Bitcoin is undergoing its biggest and most important test in its 12-year history, as El Salvador becomes the first country to adopt it as legal tender.
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Both cryptocurrency enthusiasts and critics will be watching the experiment to see whether a significant number of people will want to trade Bitcoin when it circulates alongside the US dollar and whether it will bring benefits to the impoverished Central American country.
The country bought 400 bitcoins ahead of the launch, with a market value of about $20 million at current prices. The country plans to buy “many more,” President Nayib Bukele said on Twitter after purchasing the first batch of 200.
If the experiment is successful, other countries may follow El Salvador’s example. Its adoption will get an initial boost from the government’s Bitcoin wallet Chivo, which is preloaded with $30 worth of the currency for users who register with their ID number.
Businesses would be required to accept Bitcoin in exchange for goods and services, and the government would accept it for tax payments. The plan is the “brainchild” of El Salvador’s 40-year-old president, who says it will attract more people to the financial system and make it cheaper to send remittances.
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Bitcoin ATM
Bukele’s administration has installed 200 Bitcoin ATMs across the country that can be used to exchange the cryptocurrency for U.S. dollars. The finance ministry has created a $150 million fund at the state-owned Banco de Desarrollo de la Republica de El Salvador, Bandesal, to support transactions.
The dollar will remain the national currency for accounting purposes, and merchants who are technologically unable to accept the electronic currency will be exempt from the law, the government said.
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Public skepticism
While Bukele himself enjoys approval ratings of over 80%, a poll conducted last week by El Salvador’s Universidad Centroamericana Jose Simeon Canas found that his Bitcoin law is not widely popular. Two-thirds of respondents said the law should be repealed, while over 70% said they prefer to use dollars.
The International Monetary Fund has warned of the dangers of using Bitcoin, which lost almost half its value from April to May, and the World Bank has rejected El Salvador's request to help the government adopt it, citing environmental disadvantages.
Information source: bloomberg.com
