Falling currency prices, technical pressure, business opposition... The road to legalization of BTC in El Salvador is not easy
Since El Salvador’s Congress approved Bitcoin as its national legal tender on June 9, this small Central American country has begun to actively deploy Bitcoin in terms of payment and mining.
On June 21, Nayib Bukele, President of El Salvador, reposted a video of residents of El Salvador shopping with Bitcoin on social media. The entire offline transaction process took only 5 seconds. According to statistics, in the last week, about 20,000 residents of El Salvador used Bitcoin to conduct transactions through the Lightning Network. Netizens took pictures and said that a large number of Bitcoin ATMs were being shipped to El Salvador.
Bitcoin is already the legal currency of the country, and using it to pay is just the beginning. The country intends to start from the "money printing" of Bitcoin. The rich geothermal resources are officially regarded as clean energy that can be used for mining.
El Salvador's experiment of using Bitcoin as a legal currency has been carried out in a mighty way, but the skinny reality is also coming.
In the five days from June 16 to 21, Bitcoin fell from $41,300 to $32,300, a price drop of 21.79%. Although the president of El Salvador has stated that he will set up a trust fund to support the instant conversion of bitcoin into dollars, analysts believe that the plunge may drain the country's dollars.
The challenge posed by this experiment goes beyond dealing with bitcoin's high volatility. Last Wednesday, El Salvador's finance minister, Zelaya, said it had sought technical assistance from the World Bank to help it implement bitcoin as an official currency. However, Reuters reported that the World Bank refused to say that it could not help El Salvador implement the Bitcoin-related bill due to environmental and transparency shortcomings.
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Bitcoin Payments and Mining in El Salvador
When China cleared Bitcoin mining, the Republic of El Salvador, a Central American country on the other side of the Pacific Ocean, showed its geothermal resources to the outside world, intending to use it to introduce the Bitcoin mining industry.
The Ruptly International Video Newsletter published a video on June 18 showing footage of the towns of Ahuachapan and El Zonte in northwestern El Salvador, with natural hot springs and volcanoes, where hot steam is a renewable and clean source of energy .
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Images of geothermal power generation in El Salvador
Since El Salvador’s National Congress approved Bitcoin as the country’s legal tender on June 9, the small Central American country has begun to implement Bitcoin’s “money printing” link. Earlier, El Salvador's President Nayib Bukele said that the country's state-owned company LaGeo used clean, renewable energy from the country's volcanoes to build bitcoin mining facilities because El Salvador is located in the Pacific Rim volcanic belt, full of hot springs and volcanoes.
El Salvador "rectified" Bitcoin into a legal tender in the form of a bill. Products in the country can be priced in Bitcoin, and Bitcoin can be used to pay taxes. Transactions in Bitcoin will not face capital gains tax, etc.
Soon, the country began promoting its merchants and residents to use Bitcoin to receive and pay. In a video released by Ruptly's international video newsletter, some shops have Bitcoin logos plastered on their storefronts.
On June 21, President Nayib Bukele also reposted a video on his personal Twitter. A Salvadoran resident used a cryptocurrency wallet to scan the payment QR code provided by the merchant. After 5 seconds, the payment was completed.
The payment process seemed smooth, but under the tweet, comments in Spanish (the official language of El Salvador) suggested that more explanatory videos on the use of Bitcoin should be used to reassure people, "We are not negative, but we There needs to be more understanding of this economic exchange.”
How many people in El Salvador have experienced the country's new legal currency? Nicolas Burtey, co-founder of Lightning Network infrastructure company Galoy, gave a set of data on Twitter: In the last week, about 20,000 residents of El Salvador used Bitcoin to make transactions through the Lightning Network, paying a total of 13,879 sats (equivalent to $4.98) transaction fees.
The paid infrastructure also appears to be rolling out to El Salvador. Bitcoin analyst Bitcoin Archive on Twitter showed a photo saying that a large number of Bitcoin ATMs are being shipped to El Salvador.
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World Bank rejects El Salvador's technical assistance request
What has given El Salvador a head start has been the recent price of bitcoin.
Since June 16, Bitcoin has fallen from a maximum of $41,300 for several days. As of 7:00 pm on June 21, Bitcoin was quoted at $32,300, a drop of 21.79% within 5 days. Some netizens ridiculed that "all the citizens of El Salvador are quilt".
The high volatility of Bitcoin is indeed a problem that El Salvador has to face. In order to reduce the risk that volatility brings to Bitcoin users, President Nayib Bukele of El Salvador has previously stated that the government will set up a trust fund at the Development Bank of El Salvador to support the immediate conversion of Bitcoin into U.S. dollars. The size of the trust fund is about 150 million U.S. dollars.
But analysts believe that once Bitcoin plummets, there may be a serious run. Johns Hopkins University economics professor and Nobel laureate Steve Hanke even believes that Bitcoin could completely destroy the economy of El Salvador as all the dollars in El Salvador could be emptied and they would lose their national currency.
On June 15, the Minister of Labor and Social Welfare of El Salvador, Rolando Castro, stated that the government is currently discussing whether companies should pay salaries in Bitcoin. But this remark seemed to be opposed. Only a day later, he tweeted to clarify that he had not considered whether to use Bitcoin to pay his salary. This method is immature.
In addition, Article 7 of El Salvador’s previously passed bitcoin bill stipulates that “every economic institution” must accept bitcoin. According to a survey by the Salvador Chamber of Commerce, only 4% of all businesses support this provision.
Nic Carter, co-founder of Coin Metrics, believes that forcing merchants in El Salvador to accept bitcoin payments is extremely far-fetched. Economic transactions occur millions of times a day, and few countries have the capacity or the political will to impose such monetary transformations on their own people. El Salvador should reconsider Article 7 and allow Bitcoin to thrive on its own merits.
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President of El Salvador Nayib Bukele
These are just "internal worries" that need to be dealt with, and "foreign troubles" are reflected in how El Salvador uses Bitcoin to conduct economic exchanges with other countries. After all, the country that puts Bitcoin as a currency is only the country itself.
According to Reuters news on June 18, El Salvador's Finance Minister Zelaya said that the country has sought technical assistance from the World Bank to implement its decision to use Bitcoin as an official currency parallel to the US dollar. But the World Bank said it could not help El Salvador implement bitcoin-related bills due to environmental and transparency shortcomings.
As the first country in the world to use Bitcoin as a legal currency, El Salvador's experiment is really stressful. After becoming the first country to "eat crabs", El Salvador needs time and action to prove that it can deal with the current problems of Bitcoin. Its decision is bold, but the results of this new fiat currency experiment still need to be verified.
According to Gonzalo Vila, a member of the Association of Certified Financial Crime Specialists (ACFCS), the social and security situation in El Salvador has improved recently, but there are still huge risks and vulnerabilities. Legitimate companies may be used through the financial system to move dirty money from elsewhere. “El Salvador’s embrace of Bitcoin could open the door for ransomware hackers, money launderers, and international criminals looking to cash in.”
As the first country in the world to use Bitcoin as a legal currency, El Salvador's experiment is really stressful. After becoming the first country to "eat crabs", El Salvador needs time and action to prove that it can deal with the current problems of Bitcoin. Its decision is bold, but the results of this new fiat currency experiment still need to be verified.
