El Salvador declares Bitcoin legal tender: What changes now?
It's been 12 years since an anonymous group introduced the world to Bitcoin. The cryptocurrency now faces its biggest challenge yet as El Salvador became the first country to adopt Bitcoin as legal tender on Tuesday. The country purchased 400 bitcoins valued at over $20 million ahead of the rollout for circulation alongside the US dollar. Here are more details.
The central American nation announced that it plans to buy "a lot more" bitcoins soon. It purchased 200 tokens earlier and another 200 more recently, ahead of its rollout as a legal tender. The country plans to accelerate adoption using the government's Chivo Bitcoin wallet. New users signing up using Salvadoran national ID numbers get $30 worth of cryptocurrency for free.
Bloomberg reported that enthusiasts and detractors will be monitoring the country's moves to see if the masses want to transact in Bitcoin (BTC). If the experiment succeeds, other countries are likely to follow in El Salvador's footsteps. Businesses will now be required to accept Bitcoin as payment. However, technologically inept merchants are exempt and the US dollar remains the national currency for public accounting.
The grand idea is attributed to the country's 40-year-old president, Bukele. He said it will draw more people into the financial system and make sending remittances cheaper. A fifth of El Salvador's dollar GDP relies on remittances sent home by migrants overseas. Such transactions totaled $6 billion in value last year. Bukele claims Bitcoin could save Salvadorans $400 million per year in remittance fees.
Additionally, President Bukele's administration has also installed 200 Bitcoin ATMs around the country to convert BTC to US dollars in cash. The Finance Ministry also created a $150 million fund at a state-run bank to back transactions. Experts raised questions about whether this fund is big enough since Bitcoin prices fluctuate wildly and the governing laws seem hastily assembled, making the proposition extremely risky.
In fact, a survey last week by a university in El Salvador found that over two-thirds of the respondents said the Bitcoin law should be repealed while over 70% expressed a preference for the US dollar. The International Monetary Fund reportedly warned of risks associated with using Bitcoin as legal tender while the World Bank refused to help El Salvador's government adopt it.
The World Bank cited environmental and transparency concerns associated with Bitcoin when it refused to help President Bukele's government. Grave concerns notwithstanding, Cuba is following close behind El Salvador. Last month, it reportedly moved to legalize the use of cryptocurrency already circulating on the island nation. Lawmakers in Panama and Uruguay have also proposed similar legislation to legalize cryptocurrencies.