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Bitcoin in El Salvador — The First Country to Adopt BTC as Legal Tender

source-logo  coincodex.com 13 December 2022 13:10, UTC

In September 2021, El Salvador made history by becoming the first country to officially adopt Bitcoin as legal tender. By supporting Bitcoin, El Salvador made a huge step forward in the mainstream adoption of cryptocurrency.

The move to adopt Bitcoin, which was strongly supported by El Salvador’s president Nayib Bukele, has been met with both praise and criticism. Supporters of the decision note that it could provide economic opportunities for El Salvador’s citizens and boost the country’s economy. Meanwhile, critics are saying that the volatility of BTC might expose El Salvador to risks, and there are also concerns about whether it is appropriate to promote Bitcoin to such a large audience.

Regardless of the opinion, one thing is certain: El Salvador’s decision to adopt Bitcoin as legal tender provides a clear example for other countries to follow and could further the cryptocurrency’s acceptance across the globe.

In this article, we’ll be taking a look at how El Salvador’s crypto adventure has been unfolding to better understand the impact of adopting Bitcoin as legal tender.

El Salvador’s Bitcoin law

The Bitcoin Law, which was passed by the country’s Congress in June 2021, states that BTC can be used as legal currency for any transaction. According to the law, businesses should quote prices in BTC in addition to USD and the cryptocurrency has equivalent legal status to the US dollar, the country’s official currency.

The Chivo wallet

In order to facilitate the use of Bitcoin in El Salvador, the country launched the Chivo wallet. The wallet has been designed to enable users to easily and securely store their Bitcoin and pay for goods and services using the cryptocurrency. The wallet also allows users to send and receive Bitcoin, as well as to convert it into US dollars.

Are people in El Salvador adopting Bitcoin?

Since the announcement, there has been a surge of interest in Bitcoin from people living in El Salvador. According to reports, around 4 million citizens have already downloaded the Chivo wallet. Given that the country has a population of about 6.5 million, this is certainly impressive on the surface level. However, there are signs that Bitcoin adoption in El Salvador has been much slower than the number of Chivo wallet downloads would suggest.

We need to keep in mind that El Salvador offered a free $30 worth of Bitcoin to any citizen that set up their Chivo wallet. This promotion likely played an important role in the initial spike in interest for the Chivo wallet.

According to the National Bureau of Economic Research, a United States-based organization, only 20% of the users who set up their Chivo wallet continued to use it after spending the $30 bonus they received.

Meanwhile, CNBC cites a survey from the El Salvador-based think tank El Instituto de Opinion Publica as showing that 76% of SMEs (small and medium-sized enterprises) in the country do not accept Bitcoin.

How much money has El Salvador lost with Bitcoin?

In addition to adopting Bitcoin as legal tender, El Salvador has also made investments in BTC itself. As of December 12, 2022, the country has purchased 2,430 BTC, which is worth approximately $41.3 million.

As of December 12, 2022, El Salvador had an unrealized loss of about $66.6 million on its Bitcoin investment. In percentage terms, the country’s BTC investment was down 61.7%, or $66.6 million in absolute terms.

When El Salvador introduced Bitcoin as legal tender on September 7, 2021, the price of BTC was between $51,000 and $44,000 (it was a particularly volatile day in the Bitcoin market). The Bitcoin price has since dropped all the way down to $17,000 which has prompted many critics to announce the death of Bitcoin. However, it’s certainly possible that BTC will recover in the future like it has many times before.

Why did El Salvador adopt Bitcoin as legal tender?

El Salvador has several interesting motivations for accepting Bitcoin. Let’s explore some of the benefits that BTC could bring to the country.

Increasing efficiency in international remittances

The decision to adopt Bitcoin as a legal tender is expected to have a major impact on El Salvador’s economy and its citizens. For starters, it is expected to reduce the cost of international remittances by cutting out the need for international money transfer services like Western Union and MoneyGram, which charge significant fees. In addition, the move could make it easier for El Salvadorans living abroad to send money back home.

Boosting economic growth

El Salvador’s economy has been struggling with low growth for several years, and the adoption of Bitcoin could provide a much-needed stimulus. In addition, it could attract more foreign investment into the country’s economy.

Creating new job opportunities

As more and more businesses start accepting cryptocurrency as a method of payment, the rise of Bitcoin might create new job opportunities.

Reducing transaction costs

In order to make it easier for its citizens to access global markets, El Salvador has reduced the cost of international payments and made it easier for them to send money quickly and securely.

Promoting financial inclusion

The World Bank estimates that only around half of El Salvador's population has a bank account, leaving millions of people without access to basic financial services. By accepting Bitcoin, the government of El Salvador is taking steps to improve financial inclusion and provide people with a secure way to store and transfer their money.

El Salvador’s Bitcoin City plans

In addition to adopting Bitcoin as a legal tender, El Salvador is also planning to create a ‘Bitcoin City. Renewable energy will power the city and will be a hub for Bitcoin-related businesses, including mining companies and exchanges.

This is a major step forward in cryptocurrency adoption and will no doubt help to further legitimize the use of Bitcoin. This ambitious project could help to put El Salvador at the forefront of the global cryptocurrency market and could attract more businesses and investors from around the world. However, the infrastructure for this project is still in its early stages and will require significant investment before it can become a reality.

The project, called Bitcoin Beach El Salvador, aims to develop a hub for technology and innovation that Bitcoin will power. The President of El Salvador, Nayib Bukele, and his government, who are hoping to use this venture to spur economic growth in the country and attract foreign investment, spearhead the project.

#Bitcoin City is coming along beautifully ❤️ pic.twitter.com/A6ay8aAREW

— Nayib Bukele (@nayibbukele) May 9, 2022

The project is expected to be located in La Libertad, a small coastal town on the Pacific Ocean. The plan is to build an infrastructure that will support businesses and entrepreneurs who want to use cryptocurrency for payments. This includes retail stores, restaurants, and other services that accept Bitcoin as a form of payment. The government is also planning to attract blockchain-based startups by offering tax incentives and other incentives.

Conclusion

El Salvador’s decision to adopt Bitcoin as a legal tender is a historic moment for the cryptocurrency and could be a major step forward in its adoption. The country is leading the way in terms of Bitcoin adoption and is setting an example for other countries to follow.

In addition, El Salvador’s investment in a ‘Bitcoin City’ could provide citizens with access to banking services and further legitimize the use of cryptocurrency. However, the adoption of Bitcoin in El Salvador has been relatively slow, and the country has seen significant (unrealized) losses on its BTC investments.

Ultimately, the success of El Salvador’s bet on BTC will depend on how Bitcoin performs in the next few years. To get some ideas of where BTC is headed in the future, check out our Bitcoin price prediction page.

coincodex.com