El Salvador's Journey To Becoming A Bitcoin Nation
Bitcoin became legal tender in El Salvador when the bitcoin law, proposed by the country's controversial President Nayib Bukele, was passed by the legislature in June and went into effect on September 7, 2021, making the country of 6.5 million people the first to grant a cryptocurrency legal tender status. The government of El Salvador is giving Bitcoin even more legitimacy.
Not everyone is happy about El Salvador's move towards Bitcoin.
Efforts by El Salvador, where the people have more bitcoin wallets than traditional bank accounts, to use Bitcoin as the official currency have led people to demonstrate on the streets and global politicians have warned of "significant risks" to the economy. The El Salvador experiment is a rebuke to many regulators and academics in the US and Europe, who have long pointed to Bitcoin's instability as a reason to avoid it.
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Salvadorans can use the ATMs to exchange bitcoins for US dollars (El Salvador's other official currency, alongside Bitcoin). The El Salvador Bitcoin law has catapulted President Bukele into legendary status. But, on the ground, reports suggest Salvadorans are ambivalent about the government's decision. Of course, that is not entirely true, but it is the picture painted.
El Salvador became the first country in the world to accept Bitcoin as legal tender in September 2021. Public opinion polls show that Salvadorans are skeptical of the move, which triggered protests. Opponents of the Bukele government protested the nation's Bitcoin legal tender law by vandalizing one of the government-run ATM machines, which operates under the brand Chivo.
Bukele, who maintained a rather strict lockdown during the COVID-19 pandemic, has big plans for his countries adoption of Bitcoin. President Nayib Bukele said that El Salvador plans to build the world's first Bitcoin City, originally funded by $1 billion worth of bitcoin-backed bonds, doubling its rate to use the cryptocurrency to spur investment in this Central American country.
For instance, the country is introducing Volcano Bonds, issued with the help of Blockstream Liquid, to build a new geothermal power plant powerd by a volcano in a Bitcoin City. The city will be built near the Conchagua volcano to use geothermal energy to power the city and a Bitcoin mining complex.
The government has launched a Bitcoin mining pilot project at another geothermal power plant near the Tecapa volcano. The Conchagua volcano on the sea is located in Fonseca Bay in the southeast of El Salvador. According to Bukele, half of the collected valued-added tax from the bonds will be used to finance the city's construction. The other half is to pay for services such as garbage collection
Bukele said the tax money would not be used for the new project and tried to reassure the Salvadorans that profits from previous bitcoin purchases would serve the interests of the entire population.
The government also said it had set aside $150 million, the equivalent of 12% of El Salvador's public investment budget last year, to provide free bitcoin-to-dollar conversions.
El Salvador will issue $1 billion in "Bitcoin bonds" to fund the project in 2022, according to Samson Mow, Director of Strategy at Blockstream, a blockchain technology provider. Bukele also announced that El Salvador will partner with Blockstream and use its Liquid Network to issue the aforementioned bond.
After President Nayib Bukele "bought the dip" last week and bought an additional 420 bitcoins for about $25 million, El Salvador now has 1,100 coins, up from the first 400 coins announced in early September, when it became the first country in the world to make Bitcoin legal tender.
According to The Bitcoin Boys, two cryptocurrency enthusiasts and investors from El Salvador, the initial launch of the Chivo app did not go entirely smoothly. Chivo's plan was pushed by the president and his brothers Karim, Ibradim, and Yousef Bukele Ortez,considered the main supporters of Bitcoin in the presidential circle.
When the Bitcoin law and the government's Chivo app launched, El Salvador's sovereign debt fell by nearly five cents in one day to close on September 7 at 87.6 cents per dollar.
Nonetheless, Bitcoin adoption is likely to continue to rise in El Salvador. On September 29, 2021 Bukele announced that Chivo was "in talks with the nation's largest gas stations" to cut the price of gasoline by 20 cents a gallon for those who pay via the app.
This is in addition to the $30 capital that the government has deposited into each Salvadoran Chivo account. El Salvador's president announced that the country will build 20 new schools using the profits from buying bitcoins. Furthermore, San Salvador will reward anyone who can offer the government a financial contract to keep the bitcoin value stable for salaries and pensions.
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Justin O'Connell Post author | January 6, 2022
Thanks everyone for reading!
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