It's Bitcoin Day — the "Ley Bitcoin" (Bitcoin Law) has gone into effect in El Salvador, officially making the country the first in the world to adopt Bitcoin as legal tender.
To kick off the historic day, El Salvador's president Nayib Bukele took to Twitter in the early morning hours of September 7th to announce that his country had bought its first bitcoin — 200 to start, then doubling its stack to 400.
El Salvador made history in June by becoming the first country to adopt bitcoin as legal tender, as the BTC Times previously reported. The bill was passed by a supermajority in the Legislative Assembly on June 8th, 2021; that Bitcoin is now a parallel legal tender in El Salvador means that proponents and detractors of Bitcoin alike are watching this Central American country closely as it breaks new ground in the world's economic evolution.
Before the passage of the Bitcoin Law, the U.S. Dollar was the sole official currency of El Salvador. The main impetus to ensconce Bitcoin as parallel legal tender appears to be an attempt to increase and democratize economic participation. Bukele argued that elevating Bitcoin to the status of legal currency would “provide financial inclusions to thousands outside the formal economy” and create jobs.
Adopting Bitcoin as legal tender in El Salvador has the potential to cut the cost of paying remittances, a key source of income for the country’s population, especially for migrants and short-term employees. According to one report, one quarter of El Salvador’s citizens reside within the U.S. and sent more than $6 billion in remittances over the past year.
Over 70% of El Salvador’s 6.5 million inhabitants are unbanked, meaning they are unable to access traditional banking. That a majority of El Salvador’s population is unbanked is cause for concern, as lacking access to traditional banking creates several challenges, both for individuals seeking to increase their own wealth and for nations wanting to increase financial inclusion and ease poverty.
In preparation for the new legal tender, El Salvador deployed over 200 bitcoin ATMS, a move that could make it much easier to promote financial inclusion among unbanked citizens. As the BTC Times previously reported, Bitcoin ATMs are on the rise globally. In June, Bukele announced the creation of El Salvador’s first official bitcoin wallet, Chivo, and promised $30 to each citizen who signs up.
El Salvador's move into Bitcoin was met with skepticism from some, including the World Bank, which rehashed much-used arguments blaming Bitcoin's environmental impact — on which there is no official data — and the IMF, which recently published a blog post calling the adoption of Bitcoin as legal tender "a step too far." Meanwhile, President Bukele has begun exploring the possibility of using the country’s volcanoes as a source of geothermal energy to power bitcoin mining.
While political corruption is an ongoing concern in El Salvador (and in many countries around the world), proponents of the move to use Bitcoin as a parallel legal tender argue that it has the potential to democratize the economy rather than potentially enable further corruption. One key economic impact of utilizing Bitcoin as legal tender may be to wean El Salvador from dependence on the U.S. Dollar.
With all eyes on El Salvador, the adoption of Bitcoin as a parallel legal tender has everyone wondering: will other developing nations follow? The move may come down to a key player in the future of financial inclusion: the availability of technology. Smartphones are essential to accessing digital wallets. Though smartphone availability has increased across the globe, some data suggests that only a third of users with mobile phones have access to the internet, and there are concerns about the possible stratification of smartphone availability within emerging economies.
However, data seems to suggest that mobile adoption is growing rapidly in El Salvador, and the increase in availability of Bitcoin ATMs would help enable users to conduct transactions even if they do not currently have smartphone access. Though a majority of El Salvador’s population is divested in, and disempowered by, traditional banking, Bitcoin could still come out ahead in empowering the country’s economically divested majority. At this point, it seems to be an innovation game.