal tender, despite the World Bank’s refusal to support that initiative. The reasons for the world body for not supporting the Salvadoran initiative are the lack of transparency of the process and the environmental impact of mining (a system by which new Bitcoins are generated), which consumes a large amount of electrical energy.
The presidential decision
The President of El Salvador, Nayib Bukele, announced on June 5, 2021, his intention to make his country the first (globally) to accept and adopt Bitcoin as legal tender through a Law. El Salvador is a country that uses the dollar for its transactions, and with this new measure, it will add Bitcoin as an official means of payment. This decision will bring implications that may be relevant at a global level; however, it also entails some challenges, which we will see below:
Bitcoin as legal tender
When a country like El Salvador decides to “adopt” a legal tender, it is basically because it has made international treaties, with an implicit regulation that generates special treatment for Bitcoin, considering it as just another currency, which would imply that there would be to see Bitcoin as fiat currency, even though it is not (but it is a legal tender). In this regard, the main remainder is the reaction of other countries concerning this decision and the treatment that these countries will be given to Bitcoin.
Bitcoin is serving as a “large-scale experiment” throughout the country, and the proposed challenges and the results of its use will have to be seen later. Many countries and international entities will watch this “experiment in real-time,” drawing lessons from the successes and errors in El Salvador regarding Bitcoin and evaluating more objectively if they could carry these actions out in their own countries or jurisdictions.
Opportunities in the regulatory issue and foreign investment
The implementation of Bitcoin in El Salvador offers various opportunities to advance certain projects in the crypto world, which had not been executed for various reasons, including the regulatory issue. El Salvador would provide an environment in which Bitcoin is legally supported and where various companies can develop high-quality financial products and services and incentivize foreign crypto investment in that country. The challenge in this regard is that the laws and regulations can provide adequate support to protect the initiative from interests “contrary” to the crypto world; for example, there may be some “gaps” in the local regulation that supports Bitcoin, or that other countries or entities (of traditional banking) take legal measures “against” Bitcoin to stop its development, influence or expansion.
Access to banking to more people and influence in other countries
Bitcoin is a decentralized system based on blockchain technology, making it easier for people to access banking and the global economy. Many experts say that this is like giving a country the possibility of being its “own bank.” Another point to consider is that there will be other countries that will follow the steps taken by El Salvador (such as the case of Tanzania), which may be “more motivated” to take the “big step,” especially if the El Salvador project is positive and fruitful.
Volatility in its price and technical problems
El Salvador’s main challenge with Bitcoin is the “volatility” of its price. The big question is, how can systems and methodologies be developed that allow it to be used in commerce without this negatively affecting the user experience? Another important challenge is the technical problems that may arise to bring Bitcoin to all users, however, little by little, this technology will advance in such a way that the crypto economy will continue to grow, and access to “high quality” financial “products/service” will increase, especially as more people and countries join the initiative.
What do you think about this topic? Do you think that the adoption of Bitcoin as legal tender in El Salvador will help solve banking in the country?
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