Just a few months ago, if you asked cryptocurrency experts which country would be the first to allow Bitcoin to be used as legal tender, nobody would have picked El Salvador. The Central American country doesn’t even have its own currency, but in retrospect that fact actually aided in the decision to make blockchain happen there.
Today, President Nayib Bukele announced and swiftly enacted a law saying his country would accept bitcoin as legal tender. It didn’t take long for the beleaguered cryptocurrency to react positively with prices shooting up by as much as 10% since the announcement. But some crypto-analysts are concerned by El Salvador being the first nation to pick up the mantle. Is the crime-ridden nation really the best testing grounds for such a monumental development?
According to CNBC:
“The purpose of this law is to regulate bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out,” the law reads.
Prices can now be shown in bitcoin, tax contributions can be paid with the digital currency, and exchanges in bitcoin will not be subject to capital gains tax.
Bitcoin is known for wild price swings that have prompted critics to suggest it is not suitable to be an effective currency. It’s still unclear how El Salvador will ultimately roll out bitcoin as legal tender.
Bukele is a popular, young politician who has the backing of the people. But he’s staking a lot on this maneuver which he hopes to use to boost his country’s economy by 10% or more. It’s unclear how the integration will happen or whether there will be immediate gains, but long term if could prove to be beneficial for a nation that has struggled economically for three decades.
He isn’t just going digital, though. He’s banking on green economics to help mine Bitcoin. The process is known to be a major drain on the power grid, but Bukele hopes his state-run energy operations can make the process more environmentally friendly.
I’ve just instructed the president of @LaGeoSV (our state-owned geothermal electric company), to put up a plan to offer facilities for #Bitcoin mining with very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanos 🌋
This is going to evolve fast! 🇸🇻 pic.twitter.com/1316DV4YwT
— Nayib Bukele 🇸🇻 (@nayibbukele) June 9, 2021
The positive gains we’re seeing with Bitcoin and other cryptocurrencies today could be quickly erased if there are hiccups in El Salvador. Bitcoin is famously secure, especially when compared to fiat currencies, but if El Salvador does too much to streamline the exchange, they could open up vulnerabilities inherent with merging blockchain technology with real-world interactions.
Other nations are in wait-and-see mode. If this is successful and El Salvador’s economy gets a boost with minimal complications, Bitcoin and other cryptocurrencies will be closer to the mainstream. But that’s a big “if.”