El Salvador’s leap into Bitcoin as legal tender — what will it mean for people who live there?
It’s official. On 7 September 2021, El Salvador became the first country to introduce Bitcoin as a legal tender.
A bold move in a world that is constantly divided over cryptocurrencies and their veracity as usable tender. El Salvador’s decision has boosted the debate once again, with countries worldwide debating cryptocurrency in terms of its dangers and its opportunities.
El Salvador now uses US dollars and Bitcoin as legal tender.
Since the launch date, businesses in El Salvador have been legally obliged to accept Bitcoin (BTC) as payment for goods and services.
The El Salvador Government has released a digital wallet app for people to download. Millions of people in the South American country are expected to go ahead and jump on board, if only for the sign-up gift.
Each citizen who downloads the Government’s app (Chivo) will get a welcome gift of £22 worth of Bitcoin. (US$30). To show their support for the pioneers of digital currency as legal tender, crypto fans worldwide have been buying £22 worth of BTC, all of which will boost the value of this volatile digital currency.
What do Salvadorians think?
People’s mood on the frontlines of El Salvador business is mixed, as you’d expect for something so radical. For example, Daniel Hercules is a 26-year-old Salvadorian taxi driver. Speaking to the BBC on the day BTC became legal tender in his country, he reported feeling excited but concerned for the stability of his income and wages.
In the BBC interview, he says: “I’ve accepted Bitcoin for two months as I knew this was coming. In fact, someone just paid $40 in BTC for his fare to the airport, but it’s rare.” Daniel estimates that only 10% of his customers so far are comfortable paying with digital currency.
The taxi driver also cites the cost of converting the BTC to the US dollar (Salvadorian local currency) is 10%, which he feels is prohibitively high. So, he’s choosing to use any BTC he receives as fares as a kind of savings account and hopes to increase his digital wallet to Bitcoin worth around $1000.
However, he also told the BBC he is concerned about the currency crashing, losing value, and impacting his income. Saying: “It’s one of the things that worries me the most — losing the money I made from long days of working would not be OK.”
Is BTC too volatile to be legal tender?
BTC has always been volatile, and its value does fluctuate dramatically in a way that concerns many people. Over the last 12 months, for example, it has fluctuated a lot. In September 2020, a single coin was worth bout $10,000, rising to a high in April 2021 of $63,000 per BTC before dropping to $30,000 in July 2021.
At the time of writing (11 October 2021), BTC is valued at $57,441 per coin. Some experts are linking this sharp increase to the news from El Salvador, particularly because of the support from the community in purchasing BTC when it became legal.
This mass purchase was discussed on a thread on the Reddit community for Bitcoin, which has around three million followers.
A large percentage of Salvadorians don’t want BTC.
However, among the celebrations from crypto stalwarts, it does appear that there needs to be much more information disseminated to Salvadorians. A survey from the Central American University (UCA) shows that more than 95% of the 1,281 people asked didn’t know what Bitcoin is or understand how to use it.
Just 4.8% of this representative sample were comfortable with the concept, but 68% of respondents also said they didn’t agree that Bitcoin or any cryptocurrency should be a legal tender.
In another case study from the BBC, 70-year-old Jeanette Sandoval, who sells groceries, says she doesn’t want to use BTC. She said in the interview that while she has been open to change in the past, this time, she doesn’t agree.
She says: “Our customers say they will not be paying in Bitcoin. In my country, there are many people who hardly use even a cell phone — not even a smartphone. They will just not use a digital currency.” She added that she won’t be downloading the app just yet, although she probably will one day.
The Government is installing more than 200 cash machines around El Salvador to allow simple conversion of dollars into BTC.
Protests and fears as President Nayib Bukele hail BTC as a success.
There have been protests in El Salvador’s capital city San Salvador by people who believe that the Government is using Bitcoin to distract from problems with its controversial rule.
And perhaps we can see why Salvadorians may be sceptical of such a move at a time when other major Governments appear to be moving in the opposite direction on cryptocurrencies. For example, China has now banned the adoption and use of cryptos entirely.
The Salvadorian Government says that legalising BTC will boost the economy, but the country has been divided since its first announcement. Analysts fear that the country isn’t ready for such a move, and the World Bank declined to assist El Salvador with implementing BTC as a legal tender due to the impact of mining and transparency/security.
President Nayib Bukele has been quick to encourage interest in his controversial move by tweeting that El Salvador is now using the power of its many volcanoes to mine BTC. At the time of the tweet, El Salvador had managed to mine 0.00599179 BTC, worth around $269 using geothermic power. Whether they’ll be able to mine enough crypto to offset emissions remains to be seen.
According to the President, despite the protests and negative articles, since BTC became legal in El Salvador, more than three million people have downloaded the Chivo BTC digital wallet app. That’s 46% of El Salvador’s population.
It’s an impressive result so far and shows that perhaps digital currency as legal tender is the answer, particularly in countries like El Salvador. A vast number of low-income Salvadorians are more likely to have a smartphone than a bank account. In fact, according to Forbes, only 6% have traditional bank accounts. Bitcoin gives a viable alternative currency to the unbanked — and that can only be a positive thing.