Defying the warnings of major economies and financial regulators, as well as the disagreement of the majority of the population of that Central American country, El Salvador has become the first country in the world where bitcoin is used as an official currency, which, according to analysts, could affect the position of cryptocurrencies in the global financial system, world media write. .
"Bitcoin beach" as inspiration
As of Tuesday, September 7, El Salvador has become the first country in the world to adopt bitcoin as legal tender, with plans to use volcanic geothermal energy to power the "mining" of the digital currency, the Times of London wrote, adding that the digital the experiment is closely followed around the world.
Bitcoin, along with the US dollar, which was adopted in El Salvador in 2001 and will continue to be used as a "reference currency", becomes the official currency of the smallest Central American country and must by law be accepted as payment when offered - unless suppliers or recipients they do not have the technology to perform transactions.
Bitcoin will not be subject to capital gains tax and can even be used to pay tax contributions.
The government has set up a $150 million fund in the Development Bank of El Salvador that will be used to convert bitcoins into US currency. However, the Times adds, 70 percent of the population does not use banks. Also, internet access is necessary to use bitcoin, and only 45 percent of the country is connected.
Salvadoran President Najib Bukele, who announced a plan to introduce bitcoin in June, has promised to build infrastructure that will allow the rural population to connect to the Internet.
He also sought to address environmental concerns over energy-intensive bitcoin mining - in which computers consume large amounts of energy - by suggesting that El Salvador's abundant geothermal energy production, whose potential is largely untapped, could play a role in meeting the energy debt.
The national revolution around bitcoin was launched, the Times points out, after an experiment with cryptocurrencies started in 2019 by two Americans in El Zonte, a small town on the Pacific coast of El Salvador. Michael Peterson and Nicholas Bartej launched a project called "Bitcoin Beach" seeking to simplify payments, employment and encourage banking among locals.
Soon everything could be paid for with bitcoins via smartphones and computers.
It was this project, according to President Bukele, that inspired El Salvador to accept cryptocurrency.
Distrust of citizens
The majority of Salvadorans do not agree with the government's decision to adopt bitcoin as legal tender, and many do not know how to use the digital currency and are distrustful of the project, according to a survey by the Central American University (UCA), writes Reuters.
At least 67,9 percent of the 1.281 people surveyed said they disagree or strongly oppose the use of bitcoin as legal tender, while just over 32 percent of respondents said they agree with it to some degree.
A UCA survey conducted in August and published in early September also found that nine out of 10 people did not have a clear understanding of bitcoin, and eight out of 10 said they had little or no confidence in its use.
Most people, seven in 10, think lawmakers should repeal the law making it legal tender.
According to the dean of the Central American University, Andrea Oliva, the survey shows not only the refusal to use bitcoin as an official currency, but also the first significant disagreement "between the population and the decisions made by the Legislature and the President".
The survey, Reuters points out, also showed that the majority of respondents think that the main beneficiaries of the use of bitcoin will be the wealthy, foreign investors, government and business leaders.
The government did not immediately respond to a request for comment on the survey, Reuters points out, adding that Bukele and his government presented a measure to introduce bitcoin as an official currency to encourage economic development but also as a way to reduce reliance on the US dollar.
Divisions and skepticism
As El Salvador prepares to become the first country in the world to use bitcoin as an official currency, the country has registered divisions and skepticism over measures the government presents as a way to boost economic development and employment, the BBC points out.
In recent days, more than 200 new ATMs have been installed across El Salvador to allow the conversion of dollars into Bitcoin.
The government has also offered citizens a free digital wallet where they can get $30 in bitcoins.
However, the BBC points out, recent protests in the capital San Salvador have shown a lack of trust among citizens, many of whom are still unfamiliar with cryptocurrencies.
More than two million Salvadoran workers in other countries send money to their families back home, and these remittances account for about 20 percent of the country's GDP.
Crypto advocates say using bitcoin could make it cheaper to send money home.
But, according to the British public service, others argue otherwise, stating that bitcoin is quite expensive for small transactions.
"Recent academic work has shown that exchange costs could end up being even higher," warned cryptoanalyst Glenn Goodman, adding that Chamber of Commerce surveys indicated that 82,5 percent of respondents did not want to receive remittances in bitcoin, largely because of its value. unstable and unpredictable.
Bitcoin, a virtual asset that has no direct connection to the economy, has experienced large fluctuations in value over the years.
It fell sharply in May following China's crackdown on pressure mining and Tesla CEO Elon Musk's decision to no longer accept it as payment.
However, since then, the cryptocurrency has recovered, rising above $50.000 for the first time in three months at the end of August.
An alternative to weak currencies
While the project to introduce bitcoin as an official currency in the small Central American country with about 6,4 million inhabitants faces skepticism from advanced economies and the IMF, some consider it revolutionary, wrote the Financial Times, noting that cryptocurrencies are more attractive in countries with a history of financial instability and they often become an alternative to weak national currencies.
"We should take it very seriously," says co-author of the book "Chain Reaction: How Blockchain Will Change the Developing World" Paul Domjan, emphasizing that with Bitcoin in El Salvador, the position of cryptocurrency in the global financial system is changing and accelerating the whole discussion about digital currencies.
Domjan believes that Salvador is the "right country" for such an experiment because it is not under sanctions, and through the IMF it is included in the international financial system.
He adds that significant lessons can be learned from the example of El Salvador, which brings an element of legitimacy to the whole bitcoin story.
While cryptocurrency analysts are excited about El Salvador's bitcoin currency experiment, most regulators in Europe and the US have given it a colder reception, issuing stern warnings about the dangers of cryptocurrency trading.
In advanced economies, the Financial Times wrote, many in the financial world view cryptocurrencies with suspicion - in the realm of a speculative and highly volatile fad that can only end badly.
Following the announcement of Salvador's plan, the IMF warned in late July of the dangers countries could face, saying the widespread use of unstable coins could undermine "macroeconomic stability" and potentially expose financial systems to illicit activity.
The British regulator warned that "if consumers invest in these types of products, they should be prepared for the possibility of losing all their money".
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