ViaBTC｜El Salvador Divided over the Bitcoin Law as It Comes into Force
In June, after a majority vote, El Salvador’s Legislative Assembly passed the Bitcoin Law, making it the first country to officially recognize Bitcoin as a legal tender. The Salvadoran government took action the day before the Law took effect. On September 6, President Nayib Bukele of El Salvador said that the government will buy 400 bitcoins in two tranches on Monday. Based on the BTC price at 18:00 on September 6 ($51,690), the 400 bitcoins are approximately valued at $20.67 million.
Though the President strove to promote Bitcoin, Salvadorans have been indifferent to this cryptocurrency. Released on September 2, a poll by the University of Central America (UCA) that surveyed 1,281 Salvadorans showed that at least 67.9% said they disagree or strongly disagree with the use of Bitcoin as a legal tender, while only less than 32% of the people surveyed said they agree on some level.
Additionally, according to a UCA poll carried out in August, 90% of Salvadorans did not have a clear understanding of Bitcoin. Another 80% said they had little or no confidence in its use. Citizens believe that as far as the Law is concerned, the people are irrelevant, and major benefits will go to the millionaires, overseas investors, and business leaders. This is why Salvadorans have repeatedly taken to the streets to protest against the adoption of Bitcoin as a legal tender.
El Salvador suffers from a sluggish economy, underdeveloped industrial capacity, and rampant gang activities. Of the 6.5 million Salvadorans, 1 million are gang members. The country is small in terms of both land area and population, yet it has the world’s highest homicide rate. In 2020, El Salvador’s GDP stood at $24,639 million, of which more than 20% was derived from overseas remittances.
Consider the following scenario. Working overseas, a Salvadoran man wants to remit $100 to his little brother living in the home country through the few local providers of remittance service. Back in El Salvador, it takes the boy hours to withdraw the remittance. Upon arrival, he has to stay alert as gang members are always around. By the time he gets the money, the $100 may shrink by half due to the high service fees, transport fees, and gang blackmails. On the other hand, if the overseas worker chooses the Bitcoin Lightning Network, without ever leaving the house, his little brother in El Salvador can receive the remittance through a connected device, with only a small amount of transfer fees charged.
Over 70% of Salvadorans do not have a bank account, yet many of them still can afford cheap phones and basic broadband connections. Furthermore, as technology advances, the number of such Salvadorans is rapidly growing. In places with low efficiency and rampant corruption, buying a phone is much easier compared to opening a bank account.
Presumably, this was also part of the reason behind the government’s decision to adopt Bitcoin. Over the past two years, due to the impact of COVID-19 and the unrestrained increase of dollar supply by the Fed, small countries where the dollar serves as the legal tender have suffered from soaring inflation. To a certain extent, the government’s adoption of Bitcoin as the secondary legal tender curbs El Salvador’s dependence on the dollar and addresses the cumbersome cross-border transactions. We can expect that more countries like El Salvador will start formulating policies similar to the Bitcoin Law.
Central America has become the focus of the global crypto community. According to Michael Saylor, founder of MicroStrategy (the world’s largest independent business intelligence company), adopting Bitcoin not only generates positive marketing and awareness, but it also creates an attractive avenue for people and businesses interested in cryptocurrencies. In this regard, the country’s fame for Bitcoin will be a distinctive edge.
At this stage, it is unclear how much change Bitcoin can bring to a country facing both domestic and international challenges, but the official adoption of the Law did create a precedent, which represents an entirely new choice for other less.