The first Bitcoin nation: El Salvador becomes the first country to accept the digital currency


El Salvador officially adopted bitcoin as a legal tender Tuesday, and marked its dual-currency status by buying 400 bitcoins worth more than $20million.

The Central American country made history Monday when it bought its first 200 bitcoins, becoming the first known nation to do so. The U.S. dollar had been the country’s official currency for the past two decades.

It later bought an additional 200 bitcoins, bringing its total investment Monday to about $21million based on its value at the time of the acquisition.

Bitcoin is now mandated as an accepted payment in the Central American country, and Salvadorans can use it for all purchases.

Government officials intended to kick off the bitcoin launch by loading $30 in bitcoin credits to residents who download Chivo, a government-run electronic wallet. But the plan hit a snag on opening day when Chivo initially failed to appear in app stores. 

‘All eyes will be on El Salvador,’ its president said as the nation embraced bitcoin as a currency

The virtual money could be a game changer in a country where 70 percent of people lack bank accounts, and while Salvadorans have expressed excitement about the technology, others are staunchly against it.

Critics praised the announcement as an innovative money-saving venture, but critics warned the move could open the doors to money laundering.   

President Nayib Bukele said it will save Salvadorans about $400 million annually on commissions for remittances.

‘The first time in history, all the eyes of the world will be on El Salvador,’ the political leader tweeted Monday. ‘#Bitcoin did this.’

Meantime, the International Monetary Fund (IMF) – an organization consisting of 190 countries that promotes financial cooperation – called the nation’s adoption of cryptocurrency ‘a step too far.’  

Local taxi driver Daniel Hercules told the BBC he was excited by the launch, but also worried about how it might affect his income. 

‘I’ve accepted Bitcoin for about two months since I knew this was coming,’ he told the outlet. ‘I just had someone pay me $40 in Bitcoin for a fare to the airport but it’s rare. Only around 10% of customers prefer to pay with Bitcoin.’

He said there was a 10% markup to convert the digital currency into U.S. dollars, so he planned to save bitcoin rather than exchange it. 

The volatile currency could crash, however, and that makes holders such as Hercules nervous. 

‘It is one of the things that worries me the most. Losing money from long days of work would not be OK.’ 

The Salvadoran leader has hailed bitcoin as 'the fastest growing way to transfer' billions of dollars in remittances and to prevent millions from being lost to intermediaries

The Salvadoran leader has hailed bitcoin as ‘the fastest growing way to transfer’ billions of dollars in remittances and to prevent millions from being lost to intermediaries

 

The nation’s economy is deeply dependent on money sent back from workers abroad; emittances from Salvadorans expats represent about 22 percent of the country’s gross domestic product.

Remittances to the country – where four out of 10 people live in poverty – totaled $5.9 billion last year, according to officials.

President Bukele, a long-time virtual currency cheerleader, has said investing in bitcoin could bring a financial windfall to the fifth-poorest country in North America.

He estimated in June that if one percent of Bitcoin’s $680billion market cap was invested in El Salvador, it would increase the country’s GDP by 25 percent.

The 40-year-old president added that the move could bring 10 million new users to bitcoin and become the fastest way of transferring billions of dollars in remittances.  

Special ATMs have been installed through El Salvador that allow bitcoin holders to convert and withdraw the cryptocurrency into dollars without paying a commission.

 

Some Salvadorans have rallied against bitcoin becoming a national currency

Some Salvadorans have rallied against bitcoin becoming a national currency

The move pushed the currency price above $52,000 for the first time since May.

Bitcoin Foundation founder and investor Charlie Shrem said other countries are likely to follow El Salvador’s lead.

‘The game theory that will play out as other countries begin to desire a path to economic independence will be the most important global phenomenon of the 21st century,’ he tweeted.

Bitcoin ATMs allow cryptocurrency holders to transfer the virtual money into U.S. dollars

Bitcoin ATMs allow cryptocurrency holders to transfer the virtual money into U.S. dollars

 Using virtual money as a national currency could have consequences, the IMF cautioned in June.

‘Cryptoassets are privately issued tokens based on cryptographic techniques and denominated in their own unit of account,’ the fund said in a blog post.

‘Their value can be extremely volatile. Bitcoin, for instance, reached a peak of $65,000 in April and crashed to less than half that value two months later.’

Its value sunk from that April high to $30,000 in May.

Critics fear the arrival of bitcoin could lead to money laundering and other seedy dealings

Critics fear the arrival of bitcoin could lead to money laundering and other seedy dealings

Accepting bitcoin as currency could also compromise the nation’s financial integrity, the IMF said.

‘Without robust anti-money laundering and combating the financing of terrorism measures, cryptoassets can be used to launder ill-gotten money, fund terrorism, and evade taxes,’ the article said.

‘This could pose risks to a country’s financial system, fiscal balance, and relationships with foreign countries and correspondent banks.’

A survey found the majority of Salvadorans have no interest in using bitcoin as a currency

A survey found the majority of Salvadorans have no interest in using bitcoin as a currency

Some local residents have rallied against bitcoin as well, and said they were particularly concerned about it being used as welfare or pension funds.

A University Institute of Public Opinion study found that 70% of Salvadorans want the bitcoin law should be repealed.

Special ATMs have been installed through El Salvador that allow bitcoin holders to convert and withdraw the cryptocurrency into dollars without paying a commission.

President Bukele said there would likely be some growing pains and the nation embraced the technology.

‘Like all innovations, El Salvador’s bitcoin process has a learning curve,’ he tweeted Monday. ‘Every road to the future is like this and not everything will be achieved in a day, or in a month.’



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