Adopting the Bitcoin standard? El Salvador writes itself into history books

by Gordon James

In the last couple of weeks, El Salvador has seen the first institution-backed public blockchain use case. Consensus 2018, the world’s foremost blockchain conference, was held in New York City this year, and the two major events of its week-long schedule were workshops that looked at blockchain use cases in the real world.

In the past few years, the world has gone through a revolution of sorts. We’ve seen the rise of highly complex systems such as bitcoin, but we’ve also seen the economic collapse of entire countries. But in El Salvador, we are truly in the midst of both of these revolutions. In the last few months, we’ve seen the country adopt bitcoin and the Bitcoin Standard, and this is fundamentally transforming our monetary system and our culture.

El Salvador’s population is about the same size as Philadelphia’s, so using the Bitcoin standard to pay for a Guatemalan smuggler’s passage across the border should have been a no-brainer. But the first Bitcoin transaction in El Salvador was a disaster.. Read more about why is cryptocurrency valuable and let us know what you think.

The cryptocurrency sector and the business community at large continue to welcome El Salvador’s historic decision to recognize bitcoin as legal tender. The Central American country was the first in the world to do so, and this has prompted several other countries in Central and South America to take similar steps. As a result, the decision has caused heated reactions in the cryptocurrency community, with bitcoin (BTC) proponents in particular stressing the importance of legislative changes to encourage the adoption of cryptocurrencies. Some critics have also pointed to the potentially coercive nature of the law, which has made the situation even more explosive, but overall the response has been positive. After President Nayib Buquele announced at the Bitcoin 2021 conference in Miami that the country’s Congress would approve the new legislation, events in El Salvador spiraled out of control. In just a few days, Buquele’s plan to make bitcoin a legal tender has become a reality as El Salvador’s legislative assembly passed a resolution on the 9th. June voted for the new law. The country’s president went a step further by asking state energy producer LaGeo to explore the possibility of powering bitcoin mines with the country’s abundant geothermal energy. Less than a day later, a new geothermal well was tapped that Bukele says will power a bitcoin mining plant in the near future. Our engineers have just informed me that they have drilled a new well that will provide approximately 95 MW of 100% net geothermal energy from our volcanoes, with no emissions. We are starting to develop a full-fledged #bitcoin mining center. What you see coming out of the well is pure water vapor pic.twitter.com/SVph4BEW1L – Nayib Bukele (@nayibbukele) June 9, 2021 The decision was even immortalized on the bitcoin blockchain by mining company Poolin, which inserted a headline from the Salvadoran newspaper asamblea aprueba la ley bitcoin, which translates as the assembly approves the bitcoin law, in block 686,938, which was mined earlier this week. It’s reminiscent of Bitcoin’s pseudo-founder Satoshi Nakamoto, who more than a decade ago in the Bitcoin Genesis block involved a chancellor who was about to implement a second bank bailout. Bukele also promised to help bitcoin users emigrate to El Salvador and pointed out the benefits of bitcoins no longer being subject to capital gains tax. With events in El Salvador unfolding at a breakneck pace, it is interesting to look at the reaction of the cryptocurrency community as a whole and the echo of recent legislation.

Overview of El Salvador’s Bitcoin Law

El Salvador’s Congress voted in favor of President Buquel’s bitcoin bill, which recognizes bitcoin as a legal currency equivalent to the U.S. dollar, with 62 out of 84 votes in favor of the new legislation. The law will allow citizens to pay for goods and services in bitcoins. Buquelet also said the Salvadoran government guarantees bitcoin’s convertibility into dollars with every transaction. This was made possible by a $150 million fund established by the Bandesal Development Bank in El Salvador. Essentially, the government will buy BTC from residents if they want to receive dollars instead of BTC. One of the controversial issues is the Article 7 legislation, which requires merchants or businesses to accept bitcoin as payment from customers, as it is now legal tender. Economist and monetary historian George Selgin expressed serious concerns about Articles 7 and 13 on Twitter. He said they were coercive because they would force all Salvadoran merchants and businesses to accept BTC as payment. Article 7 reads: Any economic agent must accept bitcoins as payment when offered by a person purchasing a good or service. Article 13 reads: All monetary obligations that existed prior to the effective date of this Act and are denominated in U.S. dollars may be paid in bitcoin. The prominent economist said the move is a victory for bitcoin, but he questions whether it is a victory for freedom, as these articles will force Salvadoran businesses and vendors to accept bitcoin whether they want to or not. Selgin argued that Articles 7 and 13, which are legal tender provisions, essentially undermine rather than promote freedom of monetary choice. It is (relatively) rare for an item to become a mandatory bid, not only for outstanding debt, but also in the cash markets. As such, it is even more contrary to the principle of currency choice. Instead of simply allowing traders to accept BTC as payment, Article 7 requires them to do so even if they would prefer to be paid in US dollars (or something else). Very few countries have such draconian legal tender laws, which in the past have been the last resort of desperate governments. The economist called on advocates of cryptocurrency and bitcoin to stand up and condemn these specific points in the law. His review is widely read and provides a good dose of perspective on a situation that has received a lot of positive press.

Community welcomes arrival of El Salvador

While Selgin’s arguments raise thorny questions about El Salvador’s new currency law, there seems to be widespread positive sentiment about the country’s quick decision to adopt bitcoin as legal tender. Many leading proponents of cryptocurrencies and bitcoin have called the decision an important step towards wider adoption of the leading cryptocurrency as a store of value and means of payment. Paolo Ardoyno, chief technology officer of Bitfinex, told Cointelegraph that he believes the move is an important step towards financial freedom: The fact that bitcoin has been accepted as legal tender by El Salvador confirms what we’ve been talking about all along: Bitcoin is useful and a viable alternative to fiat currencies. As we see the introduction of digital currencies, I think we will see big moves for bitcoin. This is a huge step forward for the financial freedom of mankind and a monumental moment for bitcoin. Humayun Sheikh, CEO of Fetch.ai, a company that develops artificial intelligence for blockchain, emphasized the importance of first-mover advantage and suggested that countries like El Salvador will attract companies and individuals working in the cryptocurrency space, adding A handful of countries importing bitcoin, or even buying bitcoin to use as a store of wealth, will increase their wealth and provide a positive impetus for the adoption of cryptocurrencies. Jeffrey Wang, head of Amber Group’s US unit, echoed Sheikh’s view in correspondence with Cointelegraph, noting that favorable regulatory action is an important way to attract cryptocurrency and blockchain-oriented companies: The biggest cloud hanging over the crypto industry is regulatory uncertainty. Acting quickly in this direction can therefore be a significant advantage in attracting capital and talent to your country. Wang also said that the rapid changes taking place in the country could serve as a real test for the adoption of bitcoin as a legal currency, and it is possible that this could be a catalyst for the country to become a hub of prosperity for crypto-currency companies : If countries like El Salvador switch to clean energy early on, they can boost their national economies by welcoming industry, starting with miners who can use clean energy. It would also be an excellent first test of bitcoin as a medium of exchange. Ardoyno also highlighted the role cryptocurrencies can play in helping Central and South American countries solve long-term economic problems affecting their currencies and populations: Bitcoin has resonated because of the benefits it can bring as a result of the tragedy in the South American economy. Its potential for financial freedom in the region should not be underestimated.

What can we expect in the short term?

Since the passage of the new bitcoin law in El Salvador, there has been a lot of interest in the changes that will take place in the country and beyond in the near future. Sebastian Ramirez, chief operating officer at bitFlyer USA, told Cointelegraph that many ordinary people are becoming less skeptical of bitcoin and are beginning to see it as a viable alternative to existing solutions and a better store of value. Ramirez also noted that the change to Salvadoran law could remove some barriers to entry, such as the need to pay taxes when using bitcoins. He also acknowledged that the change in the law may not immediately lead to a change in perception at home and abroad: A large majority of the population may not yet feel savvy/comfortable enough to use bitcoin and take its risks. I don’t expect most people to take advantage of this change in the short term, but as the space grows and bitcoin becomes more stable, it will be a great alternative. Wang acknowledged that there may be some difficulties as sellers and businesses in the country are yet to build the infrastructure to accept BTC. Moreover, people may not want to spend their BTC on daily purchases, as cryptocurrencies are increasingly used primarily as a store of value : I think most are holding BTC because of the potential long-term price increase, so it would be too expensive to spend it on bread today when the price could double in a week.

IMF sounds alarm

The speed with which El Salvador passed its landmark bitcoin law made it difficult for key financial and economic regulators to react or intervene. Nevertheless, the International Monetary Fund stated at a press conference on 10 October that the crisis is not over. June some concerns about this move. IMF spokesman Jerry Rice said the government of El Salvador would be consulted. The IMF is currently negotiating with the country for more than $1 billion in financing: The introduction of bitcoin as legal tender raises a number of macroeconomic, financial and legal questions that need to be analyzed very carefully. We are therefore closely monitoring the situation and will continue our coordination with the authorities. Some in the international community are also questioning whether Buquela’s decision to quickly introduce bitcoin as a legal currency alongside the US dollar, which has served as the Central American country’s reserve currency since 2001, was timely. Mr. Ramirez commented on the timing of the move: The main reason for this is the race to the center of bitcoin in Latin America. He added: The announcement puts El Salvador on the map and arouses much foreign interest, which exerts pressure on other Latin American countries that do not want to be left behind. Related: A fatal blow to Chinese cryptocurrency miners? Thugs on the move after government action Mr Sheikh thinks the bitcoin conference in Miami was probably chosen for public relations reasons. He also hinted that the timetable could depend on developments in China, where the government is starting to take a tougher stance on bitcoin mine operators: This news comes at a time when coal production in China is limited and there is a surplus of mining equipment that needs to be moved. With an abundance of renewable geothermal energy, El Salvador can benefit from these developments and improve the image of bitcoin mining as a dirty process. Nevertheless, all eyes are now on El Salvador and Central America. The country is laying the groundwork for the widespread adoption and use of bitcoin as a means of payment and has promised to build the infrastructure to enable bitcoin mining on a large scale using clean geothermal energy.In 2013, a small country in Central America called El Salvador introduced an innovative new technology that was one of the first in the world: blockchain, the underlying technology of Bitcoin. Many people believe that blockchain technology is the future of finance and digital currency. But El Salvador’s move could send a shock wave through the global financial community.. Read more about when was bitcoin at its lowest and let us know what you think.

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