El Salvador Adopts Bitcoin as an Official Currency — Will the World Follow?
John C. Maxwell used to say: “Change is inevitable. Growth is optional”. During his lifetime, Mr. Maxwell could not have known that there would be one thing that would grow so rapidly and inevitably. Yes, we are talking about the cryptocurrency phenomenon.
Bitcoin in the Beginning
At first, it seemed to be another whimsical trend for a small group of enthusiasts. Time went by, and Bitcoin became much more than just a casual word in many people’s vocabulary all around the globe.
In February 2011, its price was barely $1. At present, a Bitcoin is worth $48 thousand, and this is not the ultimate price. For instance, in April 2021, a Bitcoin was worth $63 thousand. Such a glorious ascension could not be left unnoticed. The authorities were desperately trying to define the legal status of cryptocurrency and bring it to light. Crypto miners were devastating the GPU market, buying up video cards and creating “mining farms” to generate various sorts of e-money. Elon Musk could have crashed the Bitcoin rate with a single post on Twitter. It was just a matter of time before another breaking news story would hit the community. We didn’t have to wait too long.
The Brave New World
El Salvador has declared that it adopted Bitcoin as a means of legal tender. The first discussions regarding the initiative took place in June. The law took effect on September 7. Businesses in the country are obliged to accept Bitcoin for all payments. The president of El Salvador Nayib Bukele hopes these actions will help solve the country’s existing economic problems. Many citizens carry out money transactions to home from abroad and have to pay high transaction costs. With Bitcoin, it is possible to make quick and cheap transactions across borders.
Every Salvadoran has been given $30 in Bitcoin to try out how it works in real-life business relations. Bukele also announced the official launch of a Bitcoin wallet called Chivo (“cool” in El Salvadorian slang). It has a mobile app that works in a similar way to PayPal. A user can have a balance in dollars and bitcoins. The launch of the app was not smooth, servers were constantly crashing, and the Bitcoin rate suffered a severe downfall shortly after the launch.
What’s more, thousands of people protested against the freshly adopted law. They came out to the streets accusing the president of being hungry for power and provoking an inflation avalanche. According to the demonstrators’ opinion, Bitcoin itself is not a problem. Its forced integration, possible money laundering, and a lack of transparency from the government are the real issues. At present, the protests continue to thrive. Salvadorians continue to oppose the initiative, while Mr. Bukele hopes to get an influx of foreign Bitcoins and obtain those remittance dollars to stimulate the economy.
The example of El Salvador gave birth to many heated discussions on different boards and websites. The main question is whether or not other countries will follow up the idea of bitcoinization and when it might happen. According to a survey, most respondents believe the transition will happen in 5 or 10 years.
However, we can’t completely agree with such an opinion. The reasons are simple: since a central bank can’t control cryptocurrency, it remains an unpredictable tender vulnerable to fraudulent actions. That is why some central banks plan to release their own digital currency and use it together with traditional money. A so-called Central Bank Digital Currency experiment is already on trial in China or the Bahamas. CBDCs have the advantages of cryptocurrency and lack its most significant drawback — independence from central banks. At the same time, Bitcoin has a hard-coded limit on the number of coins that can exist, while CBDCs can be created out of thin air. This fact is considered the major disadvantage of CBDC.
The events in El Salvador perfectly illustrate a good old saying: “Look before you leap.” The flaws of Chivo and the strong determination of the president to make the country a precedent in terms of cryptocurrencies’ legal status led to expected riots. Other nations will work on crypto acceptance. In 5–10 years, we can expect Bitcoin to be a legal tender in crypto-loyal countries. Still, it may take longer for traditional economies.