In 2008, Satoshi Nakamoto invented the first-ever digital asset called Bitcoin. For more than ten years after its invention, BTC (bitcoin) has encountered a lot of hurdles along the way before entering the mainstream. It has been associated with illicit activities making it a target of regulatory bodies worldwide. It has also earned a lot of critics which include billionaires Bill Gates and Warren Buffett. Well-known financial experts like Nouriel Roubini, Peter Schiff, and Paul Krugman.
But the number of its advocates has also immensely increased with the biggest names in their respective industries. Amazon founder and CEO Jeff Bezos, the richest man in the world is one of the biggest proponents of bitcoin. According to reports, the e-commerce giant will start accepting bitcoin as payment. Tesla founder and CEO Elon Musk after having a falling out with the virtual currency is now back at promoting it in his tweets. Twitter and Square founder and CEO Jack Dorsey is a known bitcoin maximalist.
The adoption of institutional investors like Paypal, Wallstreet giant Guggenheim Funds, and banking giant Morgan Stanley created a buzz in the crypto industry that resulted in an increased investors’ confidence in BTC (bitcoin) despite its known volatility.
In October 2020, Iran has adopted bitcoin as an exclusive payment for imports. The adoption was another milestone for the most dominant cryptocurrency.
On June 9, El Salvador passed the Bitcoin Law with a majority vote of 62 out of 84. The law was passed in just six hours making it record-breaking considering how most bills must normally go through a rigorous process before being approved. The country is now the first-ever country in the world to adopt BTC (bitcoin) as legal tender and will forever be written on history. But what motivated Bukele’s administration to adopt a volatile crypto asset like BTC (bitcoin) as legal tender?
Understanding El Salvador’s Bitcoin Adoption
El Salvador is a country with a population of almost 7 million. Currently ranked as 14th among Latin American countries and fourth in Central America in terms of the Human Development Index as a result of rapid industrialization. But despite this, the country continues to be plagued with a high poverty rate, socio-inequality, inflation, high unemployment rate, and gang-related violent crimes. Previously, the nation’s economy depends mainly on coffee but in 2006 remittance from 2 million Salvadorans working overseas has become the country’s main source of income.
Colon was El Salvador’s basic monetary unit but later on, the country adopted the US dollar to curb inflation and increase trade with the US. Supporters of the dollar stated that the adoption will keep the currency stable and help drive interest rates down. But the critics have argued that it will have a massive effect on exporters and will likely result in a competitive disadvantage. In 2001, the Law of Monetary Integration was passed under President Francisco Flores administration despite criticisms. The law has allowed the free circulation of the U.S. dollar in the country with a fixed exchange rate of 1 USD to 8.755 Salvadoran colones. The implementation of the law resulted in the extinction of the country’s own monetary unit.
And today, another bold move was made by the country under Bukele’s administration after adopting BTC (bitcoin) as legal tender just like the US dollar. But why did Bukele adopt the digital asset when the country already has the US dollar? According to reports, the adoption of BTC (bitcoin) as legal is primarily to cater to 70% of the country’s population who have no access to banking facilities and also to boost the economy. In 2019, El Salvador’s GDP growth reached 2.3 percent but persistently suffers low economic growth.
It was also revealed recently by Peter McCormack, CEO of Hijack Media and host of the What Bitcoin Did podcast that BTC (bitcoin) has been in the mainstream and has been used as payment since 2019 by people of El Zonte, a village called the “Bitcoin Beach”. The people in this small Salvadoran beach town were the first adopters of BTC (bitcoin). According to Carlos Enrique Ortiz Novoa, owner of one of the hotels in the town, there were 50 establishments that have been accepting the crypto asset as payment.
“There are more than 50 establishments — from mobile-phone-minute stands to vegetable and fruit vendors, shops, hardware stores, restaurants, and hotels — that use Bitcoin for daily transactions.”
The BTC (bitcoin) adoption was viewed as a financial solution to a country with a poverty rate of 22.8 percent according to data by the World Bank. But the passing of the Bitcoin Law was marred by controversy. Was the law really aimed at providing a solution or just a political move?
Bitcoin Law: Bukele’s Political Propaganda?
“This will generate jobs and help provide financial inclusion to thousands outside the formal economy, and in the medium and long term we hope that this small decision can help us push humanity at least a tiny bit into the right direction.”
Four days later after the announcement, the Bitcoin Law was passed. But his move has been highly criticized by Father José María Tojeira, director of the Human Rights Institute at the University of Central America. He stated that is nothing but political propaganda given that only a few Salvadorans have technical knowledge about BTC (bitcoin).
“The decision is rather incomprehensible. It seems more about making a show – which is a characteristic of this government: lots of propaganda, but few structural changes to help the impoverished population.”
Other human rights advocate David Morales from the Cristosal human rights group, backlash on the hasty passing of the legislation branding it as a “political marketing”. He stated:
“It was an idea that occurred to the president and became law within hours. This kind of important decision is made as part of a marketing strategy, instead of having a real national debate.”
Even Salvadoran media have expressed their disapproval of the law and revealed that the announcement on the adoption of BTC (bitcoin) was rather a diversionary tactic from serious issues of corruption and impunity in the country. In a blog titled “Bukele Wants Us to Talk about Bitcoin”, the media stated:
“The government of El Salvador announced on Friday it would pull out of its agreement to cooperate with the CICIES, which since 2020 had been investigating high-level corruption in Bukele’s government.”
The news was temporarily drowned out, however, by President Bukele’s flashy announcement on Saturday that he is seeking to make Bitcoin an official national currency — the first-ever country to do so.”
The published blog further adds:
“The reason remains unclear against an increasingly complex political and economic backdrop in El Salvador. Not only is there serious concern that Bukele currently controls the three branches of government, but that he has effectively announced a “new battle” against both civil society and the press.”
Salvadorans have also conducted protests to express their disapproval of the Bitcoin Law despite the ban implemented due to the COVID 19 pandemic. The protesters demanded from the government to revoke the Bitcoin Law.
Jamie Guevara, the deputy leader of the Farabundo Marti National Liberation Front (FMNL) has filed a lawsuit to stop the implementation of the Bitcoin Law and declaring it as “unconstitutional”.
Also, a previously conducted survey showed that more than 70% of Salvadorans expressed disapproval of the law.
Despite Bukele’s enthusiasm, it is very clear the majority of the Salvadorans are not yet ready for BTC (bitcoin) as legal tender in the country. But will they have a choice? The Bitcoin Law will come to effect on September 7 and every Salvadoran will have to abide whether they approve of the law or not.
Bukele did not only welcome BTC (bitcoin) as a currency but also bitcoin mining. He stated that the country can become a mining hub for bitcoin using geothermal energy from its volcanoes.
El Salvador’s adoption of the virtual asset has been widely celebrated in the crypto world and even resulted in the surge of BTC (bitcoin) price at that time. But for Salvadorans, the cryptocurrency as legal tender is still a big “NO” as revealed in the most recent survey. Will the adoption finally serve its purpose in a poverty-stricken country? Or was it just another political propaganda as critics have expressed? Your thoughts.