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El Salvador makes Bitcoin legal tender

The world of cryptocurrencies experienced a historic moment on the 7th of September. This is when El Salvador, a tiny state in Central America, adopted Bitcoin as the country’s official currency besides the U.S dollar. This historical event made El Salvador the subject of news articles all around the world!

The adoption of Bitcoin went surprisingly smoothly, except for minor technical problems. In this article, we will go through the steps that led to the action, as well as the impact of the event on a global scale.

El Salvador is a poor country in Central America

El Salvador is a tiny country that many people haven’t even heard of. This is the most densely populated country in Central America with around 6.5 million citizens. Its border countries are Honduras and Guatemala.

El Salvador has suffered from violence, war, and natural disasters throughout its history. The situation in the country has calmed down somewhat, but tourists are still advised to take measures of extra prudence when visiting the country.

CIA map of Central America

The economy of El Salvador is largely built on agriculture and the services sector. Up to one-fifth of the country’s GDP consists of funds sent from abroad. Many young people of El Salvador are moving elsewhere for a better life and sending money back to their families.

The sad fact is that more than 70% of the country’s citizens do not have access to basic banking services. Many Salvadorans use services such as MoneyGram and Western Union to send money. These companies may charge a commission of up to 20-30 percent.

The country used to have its own official currency called Colon. Since 2001, the official currency was changed U.S dollar for economic stability. The dollar continues as legal tender alongside Bitcoin.

The Bitcoin beach

Mike Peterson is one of the key figures in El Salvador’s Bitcoin adoption.

This American man fell in love with El Salvador on a surfing trip and wanted to help the poor village of El Zonte. Peterson encouraged young people to study in order to avoid falling into gangs and crime.

Peterson has told about an anonymous American who offered to donate $100,000 to develop El Zonte. There was a condition that the donation would be made in Bitcoin and should be distributed entirely among the villagers to create their own Bitcoin ecosystem.

The donor had told Peterson that he had made his fortune by trading cryptocurrencies and that he believed the cryptocurrency was going to change the world.

Check Peterson’s interview from the video below.

El Zonte is now known as Bitcoin Beach. It’s one of the only places in the world where citizens can use Bitcoin in everyday life, such as buying groceries and paying their electricity bills.

The example of El Zonte was an inspiration for President Nayib Bukele as well for making Bitcoin legal tender in the entire country.

There is also a Bitcoin wallet called Bitcoin Beach. Many Salvadorans use this wallet alongside Strike and Chivo wallets.

Jack Mallers and the congressional approval

Another important person in the Bitcoin adaptation

Jack Mallers is another key person in El Salvador’s Bitcoin adoption. He is the founder and developer of Strike. This app allows you to transfer Bitcoin (and fiat) in real-time and free of charge.

strike

Mallers saw a great opportunity for Strike in El Salvador. Much of El Salvador’s GDP consists of money transferred from abroad. Since most Salvadorians don’t have a bank account, money is most often transferred through services such as Western Union.

The main issue with these old-fashioned services is the high costs. Transfer fees might be tens of percentages. Salvadorians will lose even more of their already meager money.

It is estimated that the adoption of Bitcoin could save 400 million dollars in remittance fees in just one year.

Strike allows Salvadorians to send money free of charge without intermediaries. Jack Mallers spent several weeks in El Salvador guiding locals on how to use the app.

Mallers told his story and made the big announcement regarding El Salvador in the Bitcoin Miami 2021 conference.

Mallers has also told that president Bukele asked for his assistance in creating the Bitcoin bill. It was sent to Congress on the 9th of June.

According to this simple bill, Bitcoin’s price is determined by the free market. Products and services can be priced and paid in bitcoins. Citizens can also pay their taxes using cryptocurrency. There are also no taxes paid when exchanging Bitcoin to the dollar (and back).

The bill was taken to the congress of El Salvador and passed on the 9th of June. It was decided to take into action three months later.

No big drama in the Bitcoin adoption

The adoption of Bitcoin received a lot of media attention worldwide. As always, there has been a lot of disinformation. Some articles gave the impression that citizens of El Salvador would be forced to use Bitcoin. This is a completely false claim.

Bitcoin is legal tender with the US dollar. Citizens can still use dollars if they don’t like the idea of holding bitcoins.

The entrepreneurs of El Salvador faced the biggest change. They have to accept bitcoins as a payment.

The rollout seemed to go pretty smoothly. There were lots of pictures and videos on social media from people making Bitcoin purchases on the very first day the law was in action.

The Chivo app allows merchants to convert Bitcoin payments into dollars immediately. This means entrepreneurs don’t need to carry any risk of Bitcoin’s price fluctuations.

A network of Bitcoin ATMs has also been built around the country. Citizens can be uses these ATMs to exchange bitcoins for dollars.

The first weeks went without any major drama. Some protests and vandalism have been seen. However, there may be more of a political agenda behind these protests targeting president Bukele. This is not directly related to the adoption of Bitcoin.

Impacts on the global level

El Salvador is not a major political or economic player on a global scale. However, accepting Bitcoin as legal tender is a significant act even in the long history of money.

El Salvador has proved that such implementation is possible in a small and poor country without a strong infrastructure.

It’s safe to expect that El Salvador will be followed by other countries over the next few years. At least Ukraine and Panama have expressed interest in Bitcoin. Cuba, Venezuela, Brazil, Colombia, and Argentina could be next on the list of other potential countries.

One thing is certain: the Bitcoin revolution has taken a significant step forward. Traditional banks and financial institutions are standing more and more on their toes.

During the last year companies such as MicroStrategy, Square and Tesla have invested billions of dollars in Bitcoin. Now the game is on at the state level too. This will eventually lead to a big surge in Bitcoin’s price.

Image credit: Flickr / Quoteinspector.com

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