Opinion: Bitcoin in El Salvador

El Salvador has become the first country in the world to make Bitcoin legal tender and demonstrations in the capitol ensued.

Protestors+in+El+Salvadors+capital+of+San+Salvador+destroy+a+bitcoin+transferring+booth.+Photo+via+Marvin+Recinos%2FAFP%2FGetty+Images.

Marvin Recinos

Protestors in El Salvador’s capital of San Salvador destroy a bitcoin transferring booth. Photo via Marvin Recinos/AFP/Getty Images.

Bitcoin as legal tender means the beginning of a new era not only for El Salvador but for the world. It seems hard to wrap your head around how a single country’s economic decision will impact the global scale. 

Bitcoin will play a big part in El Salvador’s future, whether it be bad or good. Not only does it put an appreciating asset in the hands of every El Salvadorian but it also teaches a level of financial literacy not yet widely available in developing nations. In the United States, you can pay for coffee with Bitcoin, however, El Salvador does not have technology as widely available as we do, so the problem becomes even if it is a good idea can El Salvador even properly execute it?

Photo via https://gadgets.ndtv.com/

The first problem is the adoption of bitcoin. How can a country in which only 33% of the population has internet access use an internet-only currency? Most of these problems need a government-sponsored solution, such as El Salvador’s most popular mobile app “Chivo Wallet”, which is a cryptocurrency wallet. Additionally, smartphone and internet access are very limited, especially in rural areas.

The second problem is that Bitcoin is nowhere as stable as the USD dollar. Money in Bitcoin increases as long as it’s held for four or more years. However, Salvadorians do not have leisure money to invest for four years. Only 30-40% of the population has bank accounts, making simple transactions difficult

President Nayib Bukele’s main incentive for adopting Bitcoin is because it can help El Salvadorians by creating an easy way to send and receive money. For El Salvadorians who are working in places like the United States or Europe, sending money back home can be hard as most money sending apps are not compatible internationally or are not available for people with differing documentation status. For Salvadorians domestically, Bukele has offered $30 USD for anyone who simply downloads the “Chivo Wallet” app.

Such a big change had received immediate backlash from social media and activists. On September 15, protesters in the capital, San Salvador, destroyed and burned a Bitcoin ATM. Demonstrators were against Bukele’s administrative changes and strategically chose the bicentennial of the Republic of El Salvador to organize demonstrations in San Salvador.

The legal tender for El Salvador has been the USD for twenty years and will continue along with Bitcoin in the form of El Salvador’s “Chivo Wallet” app. The situation will most likely be that people will use USD money for daily transactions and Bitcoin for savings and large-far away purchases. El Salvador’s government owns 550 Bitcoins which converts to approximately $26 million USD.

 

President Bukele has been ambitious and largely supported by the public with an over 75% approval rate in every survey cycle since June 2019. His parties, Nuevas Ideas and Gana, have executive and most of the legislative and judicial power.