Bitcoin in El Salvador:

The Legislative Assembly of El Salvador recognised Bitcoin as legal cash in 2021. Making El Salvador the first nation in the world to do so. The president of El Salvador, Nayib Bukele, backed it, saying that it would boost foreign investment and the country’s economy by making banking more accessible to Salvadorans. Due to the volatility of Bitcoin, its negative effects on the environment, and the lack of transparency surrounding the government’s budgetary policies, the adoption has drawn criticism from both domestic and foreign quarters.

Now the Currency of this country is El salvador bitcoin.

Background:

The Legislative Assembly of El Salvador passed the Monetary Integration Act under the leadership of former President Francisco Flores. From then colón (SVC) served as the country of El Salvador’s official tender. On January 1, 2001, the colón was replaced by the US dollar. The Act ended the use of the colón and permitted the free circulation of the US dollar in El Salvador. To bring financial stability by promoting business El salvado changed it’s currency to dollars.

Due to monetory policy the value of currency could not be controlled by Government. The fixed exchange rate, which made one US dollar equal to 8.75 colones, reduced the population’s purchasing power. El Salvador’s exports suffered from dollarization because it was unable to compete with  cheap currencies of other emerging nations. The populace of El-Salvador suffered from a lack of financial literacy since they were unable to  comprehend the US dollar.

In 2020, remittances made up 23% of the GDP.  Currently, money transmitters that operate locally are responsible for delivering them.

Following a donation of $100,000 worth of bitcoin from an unidentified donor in 2019. The village of El Zonte adopted bitcoin as a form of payment. The grant was contingent upon the hamlet implementing a bitcoin-based circular economy.  Since many people in El-Zonte did’nt have access to financial services. So, they used  Bitcoin ATMs  in  commercial districts to access bitcoin. Bitcoin proponents have used the town, now dubbed “Bitcoin-Beach,” as an illustration of how to use cryptocurrencies as legal cash. Honduras and Guatemala had also tried to draw tourists by using bitcoin in “bitcoin hubs” as of 2022.

Adoption:

At the Bitcoin Conference 2021 in Miami on June 5, 2021, El Salvador’s president, Nayib Bukele, made an English-language video announcement about a measure that would make bitcoin legal cash in El Salvador. According to Bukele, the introduction of Bitcoin would make it simpler for Salvadorans living abroad to send money back home. Additionally, the usage of bitcoin would increase underbanked individuals’ access to digital transactions.

On June 9, 2021, the Legislative Assembly of El Salvador voted to adopt the Bitcoin Law. To make the cryptocurrency legal tender with a majority vote of 62 of the 84 deputies in favour. The government announced that it had set aside $150 million in cash to back the country’s bitcoin.The World Bank declined the government’s request for assistance with the law’s implementation due to concerns about transparency and the law’s potential effects on the environment .At a potential cost of $75 million, the government declared that it will give out US$30 in bitcoin to anybody who register to use an electronic wallet named Chivo (Salvadorean slang for “cool”). Government had rules for it although Chivo was a private company.

Instantaneous effect in 2021:

The launch of an Athena Bitcoin ATM in El Zonte, El Salvador Chivo in October 2021 garnered criticism right away due to problems with functions like payment processing and transactions.

Shortly after midnight, Bukele acknowledged through Twitter that neither the Apple Store nor Huawei had the app, albeit Huawei eventually did.  Chivo was disabled after a few hours, To stop expanding the number of servers.  Shortly after being live, Chivo made an announcement about modifying its pricing features to stop scalping, which sparked more concerns about how challenging it was to day trade on Chivo and the inconsistent pricing.

After receiving their sign-up bonuses, the majority of users quit utilising the platform.  According to Financial Times, one of the biggest banks in the nation claimed that less than 0.0001% of its transactions during the first week of Chivo’s were in bitcoin.

The El Salvadorian government started buying bitcoin in 2021. Between September 2021 and January 2022, it spent around $85.5 million on bitcoin. Bitcoin’s value started to decline in November 2021, and by January 2022, it had lost nearly 45% of that value. As a result the national reserves of El Salvador suffered a loss of $20million. The government kept buying bitcoins during this downturn, and as of January 2022, it had at least 1,801 holdings worth $66 million.

Bukele declared that the government would mine bitcoins using renewable geothermal energy. A large amount of energy is required for bitcoin mining and the production of energy from fossil fuels would cause more pollution. In November 2021, Bukele made plans for a “Bitcoin City” public. The shape of the city was planned to be round like a coin. Due to its geographic location, the city may mine bitcoins using geothermal energy. In addition, Bukele said that the city would not be collecting income taxes.

El Salvador’s bonds issued abroad decreased. The government started drafting legislation in 2022 for the issuance of $1 billion in “Volcano Bonds.” . International investors viewed the proposed bonds with suspicion, despite the scream El Salvador’s offshore bonds lost value as a result of the news, plummeting over 30% in December 2021.

Acceptance:

Economic surveys revealed that the reason for failure in acceptance of cryptocurrency was illeteracy. According to a US National Bureau of Economic Research research, 20% of Chivo app downloaders did not use their $30 sign-on bonus, while 61% of users ceased using the app once they had used their bonus.  only 20% bussineses accepted bitcoin as a currency.  Only 14% of businesses in El Salvador completed bitcoin transactions between September 2021 and July 2022, according to the Salvadoran Chamber of Commerce, and only 3% thought having access to bitcoin was valuable.

 

Predictions:

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