Already a year of Bitcoin in El Salvador

It is already a year since El Salvador, adopted bitcoin as legal tender, this little country in Central America became the first country in the world that made bitcoin legal tender, the president Nayib Bukele announced the decision on June 5, 2021 to be later approved by the parliament on June 9, 2021 (it is worth to mention that the president’s party counts with supermajority in the parliament).

Of course, the implementation was not inmediate, the government set the date on September 7, 2021 to be the day when businesses have to accept the cryptocurrency. So, it took around 3 months to the government to make the currency available in the streets. 

Many actions were taken during that time, installation of specialized ATMs for bitcoin usage, the development of a governmental wallet ‘Chivo’, apart from that the government announced that whoever download the cryptowallet was eligible to get a 30 USD bonus in bitcoin. The adoption of bitcoin as legal tender in El Salvador creates expectations among the everyone, the cryptocurrency fans and the detractors.

One group would like the project to succeed because that would show the world that bitcoin is the solution, while the other group want it to fail so, they can tell to the world that crypto is not viable and will never become real money or even an asset.

At the moment bitcoin is legal tender in El Salvador for a little more than a year, and people are wondering what has changed, did El Salvador succeed or fail in its adventure, well maybe at this moment it is hard to tell exactly if the country has failed or succeed, for a project of this scale. That is the reason that so far, we can only review the current situation, but we have to take in account that things can change in few months or years.

The Bad:

So far there are many more things that can be seen as bad, especially considering all the shocks that cryptocurrencies have taken in the last year (2022), like what happened with Luna or what happened recently with FTX, it has meant that many cryptocurrencies have lost 75% or even more of their values.

The government of El Salvador has continued to buy bitcoin since they made it legal tender, so with the drops in value they have been operating at a loss and this has set off alarm bells, because the country might not be able to pay some debts. The IMF and other international institutions have already adviced Salvadoran government to stop the use of Bitcoin as legal tender, which of course the government has refused.

In addition, the explosion of expected foreign investment or the cryptotourism has not been seen. Projects like the Bitcoin city near the Gulf of Fonseca are on halt. It was expected that many cryptofans would like to visit and invest in the the country that became crypto friendly, but it has been more the marketing than the actual results, the percentage of income that comes from crypto is so low that has almost to non effect on the country economy.

The adoption is also low, is only a small percentage of the population that use Bitcoin on daily basis, in this issue we have to be fair, even though the government has tried its best to make it available to everyone, El Salvador is still behind in technology and the access to bitcoin is still limited, just few crypto entuthiastics are enjoying the boom in the country.

The Good:

Although just for one purpose bitcoin has become helpful for many Salvadorans, the country has low percentage of people that has bank accounts, making it hard for people to access to all financial services and here is when bitcoin comes into play, helping Salvadorans to at least move funds.

A special case is remittances, the country’s economy is highly dependent on them, making around 20 to 26 % of the country GDP, because not so many people have access to the financial services, the fees of sending or receiving the remittances are relatively high, something that can be drastically reduce by the use of Bitcoin at least to move the funds.

It is true that the use of Bitcoin for remittances is quite low, and is no near to become a substitute to the other alternatives, the use of more people little by little of the this alternative can become a great option and an improvement of the whole system to send and receive money from abroad, specially when this source of income means so much for Salvadoran economy.

Among the good there is also the improvement of the access to internet and technology, since most cryptos need internet to be able to work the need of a good network is vital, since the government is interested that the project works they have also work on the improvement of the internet access in the country, which can be see as positive point to notice.

Leave a Reply

Your email address will not be published. Required fields are marked *