Major development is happening on Bitcoin, with adoption potentially taking a major upward curve. The Latin American nation of El Salvador has announced via President Nayib Bukele that they will soon push a bill for Bitcoin to be recognised and used as legal tender in their country.
As is tradition with announcing something as major as this, he had to don laser eyes.
Let’s unpack what all this means.
Attracting crypto investors and entrepreneurs
Alongside the announcement, he’s also trying to bring bitcoin talent and investors into his country, saying there will be no capital gains taxes on bitcoin gains, since it will be a currency. They also do not have property taxes.
With beachfront properties for sale, a booming coffee trade and great weather all round, it seems to be an enticing proposition.
About El Salvador
El Salvador is a small South American nation, bordered by Honduras and Guatemala. Ravaged by civil war from 1979 to 1992, El Salvador has been trying to work on their economic reform since then, and though they have seen major economic benefits since then, crime rates are still high.
They are a small nation with a population of about 6.5M, and since Nayib Bukele became President in June 2019, he has enacted a non-aggression deal with the gangs that have led to murder rates dropping by as much as 60%.
Since 2001, the US dollar has been used as legal tender. Before that, the Salvadorian colón was used.
El Salvador’s main export product is coffee. Tourism is another major industry, contributing to 11% of the nation’s GDP in 2019. Salvadorian beaches have become increasingly popular, and with the dollar in use, Americans have formed a big part of tourist numbers.
Despite improving economic conditions, the fact is that majority of El Salvadorians are still operating on a cash basis, and many of them don’t even have access to banking facilities.
El Salvador’s bitcoin experiment
To be clear, this was not an impulsive decision made on the whim because the President liked laser eyes.
There’s already been an established experiment on a few villages in El Salvador, where bitcoin has slowly but steadily been introduced into daily uses. Dubbed Bitcoin Beach, the project started in El Zonte, in a small coastal village with a population of 1,000.
In the village, you can use bitcoin to get a haircut, buy some food, and even coffee.
So, this is really scaling that experiment up to the national level.
But, aren’t Bitcoin fees prohibitive?
For those of you who think “hey, wait a minute, how are they able to afford the exorbitant bitcoin fees, huh?”
Well, you have the Lightning Network to thank for that.
Lightning Netwhat?
Yeap, Lightning Network.
Lightning Network is a layer 2 protocol, that runs on top of the Bitcoin Network (layer 1). What it does is to allow for lightning fast transactions, and to bring bitcoin scalability so it can execute micro-transactions at scale.
It also addresses settlement times, as lightning transactions can be settled often in microseconds, with little to no transaction fees involved.
Speaking of Lightning Network, check out my post and mini review on using Wallet of Satoshi for the first time below.
For this particular partnership, El Slavador will work with Strike App to deliver Bitcoin transactions via the Lightning Network for its citizens.
The impact of El Salvador’s announcement
Barely 2 days after El Salvador’s announcement, other governments across the South American nations have also put out announcements that they would also be looking into the viability of a closer relationship with Bitcoin.
Government officials from Paraguay and Panama have released statements saying that they would be looking into embracing bitcoin and cryptocurrencies in order to be more competitive in being a technological and entrepreneurial hub.
Watch and listen to what Graham Stephan has to say about this piece of news.
Store of value, asset class, legal tender
So far, we’ve seen Bitcoin emerging and gaining acceptance as a store of value and an emerging asset class, and now with this announcement, we’re looking at the world’s first country to adopt Bitcoin as legal tender.
This has huge implications globally, as countries with a depressed monetary system will now relook their policies and think about how they can migrate onto the soundest monetary network there is.
Personally, with the expanding use-cases and participants flowing into the Bitcoin ecosystem, I don’t see demand flagging any time soon. Any buys at this price, has to be an extremely good buy on discount.
If the news follows through and is passed into legislation with a proper framework and infrastructure in place, I don’t see prices remaining at this levels much longer.
Don’t forget, institutional buying has not stopped. In fact, MicroStrategy is going to borrow another $400M to, you guessed it, buy more bitcoin.
Bitcoin price as of publishing of this article: US$33,147
Pingback: El Salvadorian Bitcoin Standard unfolded live on Twitter Spaces