El Salvador’s Bitcoin plans: Disruptive or dangerous?
El Salvador’s endorsement of Bitcoin this weekend marks the first step toward the world’s first digital currency being adopted as legal tender. But whether it’s a move toward legitimacy for Bitcoin—or an opportunity for scandal—seems to be a little controversial.
Via a prerecorded video, Salvadoran President Nayib Bukele announced Saturday at the Bitcoin 2021 conference in Miami that he will propose legislation this week to let Salvadorans use Bitcoin to fulfill their financial obligations.
Through subsequent tweets, President Bukele claimed that legally officiating Bitcoin’s presence in El Salvador could be an economic boost for the troubled country—one that has been plagued by brutal gang violence for years. Bitcoin could help reduce intermediary fees paid by low-income Salvadorans for remittances (money sent home by migrants), as well as lift the nation’s GDP by 25%, Bukele said in the tweets. Approximately 70% of the country’s population doesn’t have a bank account, he noted.
El Salvador will work with Strike, a digital wallet built on Bitcoin’s Lightning Network, as a consultant to move forward with its plans.
“We’re open to having conversations with anyone we can offer expertise to who is looking to build their economic future on Bitcoin’s open network,” a Strike spokeswoman said in a statement.
Some crypto enthusiasts and executives saw Bukele’s announcement as a major step toward adoption for the world’s first digital currency. It was “huge news” for Bitcoin, said Tegan Kline, cofounder of software development company Edge & Node and an attendee at the Miami conference this weekend.
“We’ve always been waiting for the day that a central bank takes on Bitcoin as their reserve currency. The open question is just which will be the first central bank to do this,” she said. “I think that this is kind of a step in that direction.”
It’s possible that the announcement could attract crypto innovators and investors to El Salvador, Bukele also said.
But as tensions escalate between El Salvador and the U.S. over corruption allegations, not everyone is enthusiastic.
Senior officials in El Salvador, who are allies of President Bukele, were included in a list recently sent to members of U.S. Congress that identified senior officials in Central America whom the U.S. State Department had determined to be corrupt, according to reporting by the Associated Press. Bukele obtained control over all three branches of the Salvadoran government in May in what some have argued is an authoritarian move.
Eloisa Marchesoni, an innovation management consultant focused on cryptocurrencies, was initially excited about El Salvador’s endorsement, but has become skeptical of whether accepting Bitcoin as legal tender would help the people of El Salvador, where the poverty rate is very high. She expressed concerns over access to Bitcoin, high fees, and the complex nature of how cryptocurrencies work.
Reliance on remittances could also be challenging for Salvadorans given the significant price volatility of Bitcoin, according to Marchesoni. “That does not make sense at all,” she said.
Instead, Marchesoni worries that proposed legislation may increase usage of Bitcoin for money laundering. “If [El Salvador] has Bitcoin as legal tender, it becomes really easy to just go in and out of the BTC,” she said.
At the same time, one of Bitcoin’s most touted features is that it is decentralized; it isn’t tied to any one government or institution. Some individuals have long argued that cryptocurrencies could be most valuable to developing countries.
“For people who invest in Bitcoin, the allure is precisely that: It’s not backed by a central government. So it’s not manipulatable by central government,” Miami Mayor Francis Suarez, a vocal proponent of cryptocurrency and tech innovation, told Axios earlier this year in an interview.
Kline is anticipating more countries will follow suit in laying the groundwork for formally adopting crypto in the coming years.
“Choosing Bitcoin as a legal tender will become more and more common as we have more and more millennial leaders taking office,” she said.
For Marchesoni, the very nature of Bitcoin means that it shouldn’t matter which countries move to formally adopt it and which don’t.
“It’s not impacted by the fact that it is or is not accepted as legal tender,” she said. “That’s the whole point of Bitcoin.”
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