• Who will be the next to jump on the Bitcoin bandwagon after El Salvador?

  • Many famous dates can be found throughout bitcoin’s history, with January 3, 2009 – the day the genesis block was mined – serving as the starting point. In the years since, Satoshi Nakamoto’s peer-to-peer digital currency has achieved milestone after milestone, from reaching dollar parity to becoming a medium of exchange when Laszlo Hanyecz paid 10,000 BTC for a pair of Papa John’s pizzas.

    It’s safe to say that the past year has provided us with even more historic moments, adding to the rich tapestry of the world’s most well-known cryptocurrency beyond all measure. However, one date in the future may stand out above all others: September 7, 2021.

    Bitcoin Is Now Legal Tender

    Few could have predicted that a country would one day recognize bitcoin as legal tender. On this day, El Salvador did just that, sweetening the deal by giving all citizens $30 in BTC to encourage adoption. Bitcoin will now share official currency status with the US dollar, an experiment that should highlight the former’s inherent advantages over the greenback while potentially kickingstarting a de-dollarization process.

    The adoption of a borderless and decentralized digital currency by a sovereign state is an affront to the financial institutions that have long set the terms of play for emerging economies around the world. El Salvador’s President, Nayib Bukele, openly mocked the IMF while bragging about buying the dip. One wonders if this will set off a chain reaction as other Central American countries consider following in his footsteps.

    Some may be wondering why El Salvador has decided to embrace bitcoin in the first place. Why is this happening now? Why bitcoin and not another crypto-asset, one designed more as a medium of exchange than a store of value? Clearly, there are no simple solutions. Rather, a number of factors are at work, including the forward-thinking attitude of a 40-year-old President leading a party called New Ideas.

    Bukele appeared on the What Bitcoin Did podcast in June to discuss the country’s monetary shift, and his comments are instructive for those interested in learning more about the government’s motivations.

    “This is simply exercising our sovereign right to adopt legal tenders,” explained the President. “For example, in 2001, we adopted the US dollar. What’s the distinction? The only difference, most likely, is why we’re doing it. It was most likely done in 2001 for the benefit of the banks. And this decision is made for the people’s benefit.

    “Bitcoin is a decentralized and open system. As a result, the public does not have to trust us. They must have faith in the system, and we have faith in the system.”

    Increasing Financial Inclusion

    Bukele went on to say that bitcoin would be a boon for remittances and economic inclusion because more than two-thirds of Salvadoreos lack access to traditional financial services and rely on money sent home from relatives living abroad. Remittance inflows from foreign-based citizens (primarily in the United States) totaled nearly $6 billion in 2019, accounting for roughly one-fifth of the country’s GDP.

    With bitcoin now designated as legal tender, there is now a quick and inexpensive way to send money to family and friends who do not have bank accounts or credit cards. According to the President, bitcoin has the potential to save citizens $400 million per year in remittance fees – roughly $60 per person.

    Prior to El Salvador’s announcement that it would accumulate sats on its Treasury balance sheet and make the asset legal tender, remittance transfers in BTC had already increased in the aftermath of the COVID-19 pandemic. The events of 2020 hastened the need for efficient, cost-effective digital remittance services, with adoption growing in Latin America, India, Southeast Asia, and Africa. Although bitcoin has been chipping away at traditional money wire companies such as Western Union and MoneyGram for some time, it declared war on them last year.

    The government of El Salvador is resurrecting economic principles that have lain dormant since the days of the gold standard, when nations could not artificially inflate their monetary base by printing paper out of thin air.

    While the benefits of such a move are obvious, the potential drawbacks are concerning: one economist believes the country could experience a constant outflow of greenbacks and a constant inflow of bitcoin, depleting the country’s Treasury of its dollar reserves.

    Of course, an increase in the price of bitcoin could make this a good thing for the El Salvador government – and it is likely to make citizens think twice about converting cryptocurrency into cash.

    The Following Domino to Fall

    Whatever happens, El Salvador will be remembered as the first country to legalize bitcoin. It is unlikely to be the last: the Ukrainian Parliament recently passed legislation legalizing and regulating cryptocurrency, and according to Professor Vyacheslav Evgenyev, the country could make Bitcoin legal tender by the beginning of 2023, establishing a “dual-currency country” similar to El Salvador. According to circulating rumors, President Volodymyr Zelensky’s administration has also met with counterparts in El Salvador to discuss the feasibility of such a plan.

    In other news, both Cuba and Panama are laying the groundwork to legalize cryptocurrency transactions, which could lead to widespread adoption of bitcoin. The United States’ ban on remittances to the former will not stop such a process; currently, Cubans living in the United States must pay up to 30% in commissions to send money to loved ones on the island.

    For the time being, Nayib Bukele should have the final say:

    “The bitcoin system is so flawless that I believe it will be the future. It is already present in many things – but it will be much larger in the future.”

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