After El Salvador, who’s next to get on the Bitcoin train?

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There are many famous dates scattered throughout bitcoin’s history with zero point being January 3, 2009, the day the genesis block was mined. In the years since, Satoshi Nakamoto’s peer-to-peer digital currency has moved step after step from hitting dollar parity to achieving medium of exchange status when Laszlo Hanyecz paid 10,000 BTC for a pair of Papa John’s pizzas.

It’s safe to say that the last year provided us with even bigger moments, expanding the rich tapestry of the world’s most famous cryptocurrency beyond measure. In the years to come, however, one date may stand out among all the rest: September 7, 2021.

Bitcoin becomes legal tender

Few could have predicted that a nation state would ever adopt bitcoin as legal tender. And yet, on that date, El Salvador did just that, sweetening the deal by giving all citizens $ 30 worth of BTC to encourage adoption. Now, bitcoin will share official currency status with the US dollar, an experience that should highlight the inherent advantages of the former over the greenback while potentially initiating a de-dollarization process.

The adoption by a sovereign state of a borderless and decentralized digital currency is an affront to financial institutions that have long set the playing field for emerging economies around the world. In fact, the President of El Salvador, Nayib Bukele, openly mocked the IMF while bragging about buying the dip. One wonders if a ripple effect will be triggered as other Central American nations consider following his lead.

Some might wonder why El Salvador chose to embrace bitcoin in the first place. Why now? Why bitcoin and not another crypto-asset, one more intended to be a medium of exchange rather than a store of value? Obviously, there are no simple answers. Rather, it is a combination of factors – most notably the forward-looking attitude of a 40-year-old president leading a party called New Ideas – is involved.

In June, Bukele appeared on the What Bitcoin Has Done podcast to discuss the country’s currency change, and its commentary is informative for those looking to better understand the government’s motives.

“It is simply a matter of exercising our sovereign right to adopt legal courts,” said the president. “As if we adopted the US dollar in 2001. What’s the difference? The only difference, probably, is why we are doing this. In 2001, this was probably done for the benefit of the banks. And this decision is made for the good of the people.

“Bitcoin is an open and free system. So people don’t have to trust us. They have to trust the system, and we trust the system.

A boost to financial inclusion

Bukele went on to point out that bitcoin would be a boon for remittances and economic inclusion, as more than two-thirds of Salvadoreños lack access to traditional financial services and depend on money sent by relatives living in abroad. In 2019, remittances from citizens based abroad (primarily in the United States) totaled nearly $ 6 billion, or about one-fifth of the country’s GDP.

With bitcoin now legal tender, suddenly there is a quick and inexpensive alternative to sending money to family and friends who cannot access bank accounts or credit cards. Bitcoin could save citizens $ 400 million per year in transfer fees, or about $ 60 per capita, according to the president.

Before El Salvador announced that it would accumulate sats on its Treasury balance sheet and make the asset legal tender, BTC remittances were already on the rise in the wake of the COVID-19 pandemic. The events of 2020 have accelerated the need for efficient and cost-effective digital money transfer services, with increasing adoption in Latin America, India, Southeast Asia and Africa. Although bitcoin has eroded old money transfer companies like Western Union and MoneyGram for some time, last year it declared war.

By boldly choosing to use a currency that cannot be controlled and mismanaged by a central bank, the government of El Salvador is resurrecting economic principles that have remained dormant since the days of the gold standard, when the nations could not artificially inflate their monetary base by printing paper Ex nihilo.

While the benefits of such a move are clear, the potential drawbacks are worrisome: An economist believes the country could experience a steady outflow of greenbacks and a steady influx of bitcoin, draining the national treasury of its dollar reserves.

Of course, an appreciation in the price of bitcoin could make it a good thing for the Salvadoran government – and is likely to make citizens think twice before converting crypto to cash.

The next domino to fall

Whatever happens, El Salvador will always be known as the first country to make bitcoin legal tender. In all likelihood, it won’t be the last: Ukraine’s parliament recently passed a law that legalizes and regulates cryptocurrency, and according to Professor Vyacheslav Evgenyev, the country could make Bitcoin legal tender by early 2023. , creating a “double currency country” just like El Salvador. Swirling rumors suggest that President Volodymyr Zelensky’s government has also met with its counterparts in El Salvador to discuss the viability of such a plan.

Elsewhere, Cuba and Panama are laying the groundwork to legalize cryptocurrency transactions, and the massive adoption of bitcoin could eventually follow. The ban on remittances by the United States to the first will not exactly hinder such a process; Cubans based in the United States currently have no choice but to pay up to 30% commissions to send money to loved ones on the island.

The last word, for now, should go to Nayib Bukele:

“The bitcoin system is so perfect that I think it will be the future. It’s already the present in a lot of things – but it’s going to be a lot bigger in the future. “

Guest article by Ruben Merre from NGRAVE

Ruben Merre is the CEO and founder of NGRAVE. NGRAVE is a crypto hardware wallet company that claims to offer the most secure solution on the planet with its fully offline hardware wallet, NGRAVE ZERO.

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