El Salvador finally enacted the long-awaited legislation of accepting Bitcoin as legal tender. The launch was marked by technical hassles, protests, and a drop in Bitcoin prices.
September 7, 2021, will forever remain etched into the minds of people as the day when El Salvador, a sovereign state, adopted Bitcoin, a digital currency as legal tender.
Now anyone can spend it at their discretion, in the Central American country.
What does the law say?
El Salvador’s bitcoin law states the market will establish the exchange rate between the cryptocurrency and the U.S. dollar, the nation’s other legal tender.
It also says that prices may be expressed in bitcoin and tax contributions can be paid in the digital currency, while currency transactions in bitcoin are not subject to capital gains taxes.
For accounting purposes, the Dollar will be used as the reference currency.
President Bukele had earlier assured that Bitcoin adoption shall be optional by posting on Twitter.
The El Salvador Government’s Strategy
The country is making use of lightning node-based wallets to facilitate faster payments. The Government has built a mobile application for the same. It is called Chivo which is slang for ‘Cool’ in the local language.
New accounts on the wallet shall be credited with $30 worth of BTC for free. It is a significant amount there, as the country’s GDP per capita is just below $3800 as per World Bank.
They have also installed 200 bitcoin ATMs and built Chivo kiosks with staff who will assist consumers to bitcoin throughout the country.
Furthermore, the Government will also create a public trust with $150 million to facilitate dollar conversions, among other things.
Due to a sudden surge in demand, technical snags had occurred with Chivo.
Firstly it did not show up on Apple’s App Store and Google’s Play Store. But, Mr. Bukele pressed the companies to host the app, and after a while, it appeared on the platforms.
Later the Government unplugged the app to increase the server capacity to meet the surging demand.
For the second time when it came back. Some users were still having issues signing up.
Currently, Chivo has been reviewed by 69 users with an average rating of 4.5 out of 5 on the Google Play Store.
President Bukele tweeted an image that shows that in just a day’s time Chivo has become the #1 ranked Finance app on Apple App Store.
Jack Mallers, the founder of Strike, another Lightning Node-based wallet, tweeted that he was using Strike to make payments at Starbucks. He also highlighted that both Strike and Chivo are interoperable due to the underlying technology of the Lightning Node.
Bitcoin Price Drop
The day also saw a dramatic drop in the value of BTC. It fell more than 9% from the $52000 mark to $46000.
But El Salvador kept on increasing its kitty. It is the first time that a government is amassing BTC in its monetary reserves.
President Bukele tweeted that El Salvador is buying the dip and has 550 bitcoins in the treasury.
He also tweeted that Cafés and Restaurants have begun accepting BTC payments.
Benefits to El Salvador Economy
President Bukele, a tech-savvy millennial, is the brain behind the digital currency’s adoption. He believes it is a way of bringing more Salvadorans, about 70 percent of whom are unbanked, into the formal economy.
Since 2001 El Salvador’s official currency is the USD. Since the Federal Reserve, the central bank of the USA, controls its circulation, El Salvador has always been dependent on it. With BTC as an option, the country has an alternative that can be globally circulated without any hassles.
The dollarized economy is heavily dependent on remittances from overseas, which totaled $6 billion last year and constitutes roughly a fifth of the GDP. Mr. Bukele says Bitcoin could save Salvadorans $400 million a year in fees for these transactions.
Protests Against the Law
The volatility and technical glitches may have erupted protests against the adoption. As Reuters reported, some people are not able to adapt to Bitcoin.
They think it will benefit only big investors.
“This is a currency that’s not going to work for pupusa vendors, bus drivers, or shopkeepers,” Reuters quoted a San Salvador resident who opposed the adoption of the cryptocurrency. Pupusas are a traditional Salvadoran corn-based food.
People are also wary of the volatility. They fear that their savings may lose the value they had earned. The poor and the old may face difficulty in adopting BTC.
Governments Globally are Closely Watching
The Bahamas has launched its own Central Bank Digital Currency this year, the Sand Dollar. And, Venezuela has its national cryptocurrency called the Petro, backed by the country’s oil and mineral reserves.
Other governments in the region will be watching closely. In recent months, Cuba moved to legalize cryptocurrencies to ease off international trade, while lawmakers in other countries in the region such as Panama and Uruguay are also moving towards regulating them. Even Argentina and Paraguay have shown such desires in the past couple of months.
World over, governments are watching the developments unfolding in the Central American nation to use them as a case study for their endeavors.