Bitcoin is legal tender in El Salvador; all you need to know
On September 7, 2021, the Bitcoin law passed by the country’s legislative assembly on June 9 has taken effect. Bitcoin is now officially a legal tender in a sovereign state for the first time in history. Here’s all you need to know.
How we got here
It all started at the Bitcoin 2021 conference in Miami. On June 5, Jack Mallers took the stage and showed a video of Nayib Bukele, El Salvador’s president, announcing that he would send a bill to the assembly to make Bitcoin legal tender in the country.
“In the short term, this will generate jobs and help provide financial inclusion to thousands outside the formal economy,” said the president.
From that point forward, El Salvador has been in the spotlight of the Bitcoin and cryptocurrency community in general — and the World Bank and the IMF as well.
However, that didn’t stop Bukele. So far, he has:
- Constructed Bitcoin mining facilities using geothermal energy from El Salvador’s volcanos.
- Developed a wallet called Chivo, enabling Salvadorans to trade Bitcoin with zero fees.
- Deployed over two hundred Bitcoin ATMs throughout the country.
The country had to power through an intensive plan in only a couple of months in preparation for when the law finally took effect. Now, it has all become a reality.
El Salvador makes history
The day before the law took effect, September 6, the president announced through Twitter that the country had acquired 200 BTC, making it the world’s first country to hold it on their treasury — officially, at least. He also assured the public that they’d be “buying a lot more” as the deadline approached.
It didn’t take him long to fulfill his promise. A few hours later, two other purchases of 200 and 150 coins respectively took effect. El Salvador is — at the moment — holding 550 BTC. It hasn’t been confirmed whether the country will keep buying, but Bukele’s original statements seem to point in that direction.
According to the president, these funds are destined “to the people” of El Salvador and will most likely be used to distribute among the users of the government’s new wallet “Chivo,” which offers a $30 sign-up bonus in BTC.
Chivo, El Salvador’s official wallet
A lot of controversies have arisen around the promotion of the government-developed wallet, Chivo. The application was designed to improve agility and speed for payments and remittances and provides an interface that enables users to convert between BTC and dollars easily. Additionally, El Salvador carried out a massive rollout of two hundred ATMs and fifty “Puntos Chivo” — dedicated customer service locations — to prepare for the launch.
Nevertheless, many aspects of the wallet are still unclear, and the community has expressed its concerns.
First of all, Chivo is launching as a custodial wallet, meaning that the service provider — in this case, the government of El Salvador — retains the users’ private keys. Basically, this makes the onboarding experience for crypto beginners a lot easier, but also grants the government control over Chivo users’ funds.
Secondly, many Salvadoreans have asked that the application goes open-source and releases its code to the general public to be audited by the community. However, the government did not address their request at all, and for the time being, the wallet’s code will not be publicly available.
The good news is that Bukele has clarified time and time again that the use of Chivo will not be mandatory, and citizens of El Salvador will have the choice to use other, more secure, and private wallets. Hopefully, the government will hear the community and update the application in favor of transparency and security.
The future of El Salvador and Bitcoin
El Salvador adopting Bitcoin as legal tender is an unprecedented event, and as such, it’s hard to foresee how it will work.
Bukele is optimistic that Salvadoreans will take great advantage of Bitcoin and expects that the initiative will allow the country to stay at the forefront of the digital economy and its industry. He also is committed to attracting foreign investment and entrepreneurs to settle down within El Salvador territory. For that, he determined a series of benefits, like zero capital gains tax on Bitcoin and immediate permanent residency permits.
Economy minister María Luisa Hayem explained that Bitcoin could forever transform El Salvador’s economy, facilitating the financial inclusion of its unbanked citizens. “This technology will allow small businesses to keep a record like a multinational company,” she said, also mentioning that many investors have made inquiries about arriving in the country.
Of course, these are all positive expectations, but the unpleasant truth is that many things can go wrong as well.
The project was rushed to meet the deadlines, and the country is still developing the necessary infrastructure for a Bitcoin-supporting economy. That said, there’s a possibility that we’ll find bottlenecks, system errors, and errors that could put the plan at risk.
There hasn’t been enough emphasis on crypto education among the people in the country, either. This is a fundamental issue, and the government will have to adequately warn the population about the risks of using Bitcoin and security best practices to prevent scams and frauds, for which beginners are sitting ducks.
Finally, international organizations have expressed their rejection of the Bitcoin initiative. Although this is more of a geopolitical issue, it could lead to these actors imposing pressures and sanctions over El Salvador.
Unfortunately, there’s no other way to see how the Bitcoin experiment in El Salvador turns out rather than to wait and see. It is vital that it goes well and the world understands Bitcoin's benefits for people. That is why we, as a community, need to show support and assist Salvadoreans in making their experience with Bitcoin as smooth and frictionless as possible.
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